The Committee met at 8:30 a.m. in the House of Assembly.

CHAIR (French): Good morning, folks.

Sorry to interrupt, but if we could start I would appreciate it. I know the Minister of Finance has quite a hectic schedule, and I believe he has Cabinet some time this morning, so if we could start.

I am not going to have too many comments this morning, just to welcome everybody here.

First of all, before I get going, I will call the first subhead, 1.1.01, and I would ask the minister if he would not mind introducing himself and his staff before we begin.

MR. KENNEDY: Yes, good morning, Terry.

I am Jerome Kennedy, Minister of Finance and President of Treasury Board, Responsible for OCIO and PSC.

With me I have Finance officials and OCIO officials: Terry Paddon, Donna Brewer, Bob Constantine, Pete Shea, – is it Jean Vaughan? Or, Jean Tilley and Sara Vaughan, is it?

MS VAUGHAN: Linda Vaughan.

MR. KENNEDY: Linda Vaughan, close enough, yes.

They are for the OCIO.

For the PSC, Ed Walsh is not here right now. I thought he was going to be here.

OFFICIAL: Yes, he is aware of the time.

CHAIR: What we will do, just before I introduce the Committee, I will ask Finance and their officials to kindly say your name for recording reasons downstairs. Just say your name before you respond to any of the questions.

Without further ado, I will start with Mr. Parsons and ask him to start off with the introduction of the Committee.

MR. KELVIN PARSONS: Kelvin Parsons, MHA for Burgeo & LaPoile.

MS E. MARSHALL: Beth Marshall, MHA for Topsail.

MR. BUCKINGHAM: Ed Buckingham, MHA for St. John's East.

MR. FORSEY: Clayton Forsey, MHA for Exploits.

MR. DINN: John Dinn, MHA for Kilbride District.

MR. FRENCH: Terry French is my name. I am the MHA for Conception Bay South.

I want to recognize the staff members from the NDP office, Ms Michael's office. I know that she is away attending to some family business, so if the NDP have any questions we will do the same as we did yesterday, if that is okay with you. You can bring them up to the Committee member and he can ask them on your behalf.

Without further ado, I do not know if Minister Kennedy has any opening comments or if he wants to start with the questions.

MR. KENNEDY: (Inaudible) that the Public Service Commission, Ed Walsh and Ann Chafe, just walked in, so they are here also.

CHAIR: They are in the back of the bus.

MR. KENNEDY: I do not have any opening comments, Mr. Chair. I am ready to proceed right into the issues.

CHAIR: Okay, we will start with Mr. Parsons.

Mr. Parsons, feel free to begin whenever you are ready.

MR. KELVIN PARSONS: Thank you.

Good morning, Minister and officials.

I guess, Minister, you made the definitive opening statement when you gave your Budget Speech last week. It said it all.

First of all, for clarification purposes, it has come up at several Estimates Committees about the difficulty in following some of the figures. I notice Ms Vaughan is with you this morning, and she was present yesterday at the Business Estimates. We were having some difficulty - not only ourselves, but the NDP were having the same concerns - in how to follow the information from last year to this year, for comparison purposes.

I tried to explain it yesterday, and Ms Vaughan did give an explanation, but when we went back we still are having some concerns and I figure maybe the best place to raise it would be here since the Budget documents are put together by your shop. I thought that might be the best place, if we could ask those questions here, and someone might be able to give us an explanation. Because it transcends not only Finance; it is all the other departments that we are doing Estimates for. It might be a very simple explanation that is there. It is just that we would like to have it so at least and we will know where we are going with it.

For explanation purposes, I have just taken some samples. I have a copy here for the minister and a copy for your deputy, or the Chair, whoever wants to have a copy. This is more, like I say, as a presentation thing. What we did was, if you look at the first page there, I have taken a number of years. I have gone back to 2001-2002 - and this is right out of each year's Estimates for those years - and I have gone right on through to this year's Estimates.

To give an explanation, starting back, for example, in 2001-2002 there are three lines in the Estimates page. For example, in the middle column in 2001-2002 it shows Salaries, in the Tax Administration piece, of $2,162,700. Then, when you look at the next year's Estimates, 2002-2003, the figure was $2,245,900. Yours are colour-coded. The reason I used pink and I used green was, wherever there is pink it indicates that there is some change in the numbers. Anywhere there is a green it shows that there is no change in the numbers.

My understanding was that whatever was voted on in Estimates each year, in the House, is the figure that is in that middle column. For example, in 2001-2002 all of those figures in the middle column for Estimates for 2001-2002, that was the figure that was voted on in the House. That figure, I would think, should become what you are showing in your Budget column for the next year. Sure enough, you can see, in all cases, from one year to the next, except for the change under Salaries it did all remain the same.

If you follow on through, you go through the next year, using the same heading again, Tax Assessments, there were no changes in 2002-2003; there were no changes when you go up to 2004-2005; you had one there under Salaries in 2005-2006, and that is the only place that the changes happen.

When you go to 2006-2007 – now, Ms Vaughan explained to us yesterday, by the way, that the reason you would see some of these changes could be because throughout the year - from what you voted on here in the House - there might be, for example, a pay raise so that would explain the difference in the figure from one year to the other. I have no problem with that explanation, and it appears to have happened even since 2001-2002 right on up to now, that when there was a salary change the figures did change.

Before I move on to the other issues, why does that happen and where is it permitted to allow that to happen? Because, when we vote on the Estimates in the House that becomes the official voted-upon, approved figure under the Financial Administration Act. When we look at the next year where it says budgeted, you have changed that figure. I am just curious as to whatever permits that to be done.

MR. PADDON: It is difficult to provide a definitive answer back to 2001-2002 but certainly in 2008 Budget, looking at the change in Salaries - and I think you will see this throughout all departments, that there has been a change on the salary side - the collective agreements were not, I guess, put to bed when the Budget was brought down last year so there was a block of money parked in the Department of Finance to accommodate the raises that were being contemplated throughout the Public Service.

I am presuming – and you can correct me, Donna – the Supply bill would have contemplated that particular amount could be transferred during the year, once the collective agreements were signed up and it was actually determined where the money was going to be spent in each particular department, and that is, in fact, what did happen last year. There was a little over $130 million provided in the Department of Finance to accommodate the compensation changes, and during the year, then, once the collective agreements were signed, put to bed, that money was transferred to the appropriate departments. Then, when the Budget comes out this year, the Budget number that was comparative for last year would have changed to actually reflect where the money was transferred.

MR. KELVIN PARSONS: Why do you put it under Budget? Why would you not put it under the Revised? Because that is the whole purpose of showing it. My understanding is, we voted on an estimate, we understand all the explanation that the money was parked for the 8 per cent last year, for example, but when it got done why would you change the authorized Estimates?

MR. PADDON: Donna, you can speak to this, but probably more just for the comparative issue around it, because now all of a sudden you have the actual expenditure that is provided in the revised number and you are trying to compare it to what was, I guess, an appropriate comparable number from a budgetary perspective. So it is really just comparative –

MR. KELVIN PARSONS: But the comparison is no longer there for anybody looking at the books. If I look at all the books going back – and I am not saying it only happened on this watch of this government; I am saying it happened back then even, as I just demonstrated – it is misleading.

If I look the approved budgetary Estimates of last year, voted upon by the House, it is one figure. That does not change. Yes, you revised it. Yes, you were entitled to add to it, obviously, because you had to do the wage increase, but why would you not just put it in revision? Because that way, when we come back to Estimates, or if anybody in the public ever wants to know, they can say, I notice your salary estimates went up by $2 million. Do you mind giving an explanation of that?

MR. PADDON: I guess it is really a question of what you are trying to compare. I mean, from a management perspective, if you want to call it that, a particular department, a minister and a deputy, is responsible for managing within the allocation that is provided. In this particular case, once the main Supply Bill provides for a reallocation that is the amount that they are responsible for, the reallocated amount. Really, that is one point of comparison. I understand your point.

Ideally, what you probably would see is three columns there. You would have original budget, revised budget or restated budget, if you want to call it that, and then revised number.

MR. KELVIN PARSONS: Is that permitted, to do it the way we do it, under the Financial Administration Act? Because, my understanding is you are not allowed to change the voted upon Estimates. You can reshow them as revised, but you cannot legally, officially change them.

MS BREWER: The legal accountability, under the Financial Administration Act, for the original Estimates that are tabled, is actually done through the Public Accounts. You will see every July there is a statement that is produced as part of the Public Accounts Division, to the Office of the Comptroller General, a statement of actual program revenues and expenditures, and you will see there the original appropriation, the legal appropriation. You will see there the revised appropriation, and it is different than what is in the projected revised. This revised here is what departments anticipate they are going to spend at the time we did the Estimates, to March 31 of that particular fiscal year. Whereas in the Public Accounts the revised would be the legal appropriations the Financial Administration Act allows Treasury Board, and sometimes it is delegated to the Secretary of Treasury Board, a transfer of funds among departments or within a department. As Terry said, in order to be able to rightfully compare your 2009-2010 Estimates - what has happened during the year - we do have an explanation in the front of the Estimates that says that amounts do get restated for comparative purposes.

An example here would be - it is not just salary increases - sometimes you might have a program or a situation that might have been voted in one department, and in the upcoming fiscal year the service is moved to another department.

You will see, in order to have comparisons, that the Estimates for that department are actually restated. An example is, within the OCIO there is a health surveillance system that was called Panorama. In 2008-2009 the intention was that system would be delivered through the OCIO. During this year's discussions with health, that it is a really a health systems initiative and that is now going to be administered by the Newfoundland and Labrador Centre for Health Information. So, rather than make it seem like the Department of Health's budget has increased, we have actually taken that original budget that was there in OCIO and restated a portion over to the Department of Health.

I have been doing budgeting now since 1987 and that has been a standard practice, and the Estimates and the format and the approach is something that is under Treasury Board's jurisdiction (inaudible) the Financial Administration Act. It has been a long-standing practice and our rating agencies are aware of it, the users of the Estimates are aware of it, and the accountability for the Estimates happens in the Public Accounts.

MR. KELVIN PARSONS: If you just follow through, just pick it up, for example, where we have the 2006-2007 and 2005-2006 sheets. We have dealt with it from a salary revision point of view but we are getting now into other areas, for example, professional services, purchased services and so on. If you look at that sheet you will see, if you compare the 2006-2007 Estimates numbers to what was shown in the budgeted one in the next year, there were three changes: one in professional, one in purchased and one in property.

I understand your explanation when it comes to the salary: you had it parked somewhere and you put it in and you put it back under the Budget, and you are saying that is okay to do that, but why would we be changing these other ones? If it is a change and it is a revision, why wouldn't we just put it under the revision? Why are we putting it under Estimates?

MR. PADDON: I cannot answer specifically on this.

MR. KELVIN PARSONS: If you just look at the next one, you will see there were three in that year. If you compare the next two sheets you will see there were one, two, three, four, five different instances where the figures change from one year to the next. If you look at the next one and you compare it, you see there were one, two, three, four, five, and it seems as we go on in the earlier part of this decade we only saw the differences when it came to salary pieces. Now we are seeing it becoming more and more prevalent where it is not being put under revised; it is going to the rest of them. All I am saying is, anybody trying to track what you are doing, it is very, very confusing.

I will provide you, as well, just as another demonstration, I went back to - I just picked a department at random - the Department of Health. We did Business yesterday and we had the same concerns in Business. I just went back through the same time periods for the Department of Health and you will see, if you have five, they have fifteen changes. It is just totally, absolutely, confusing for anyone trying to follow from year to year.

I am wondering if there is any way that we could just show it under revision. At least then there is no confusion. Because we have no way of looking, now, from year to year to compare.

MR. PADDON: It is difficult to comment on specific items, because I really do not know what the circumstances are. We can take a look at it. I understand what your point is. I do not know if there was anything specific to those particular instances that you are talking about in the Department of Health or, say, in the Tax Administration Branch right here. It just does not ring a bell with me right off the top of my head, but we can check on that.

MR. KELVIN PARSONS: We are going to raise it. I just thought it was appropriate to raise it here since you people prepare the documentation. We will be raising it as well with the Auditor General and with the Public Accounts Committee because, in our view, it is very misleading to do it this way. If it is a revision, it should be shown under revision and you should not be changing what are the voted-upon Estimates unless there is a very good reason for doing so.

Anyway, that is just the point I wanted to make. This was the first year, by the way - we have gone through, now, I think this is our fourth or fifth Estimates hearing and it has been an issue in every single case when we are trying to do the comparisons. It makes it very difficult to track what is going on.

MR. PADDON: Yes.

We can check on that for you.

MR. KELVIN PARSONS: Thank you.

CHAIR: I guess, just for clarification, we will do Finance first and then we will follow with OCIO and the Public Service Commission, if that is fine with everybody on the Committee.

MR. KELVIN PARSONS: Sure.

Minister, I will apologize in advance for being all over the place because a lot of my questions are going from one topic to another, where there are so many topics in consideration here.

I wonder if we might just get your comments in terms of – we are into a $750 million deficit forecast for this year, and a slightly smaller deficit for next year, I believe, $140 million or $141 million, then with a surplus for thirty-odd projected for the next year out.

That was, no doubt, I guess, a shock to everybody who - if we were sitting in this Province last year, in the spring when we had our Budget, if anybody suggested to any of us that we were going to find ourselves in this Province projecting a $750 million deficit this year, I think we would have said, whoever it was, that they were off the wall, off their rocker, because there was no way anybody anticipated what happened in the course of the last year.

Has what happened made any difference in how you forecast things now? I realize the budgeting process is all about forecasting, and you use the best information that you have, and it is obvious that we all, in the world, I guess, got a big smack in the head when it came to the economic piece. Has that influenced you at all in your department now as to how we do our forecasting and what we will look for in the future, anything else that we can do more now to be better prepared?

MR. KENNEDY: Thank you, Mr. Parsons.

I cannot tell you how the forecasting has been done in previous years, but one of the first steps I took when I became minister was to start meeting with economists and our own officials in discussing the extent of the economic downturn. It appears that the economic downturn was certainly minimized, if not misleading, in terms of the way the federal government dealt with it in the election. I can still remember, clearly, Prime Minister Harper saying it is a good time to buy stocks, and that this is not as serious as it appears to be.

It first appears, Mr. Parsons, the summer of 2007, I think, is when there were indications that the economy was certainly taking a turn for the worst. The sub-prime mortgage situation in the United States was starting to cause difficulties. So, by the time I became minister it was clear to me that we had a very serious economic situation.

Every economist we met with - and we met with the chief economists in the Royal Bank, the TD Bank, the Bank of Montreal, CIBC and Scotiabank; I think we met with all the big five banks – and we met with Professor Locke - Dr. Locke and his group - in the Province on a number of occasions, and it became clear that in the resource-based economy like ours the volatility of commodities was certainly a significant issue.

There has been, as everyone is aware, a significant downturn in terms of not only the exploration of the mining companies but also the productivity of these mining companies, as indicated this year now in terms of what is happening with IOC, Wabush Mines and Vale Inco.

When we were looking at this year, the main figure we would have to look at is the price of oil. Where was the price of oil going to be this year? That is our main issue. Also, you will see from our various documents, we look at the price of nickel because that is also very important. When you look at the amount of money that oil means to our Province, we had to choose a figure.

Mr. Parsons, I suppose we could have done what a couple of other provinces could be doing, in terms of painting a very rosy picture and a very favourable forecast. All we had to do was basically say oil is going to be $70 and therefore we will balance our books.

That does not appear to me, or would not appear, to be a very honest way to deal with things. When you look at the pricing of oil, you will see that the $147 price it reached last July, I think I read somewhere that it took three or four years for oil to get up to $40 or $50, and in three or four months it goes up to $147 and is starting to even out again. So, when we looked at a figure to take, $50 appeared to be the most reasonable figure to use based on all of the information that we were given.

You have to remember, I do not know if it was this time last year, but last year, one of the economists – was it the CIBC guy? - was predicting $200 oil. We chose a figure of $50 in oil, again based on an eighty-cent Canadian dollar, and based on production remaining fairly close to the same – I think it was 120 million barrels last year, and we are predicting around ninety to ninety-three this year.

Having regard to that, the price of oil became the key figure in terms of budgeting. We chose a figure of $50 and that is what led us, then, to all of our other figures that are outlined in the Budget.

MR. KELVIN PARSONS: Again, for the record, I am not an economist or an accountant, and I am not too swift on numbers, actually. I profess my ignorance, so bear with me if you have to explain some things in very simplistic language.

We are going to have a budget of $750 million, it is projected. We had a surplus last year, and it was stated that we are not going to do any borrowings, I do believe. What have we done with the surplus?

MR. KENNEDY: I will touch on this briefly and then I will pass it over to Terry to explain.

My understanding, again, not being an economist or an accountant, is that the surplus, as our debt becomes due - there are bonds out there that become due - until such time as those bonds become due – and I think some of them go back to the 1980s - then the cash essentially remains on hand and it allows us this year to utilize that cash to pay the deficit.

Terry can explain it to you in a little bit more detail. That is a very simplistic statement on my part.

MR. PADDON: I guess in general terms your net debt, or the debt of the Province, is composed of a couple of things. One, it is the funded debt we have, the market debt, the bonds that are outstanding in the capital markets. We also have our unfunded liabilities, our pension liabilities and our liabilities related to post-retirement benefits for employees. Those two items add up to a general amount of debt. Then, as a reduction from that debt, you would have assets, liquid assets that you have on hand, particularly cash and short-term investments.

So, as we generate surpluses - we have, over the last four years - we have been generating cash along with those surpluses. As the minister said, as our funded debt comes due, we have paid it off, we have reduced the debt; we have paid off the bond holders. We have no ability to prepay debt or pay debt before it comes due, so essentially we hold the cash in bank accounts for our short-term investments, and the Financial Administration Act provides guidance or restrictions on what we can invest.

So, really, the surpluses that we have generated the last number of years have gone to a couple of things. One, we have reduced debt as it comes due; two, we have funded infrastructure or capital spending, which normally we would go out and borrow for; thirdly, we hold the cash in our bank account or our short-term investments, then, waiting for, basically, debt to come due.

Then the deficit that we forecast to run in 2009-2010 will be funded, really, out of the cash that we have on hand or in short-term investments. So, as opposed to going out and borrowing, we will just use the cash on hand. It is, I guess, six of one and half a dozen of the other as to whether you use your cash or you would go out and borrow.

MR. KELVIN PARSONS: So it is fair to say that we ended up with a pot of money surplus. We know we are predicting a $750 million deficit, so you are going use some of that money, $750 million of that, to offset our loss.

MR. PADDON: Yes, of the surpluses that we have generated over the last few years we will use the cash generated there to fund the deficit this year.

MR. KELVIN PARSONS: So, how much money, exactly, do we have sitting for those purposes, those short-term – the four years of surpluses we have built up, you have done certain things with them, as you indicated. You have some in reserve to pay for our deficit that is coming. How much do we have sitting there?

MR. PADDON: Well, we have not closed off the books for the end of March yet, but in the Consolidated Revenue Fund we would probably have somewhere around $1.8 billion.

MR. KELVIN PARSONS: In cash.

MR. PADDON: Well, it is not sitting in cash. It is short term – in investments, yes.

MR. KELVIN PARSONS: Okay.

Just go back for a second to the piece about the $50 barrel. Is that the figure we are using as well for 2010-2011 and 2011-2012? Because we -

MR. KENNEDY: I think, in fact, Mr. Parsons, if you look at – and, again, I do not have the figures in front of me, but something tells me that…. Our guidelines come from this pricing agency, or one pricing agency we use out of New York, called PIRA, and they forecast for a number of years down the road. We also, then, look at what the banks are saying. We look at – there are other groups out there, but it is particularly the PIRA group that we are using, and they estimate down the road.

My recollection, now - and, again, I do not have these figures in front of me – by my recollection, the $141 million deficit that we project in 2010-2011 will be based on $75 oil, and that the $37 million surplus – or it is around $37 million – that we predict in the following year, we project, is based, I think, on $84 or $85 oil, Terry, or something?

MR. PADDON: The low eighties.

MR. KENNEDY: The low eighties, so we are using their projected figures.

We had a conversation not too long ago with some executive officer in PIRA, and he got into the whole issue of supply and demand. Actually, I was flicking through the channels on TV last night and Professor Niall Ferguson – or maybe it was the night before – was being interviewed on where everything was going in the world, and this whole relationship between China and America he saw as the key to determining what was going to happen with the economy. I think the GDP growth in China this year will be something like 6.9 per cent, 6.6 per cent, 6.7 per cent, whereas they really need 8 per cent or 9 per cent to keep that economy going.

So, the commodities, our iron ore, our nickel and oil, become so important, depending on what happens to – or become so relevant to what is happening in China. Then we have the Americans, as the downturn continues again. I saw some figure on the amount of gasoline that is utilized by the Americans, but it is some phenomenal figure. So the supply and demand, at this stage, is really – the supply remains the same, except there have been some OPEC cuts; the demand has gone down. What happens will determine the price of oil. That is why I think going out there are predictions. Then, of course, there is the big issue of peak oil and whether or not the Saudi Arabian fields are on the decline. We are seeing what is happening in Alberta. That has to do, to a great extent, with the cost of producing that oil. I saw some figure saying that you need about $85 to $90 a barrel to make it worthwhile to continue the billion dollar explorations.

So, there are a number of issues that we look at in terms of using the price of oil. I think there can be a consensus, and Nalcor also has a very good grasp, and the Department of Natural Resources, on not only production but the price of oil. So, when we come up with that figure, I would refer to it as a reasonable and realistic figure.

Do we hope it could go up? Yes, we do. Again, as I pointed out in the House the other day, one thing, when we are looking at the figures that I think show up, for example, on the NTV News, or on the business channel, they are using the West Texas Intermediate as their guide, whereas Brent crude - the closest, I think, to our oil - is historically a dollar or a couple of dollars lower. In fact, we see at one point in time this year where Brent crude was $3 to $4 more than West Texas. We could not figure that out until we learned that it was all about reserves, and the amount of oil that they have in reserve.

That is where we have come up with that figure. It is not a figure that we have pulled out of the air. We feel quite comfortable. It is a cautious figure, no question, but we feel quite comfortable that is a reasonable figure to utilize at this time. Again, having regard to the volatility of the commodities market when you look at, it went from - I think we budgeted last year for $86, or the previous year for $86, and it went up to $147 in July. Could it go up again? Certainly. Could it go down? Certainly. If it goes down to $45 a barrel then we are looking at potentially or close to a billion dollar deficit.

MR. KELVIN PARSONS: Where do you see the economic piece improving? For example, every day when you watch CNN or The Globe and Mail or whatever, the markets are very, very volatile from day to day, everybody is watching the TSX and so on, and you get one piece of good news from the United States today, or Canada, and everybody says, oh, we will be out of this by June month; and somebody says, oh, we will be out by October.

How do we in this Province see when we are going to come out of this, or start to improve?

MR. KENNEDY: It is very difficult to get a grasp on it because we are not - the federal government, for example, we hear from the Governor of the Bank of Canada yesterday, Governor Carney is all over the place. I mean, in November we heard him talk about the downturn; we would come out of the downturn in the third quarter of 2009, early into 2010. Yesterday he was talking about other things that the Bank of Canada can do, so we have seen all of the money that the federal government talks about but there is none of that gone into the economy yet, it is my understanding. So, when you are talking about stimulating an economy, it is not enough that we do it two years down the road. Now is the downturn, and that is why we feel our infrastructure program is different than what the federal government has done.

Now we have to challenge ourselves, as indicated by the construction industry, in getting the money out there into the economy. So, we are hoping that in this Province we will start to get that $800 million out there into the economy, start the building of the roads, the schools, to continue with the building of the hospitals and long-term care homes. So, in this Province hopefully we will continue on the road that we have been on for the last number of years, and we feel that we will, but then there is the global picture that there is still, I think, a lot of concern about, whether it be the emerging markets in Africa, South America. There are so many variables here that economists, Mr. Parsons, cannot seem to get a grasp on, so I am hardly going to profess to have that knowledge; however, what I will say is that I think this month - was it in March, Terry? - our pension funds picked up $200 million. So there is a good sign that the economy is improving and that is a significant amount that could, I think, reduce already some of the monies we would have pay out next year.

Again, the best estimates that we are getting from all the economists and the finance officials is that by the third quarter of 2009, into 2010, things should start to improve.

MR. KELVIN PARSONS: You mentioned pensions. What was the figure that you announced, or the department announced earlier? We had a decline in our pensions. What was the hit we took on the –

MR. KENNEDY: Again, I do not have these figures in front of me. Something tells me it is around $2 billion that we went down, around $2 billion. Again, from what Terry said, we picked up on that, so that was certainly a significant downturn in the pension funds.

MR. KELVIN PARSONS: So, where are we now?

MR. PADDON: To the end of February, the number that the minister had previously announced, we were down just slightly over $2 billion. In the month of March we picked up about $196 million, so right now we are about $1.8 billion, almost $1.9 billion down.

MR. KELVIN PARSONS: On what? We are down –

MR. PADDON: A total asset base, say, at the end of December 2007 was almost $7 billion.

MR. KELVIN PARSONS: I will just refer you to page ix in the Estimates.

MR. PADDON: Yes.

MR. KELVIN PARSONS: Again, for explanation purposes, we are still using a reference here to Equalization and Offsets up in our pie chart and throughout the documentation. I am just curious. It says Equalization and Offsets $318 million when it goes to show where the money comes from. I take it that is offsets, because my understanding is we are not getting any equalization.

MR. KENNEDY: That is the Atlantic Accord 2005.

MR. PADDON: The offsets would be the Atlantic Accord; but you have to remember, too, that the Estimates are a cash document as opposed to a consolidated accrual document. Just as a matter of interest, in 2008-2009 we were paid from the federal government based on what they estimated our equalization was going to be, so we were getting cash during the year. At the end of the year they determined, no, you do not qualify for equalization so that money is going to have to be repaid in 2009-2010. So you would see part of this cash number here, the $318 million, is a combination of the Atlantic Accord offset less the amount we have to repay from a cash basis, but from an accounting perspective we would have already accounted for that in 2008-2009.

MR. KELVIN PARSONS: So when we go back to page v, a couple of pages before that, it shows Equalization as minus $146,000.

MR. PADDON: That is going to be the repayment of cash payments that we would have gotten in 2008-2009, for argument sake, that we would have to repay in 2009-2010.

MR. KELVIN PARSONS: Okay.

MR. PADDON: From the accounting perspective it is the numbers that you would see in the Budget Speech which would be the full accrual and it would adjust for the timing issues on those payments.

MR. KELVIN PARSONS: Back to the first page again, the pie chart there, Where The Money Comes From, it lists off the various revenue sources down at the bottom: Offshore Royalties, Personal Income Tax, Sales Tax, Gasoline Tax, and so on, Corporate Tax, Tobacco Tax. I notice they do not break out any more what money we get from the video lotteries.

MR. PADDON: I don't think we ever broke out the video lotteries per se. We would have only included the profit generated from the Atlantic Lottery Corporation in total, which would include video lotteries plus ticket lotteries.

MR. KELVIN PARSONS: What would it be from these figures here? What revenues did we get from video lotteries?

MR. PADDON: From video lotteries, just a rough order of magnitude would be about $70 million or $75 million, in that range. It is about $100 million in total from the Lottery Corporation.

MR. KELVIN PARSONS: Clarify that for me. You said $70 million or $75 million and then you said $100 million. I don't -

MR. PADDON: In total, we get from the Atlantic Lottery Corporation about $100 million. The portion of that which comes from VLTs would be $70 million or $75 million.

MR. KELVIN PARSONS: The O'Brien formula - I guess this is a quagmire - could you give me some explanation of exactly what the O'Brien fifty piece is about, and how it applies to us, and what we have done or not done in terms of buying in or not buying into the O'Brien formula?

MR. KENNEDY: I think Terry is going to have to handle that one. He has explained it to me, and I think I can explain it but I am not going to try today.

MR. PADDON: Sometimes my head hurts, as well, when I start to think about this.

Right now, as you are aware, the federal government provides the Province with a choice of two equalization formulas that we could opt under. It is kind of the old formula, the pre-O'Brien formula, and then we have O'Brien itself. At this point in time, for 2008-2009, we are still with the old formula. We have not opted into O'Brien.

What the O'Brien formula does is essentially give us the option of excluding either 50 per cent of resource revenues or 100 per cent of resource revenues. Under O'Brien there are two sub-options, two sub-choices. Of course, the O'Brien formula also comes with a cap on entitlements that also sorts of limit any benefit from removing the 50 per cent or 100 per cent of resource revenues. The cap then is tied to the fiscal capacity, say, of sort of non-receiving provinces, which typically was Ontario. I guess not Ontario any more, (inaudible) receiving province, but it would be either Saskatchewan or Alberta. I am not quite sure off the top of my head. O'Brien sort of provides us with the choice to exclude revenues but then at the back end would impose a cap on the entitlements that really takes that benefit away, and then some.

Under any circumstance now, whether it is O'Brien or the old fixed framework of going forward, yes, we would be a non-recipient province anyway under any of those options. Really, what we look at when we determine which one we would choose, or opt for, it is not necessarily the equalization side of it, because zero is zero regardless of which one you choose; it is how that interacts, then, with the Atlantic Accord, the eighty-five Atlantic Accord payment, because that picks up some of the numbers through those formulas as a basis for doing the calculation. So, really, what you are trying to do is to maximize the cash you would get from that formula going forward.

MR. KELVIN PARSONS: What was the fuss about the federal government Budget tampering with the Atlantic Accord in such a way that we lost, I believe, this year $420 million?

MR. PADDON: The Atlantic Accord eighty-five, the previous legislation – I am just trying to get my mind back in gear now. Do you want to take this one, Bob, just as a –

MR. CONSTANTINE: I guess the Atlantic Accord eighty-five, what it does is provide a floor mechanism. That is, it protects against year-over-year losses of equalization regardless of the reason for that. What the formula does, it is intended to give you 85 per cent of the previous year's revenue, when you add up Atlantic Accord, that eighty-five itself plus equalization. It is a very complicated story. So, even though we are off equalization, we still get eighty-five Accord.

Now, as Terry indicated, within the legislation for the eighty-five Accord, that is how you go about doing the calculation. While we are on fixed framework, the old formula, it is a fairly simple kind of concept. When we move to O'Brien, because within the equalization formula the federal government put a fiscal capacity cap and they included within that our Accord payments, they essentially created a circular calculation. So, to resolve that circular calculation, they calculate equalization for purposes of the eighty-five Accord before cap, so that gives you a different number than if you were doing it under fixed framework.

So, I guess we sort of looked, when the federal government made changes to the program a couple of years ago, we looked out over five years, reviewed our options, and sort of had a plan of attack that at a certain point we would move from fixed framework to O'Brien. We had looked at next year moving to O'Brien, 50 per cent. That would give us the maximum amount of eighty-five Accord payment that we could get.

In this year's Budget, the federal government took away that option. They took away the option for us to choose O'Brien 50 per cent next year, and that results in a loss of $414 million for the year. It also has implications in the following two years.

MR. KELVIN PARSONS: Totalling up to the $1.5 billion or $1.6 billion figure we are hearing?

MR. CONSTANTINE: Yes. I mean, it is all an estimate once you get past next year, really.

MR. PADDON: I think – this is Terry Paddon again – the $1.5 billion was a preliminary estimate before we had seen legislation. Once we saw the actual legislation, the loss over those three years was just over $1 billion.

The choice that they took away, as Bob articulates, we had assumed it was taken away for three years but it was only taken away for one year. We did not see that until the legislation came out much later, after the federal Budget was announced.

MR. CONSTANTINE: It does have implications for the other two years, but not quite to the same extent. Again, once you get beyond this year, it is still an estimate, it still could change, but it is certainly over a billion.

MR. KELVIN PARSONS: It is still over a billion?

MR. CONSTANTINE: It is still over a billion over three years, yes.

MR. KELVIN PARSONS: Even though you cannot, like you say, be definitive at this point.

MR. CONSTANTINE: No.

MR. KELVIN PARSONS: Obviously, the federal Budget came on in a hurry, too; all the racket was going on in Ottawa. The Prime Minister was going to give an update, and then the Opposition forced them to bring in a Budget and so on, which was ahead of time. It came out in January, as opposed to usually February or March.

When was the first time that you and your department were given a heads-up as to what they were doing that led to this legislation? Did you have any hint at all that something might be afoot to change how it impacted the Atlantic Accord of eighty-five and so on?

MR. KENNEDY: Mr. Parsons, I can tell you, we met on November 3 in Toronto airport. The Finance Ministers' was on that day. Myself and Terry were sitting there in the room and they were talking about equalization, and our Province was not on the list. I put up my hand and said: What is going on? They said: Well, you are no longer an equalization recipient; you are a have-Province. That is fair enough.

Our officials immediately became somewhat sceptical as to the federal government's motivations. On December 17, I think, myself and Terry were at another Finance Ministers' meeting in Saskatoon. The Premier had been at a First Ministers' meeting around November 10, I think. December 17, not a hint, nothing!

There was quite an argument going on at that time between Ontario and Flaherty, and we did not know anything until Budget lock-up day. It was January 26, I think, when we got a call from one of our people – I think it was Chris Butt or someone – who was in the Budget lock-up, indicating that buried deep in these documents was our Province being screwed again.

Now, that is the first hint we were given. We had to go look for it and, I can tell you, we were not very pleased that day.

MR. PADDON: Just to pick up on the minister's point, in the lock-up in Ottawa on Budget day there was no clear indication in the documentation that we were provided as to what was happening. Once you started to dig, and you compared their calculations of Atlantic Accord eighty-five to what we were carrying, it became clear that there was something happened there and really we had to, I guess, get it from the federal officials.

It was a bit of a struggle at that point in time just to get the information, and it was really over the next couple of days that it started to really become - I guess details were starting to appear. We had certainly an indication that day, and we had a rough order of magnitude, but it took a few days even after that to start to get the details as to what was happening.

MR. KELVIN PARSONS: Were there any discussions or attempts to – did anybody say, oh, we didn't realize it blindsided you. Or did they say, oh yeah, we knew about this – sorry - or we will reconsider where we are with this. What has happened since? Because the Premier made it quite clear, this was another (inaudible) job on us.

MR. KENNEDY: We wrote a letter to Flaherty and his officials. I think there were some discussions with federal Finance officials on the day the Budget came down, and it seemed to indicate pretty clearly that they knew what they were doing and that they did not give us a heads-up. They tried to then explain it. Flaherty wrote me a letter trying to explain what they were doing, and they tried to sell: well, you are still receiving Accord payments.

It was a prime example of just, out of the blue, taking money from us, money which in the fiscal update in December we had counted on in terms of this year.

I do not know if Terry can add anything, but I think it was fairly clear early on that they knew what they were doing.

MR. PADDON: Certainly, from our perspective it was clear that they knew what they were doing with the budgeting. This was not a merry mix-up type of a thing. It was a conscious decision to make this substantive change, and they knew the magnitude of the change as well; and, by virtue of the fact that there was little or no detail available to the Province to be able to determine the amount, we had to sort of come up with it ourselves. You know, you can only speculate as to what the motivations are, but there was no doubt that this was a conscious decision to make this change and that the magnitude was well understood.

MR. KELVIN PARSONS: Thank you.

The 2005 Atlantic Accord, has all that money been drawn down now?

MR. PADDON: No, the 2005 Atlantic Accord – oh, sorry, 2005, yes. Well, the cash was received in 2005 so then after that it just became an accounting exercise as to how you were going to recognize it for public accounts purposes.

The amount that we reported in the Budget last week, or the week before last, to get us up to the $2.4 billion surplus is the - a fair bit of that is the residual. One point one is the residual on the 2005 Accord. So that would be it, then; that is the last of it.

MR. KELVIN PARSONS: The Accord anticipated for 2010 and 2011, what are the implications of that in terms of us re-qualifying?

MR. PADDON: For the 2005 Accord?

MR. KELVIN PARSONS: Yes.

MR. PADDON: Well, we would have to be an equalization recipient one of those last two years, and based on our projections it does not appear that we would be a recipient province.

MR. KELVIN PARSONS: So there will not be any implications? What is done now is done.

MR. PADDON: Yes.

MR. KELVIN PARSONS: Unless the circumstances change drastically, and we hope it does not go there, I guess.

MR. PADDON: That is correct.

MR. KELVIN PARSONS: Minister, we went back over - and I referred to this in some speeches in the House recently. I just took the headings, all the Budget headings from your Budgets for the last number of years, and I went back as far as 2002. Then I took 2005, 2006, 2007, 2008 and 2009 and I just did a comparison. I broke it out into all the headings: Consolidated Fund Services, Executive Council, Finance and so on, every department of government, Newfoundland and Labrador Housing, and the total, just to get an idea of the expenditures that we have had on an ongoing basis.

Back in 2002 we had a total expenditure of $3.65 billion, and now in 2009, this year's Budget, we are looking at $6.421 billion. If you look at the increase we have had in terms of operational capital expenditures, we have had a 76 per cent increase in expenditures since 2002.

Of course, a lot of that has gone into not one-time stuff but programs and servicing and wage increases and so on. Obviously, I would think it is a concern. It is okay to increase your operational annualized expenses if our revenues are going up, as they were going, and we were seeing surpluses, but now that we have gone from a surplus for four years, quickly, suddenly, to a $750 million deficit for this year, projected deficit for next year, and a slight surplus the following year, yet we have our expenses ramped up to quite a number.

Does it cause you concern where we are so dependent upon the oil and the mineral resources and the revenue that comes from it, and where they are so volatile? How do you factor that into the fact that we have had a 76 per cent increase in operational expenses in a matter of seven years?

MR. KENNEDY: Thank you, Mr. Parsons.

Obviously, it causes me concern but we were faced with what I would refer to as a fairly stark choice this year. We could do what New Brunswick did. We could lay people off, approximately 700 layoffs. We could impose a hiring freeze. We could impose wage restraint programs, or we could continue to try to stimulate the economy and to get out of this economic downturn.

One of the things that gives us some solace, Mr. Parsons, is that we met with economists, both local and national. The steps that were being suggested, that should be taken to battle the economic downturn, were ones that we have been taking for some time. We have an aggressive infrastructure strategy. We have been building roads, hospitals, schools, long-term care. We have been creating employment. Last year, the unemployment rate went down to its lowest since the 1970s. We have been reducing taxes - significant reductions in taxes again this year with the low income tax reduction - and we have been reducing debt, so obviously we have been doing what we felt were the right things and what has been confirmed by economists and business people. So, if we were faced with a choice where there was no possibility of coming out of this then we would certainly have to look at what they have done in provinces like New Brunswick; however, we chose this year not to cut programs. In fact, we increased program spending. We have increased our health spending up to $2.6 billion. We have increased our education spending up to $1.3 billion, on the basis that this is a short-term economic downturn.

As it now stands, we can also survive another deficit next year. If, after two years, it looks like the economy is not picking up, then, Mr. Parsons, there are going to be a lot bigger problems in the world than simply what we are facing here, and I think there are still predictions that it is – it has not ended.

We are cautiously optimistic. We feel, again, that everything we are being told and what I am reading on oil indicates that the price will go up. The world needs oil. Until there are alternative forms of energy that can replace oil, it will be needed. When you have economies like China and India, and their need for commodities as the United States starts to come out of this downturn, the price of oil should go up.

Now, is it a risk we are taking? Well, I guess there is always a risk; but, as I have indicated, this year we could have cut programs, we could have cut spending, and we chose not to do that. We feel comfortable this year where we are, and we can survive a second year with a deficit, but we certainly are not going to go into long-term deficit or structural deficit situations like we are seeing in other provinces such as Ontario, Quebec, and in Canada actually.

MR. KELVIN PARSONS: Just if you could give me some idea in terms of - we still have some pretty major projects that are going to go on here: the Voisey's Bay piece, in terms of Long Harbour, a major expenditure there that is going to go ahead. How much is our economy comparatively, when you look at the projects that we have - the building, infrastructure, stuff like Voisey's, and if Hebron goes, for example, all of the work that is involved in that - how much of a piece of pie is that versus the actual revenues we get from the oil?

MR. KENNEDY: Terry or Donna or Bob may have some figures, but in the economic update I think we looked at something like 5,400 jobs being created as a result of these various projects. Vale Inco should ramp up in 2010. Hebron is not going to come on stream, but there will have to be a lot of work done in advance, and then hopefully the Lower Churchill. So we have some fairly significant projects that again other provinces do not necessarily have the luxury. I can tell you right now, if I was the Minister of Finance in New Brunswick I would be much more concerned - not that I am not concerned here, but I would be much more concerned - than being the Minister of Finance in Newfoundland and Labrador.

MR. PADDON: If I could add to that, our revenue forecast as you go out would factor in the economic forecast, so what we see happening in the economy ultimately will reflect in the revenues that we expect to get.

If we look at the Vale Inco project that will start this year and sort of ramp up in 2010, if you look at the Hebron project that will start spending money this year but ramp up in terms of bricks and mortar, if you want to call it that, a year or two down the road, that is factored in the revenue forecast so you would expect to get sort of the personal income tax, the corporate income tax, sales tax, all of that sort of revenue as you go out. Is it significant? It is not insignificant, but it certainly does not generate the same type of revenue that the offshore royalties would generate, certainly not by any stretch of the imagination, but there is no doubt that it is a factor in our forecast as we go out.

MR. KELVIN PARSONS: That is what I was wondering, if you had any pie, how significant in comparison to the oil revenues would these projects be? If you were to create a pie, how much of the pie is oil revenues versus these other projects – oil and minerals?

MR. PADDON: This is just kind of off the top of my head, but I would think that if you compare the direct royalty and mining tax revenue, for argument sake, that you would expect to get over the next couple of years, to the direct taxes you would get, say, from the employment and business activity from the Vale Inco, the Hebron, certainly the lion's share would come from the royalties. What percentage it is, it would be more idle speculation but I would think maybe sort of seventy-five twenty-five - it would be skewed to that side of it - as opposed to a fifty-fifty kind of thing.

MR. KELVIN PARSONS: The reason I ask, of course, and I realize you are ballparking some of these things, but when you put it down to that simplistic type of pie it just goes to show again, very dramatically, how dependent we are on the price of a barrel of oil and our mineral royalties.

Just to switch gears here for a second – and, by the way, I don't mean to hog. If anybody has any questions, by all means, it usually goes fifteen minutes and then we switch.

AN HON. MEMBER: We can (inaudible).

MR. KELVIN PARSONS: Okay.

Just to switch gears here, this comes into an accounting procedure, I guess, or process. When we did the Tourism Estimates, Monday night, we were going through the figures and stuff and we came across a figure in Tourism for $7.5 million for stadium construction, recreational facilities. It was under the Tourism, Culture and Recreation piece. Anyway, as the questioning went on I was surprised, because normally if you are going to have that kind of infrastructure spending in the Province it usually would be parked over in Municipal Affairs.

The minister's words were: That money is parked there. I said: Well, why do we have $7.5 million parked in the Department of Tourism, Culture and Recreation for stadium expenditures where it would normally be under Municipal Affairs? He explained that apparently there is the federal pot, and what happened was they have not put the rules around it yet, I guess, so you decided to park that piece over in Recreation.

So my question to him, and I guess it was not a very fair question because, as I asked it, I thought, he would not have any way of knowing, but how many more pots – and you people would know, because you get all the figures – how many more pots from federal agreements have been parked in different places, put somewhere other than where it would normally go? If it would go into Municipal Affairs, it is parked over there. Why was it parked over there? Who made the decision to park it over there, and are there any other pots of money parked in places that they are not normally parked?

MS BREWER: In terms of the federal Budget, the other one that comes to mind is there is $15 million in the Department of Education; it is for post-secondary initiatives. Again, the federal Budget, the criteria around that has not been assigned so we put the money – because it is for post-secondary education - we put a portion under the college and we put a portion under Memorial University.

Other than that, there are pots of money for the Building Canada Fund. You will see the majority of that in the Department of Transportation and Works, and you will see some in Municipal Capital Works, but it tends to be budgeted where the program funding normally would be.

MR. KELVIN PARSONS: So this was an aberration in the case of – like, I can see your education pot being in Education, and your transportation pot was in Transportation.

MS BREWER: But, it is recreation, right?

MR. KELVIN PARSONS: So you just put it under where the name was – recreation.

MS BREWER: They do have a program now, as I understand it, that they provide some grants to repair, so it is just an extension of that depending on what the federal criteria are.

MR. KELVIN PARSONS: The minister's understanding, and written right in the documents, was that it was for stadium construction, not repairs; it was construction.

MS BREWER: No, no.

MR. KELVIN PARSONS: In fact, he gave us the details, saying – because I said: How would you know about that piece? I understand it all goes through Municipal Affairs: the engineering, the bidding process, the tendering and all of that stuff.

He said: Yes, it is just parked there; and, because it is infrastructure money it is intended to be spend quickly, so we are just holding it until Municipal Affairs tells us that they want the money – words to that effect. It seemed unusual. I am just wondering why it was done that way.

MS BREWER: We were advised at the time that it could be the municipalities but it also could be to other non-profit groups. So, until the federal criteria come down we chose to put it in the recreation budget of the department that has the mandate for recreation.

MR. KELVIN PARSONS: I have no further questions on the Finance issue.

CHAIR: Okay, without any further ado, I will call the –

MR. KELVIN PARSONS: I don't know if my friends in the NDP might –

CHAIR: Sorry about that.

Do you have any questions on Finance?

Go ahead. I refer to Mr. Buckingham.

MR. BUCKINGHAM: Just go back to the part about being told we were no longer receiving the equalization. Obviously, it came as a bit of a surprise to all of us. We were sort of ramping up to the day when, and it was further along in the future than when it had been anticipated. From our perspective, had any of our numbers really suggested that we were going to become a non-receiving Province as quickly as we did? Could we have forecast that this was not a total surprise?

MR. PADDON: If you look at the Budget last year, the amount of equalization we had forecast was about $18 million. In historical terms that is almost a rounding error, because typically at its peak we were getting well over a billion dollars.

So, yes, our Estimates looked - we knew we were going to be off equalization at some point, whether it was 2008-2009, whether it was 2009-2010, it was going to be around there, but until the final data comes in you really cannot say.

I think if you looked at that Budget estimate of $18 million last year that was probably a fairly good signal that we knew we were going to be off somewhere close.

MR. BUCKINGHAM: Okay.

So, when we did come off equalization it was not a total shock? It was well within the realm of possibility.

MR. PADDON: It was not a shock. How we were told perhaps left something to be desired.

MR. BUCKINGHAM: But certainly our own numbers suggested that was a possibility at that time, rather than any kind of an arbitrary designation.

MR. PADDON: That is right.

MR. BUCKINGHAM: Okay, thanks.

MR. KELVIN PARSONS: On page 35 of the Estimates, item 2.1.04. Financial Assistance, the question was if you could explain – this, of course, concerns the Community Development Fund - if you could explain exactly how that is structured there, because it seems like last year it was a budgeted bracketed amount of $19,400,000. Usually that would indicate to me that you are not going to get something, or you are going to be minus something. Then, nothing is shown as to what the revised was, and now we are showing a figure of $7,305,000. Maybe you can give some explanation around what those entries mean.

MR. PADDON: I will ask Donna to answer that.

MS BREWER: When we set up the Community Development Trust last year, again it was probably one of these pots of money that you are referring to. It was not necessarily infrastructure but we did budget the expenditure in Finance and we actually put an item in the Supply Bill that said if decisions were made during the year that the funds could be transferred out to the appropriate department. The money was budgeted and there really has not been any significant spending of that fund this year. That is why you see the revised down to zero.

This year, there is a balance in the trust. The trust in total was $23.4 million, and there have been amounts allocated out. For example, one is the announcement of the facility on Fogo Island, the Shorefast Foundation. That amount of money will be budgeted under the Department of Innovation, Trade and Rural Development, and related revenue will be shown. The balance of $7.3 million is the amount that has not been specifically allocated yet to a particular department, so again it will be budgeted as a block in Finance, and the Supply Bill again will allow for the transfer out once final decisions are made as to how exactly that money will be spent, but within that $7.3 million is the block that was announced, that has been set aside by the ministerial task force to deal with initiatives, for example, for Central Region, for Grand Falls-Windsor.

MR. KELVIN PARSONS: I will get you to go back and we will walk through that again, if we could.

MS BREWER: Yes.

MR. KELVIN PARSONS: Looking at the $19.4 million that was in there last year, the revised showing zero, are you telling me that we did receive, from some federal-provincial transfer program, that amount of money: $19.4 million?

MS BREWER: There are amounts - I think in total it was $23.4 million that is actually sitting in a trust account. What we reflect here is when the monies come out of that trust and come into what we call the Consolidated Revenue Fund. Last year we were budgeting that up to $19.4 million. Actually, the full $23.4 million was allocated because there was $4 million allocated at the time for forestry diversification initiatives in the Department of Natural Resources. We allowed for the full amount to be budgeted in 2008-2009 but there was no actual spending of that $19.4 million and there were no transfers out to government departments during the year.

The balance of the funding, some has been allocated out to – there is more money now, when you talk to natural resources, for forestry diversification. There were some other monies allocated. For example, as I indicated, in INTRD there was $5 million allocated to assist with the Shorefast Foundation, the building of that tourism facility on Fogo and Change Islands, but the balance that is left we have budgeted in the Department of Finance, and the Supply Bill will allow, once decisions are made, as to how that money is going to be spent to be transferred to the applicable department. Of that, there is a block that has been announced, and it was announced in the Budget Speech. Five million is being set aside to assist with the ministerial task force looking at the issue in Grand Falls-Windsor.

MR. KELVIN PARSONS: That $5 million will come out of this $7,305,000 there?

MS BREWER: Yes.

MR. KELVIN PARSONS: For Central?

MS BREWER: Yes.

MR. KELVIN PARSONS: Where do we look in the Budget documents to see where you have parked the $23 million trust fund you referred to? This section talks about the objectives of the Community Trust Fund and so on, as you just explained, but where do we look to see where you have actually parked the money?

MS BREWER: There was $5 million, as I indicated, in INTRD. There was a grant.

MR. KELVIN PARSONS: I got the impression you are telling me the feds gave us the $23 million.

MS BREWER: Yes.

MR. KELVIN PARSONS: You have put it somewhere in a trust fund.

MS BREWER: Yes.

MR. KELVIN PARSONS: Where did you put it? Where can I look here to see that - and then you take it out as you need.

MS BREWER: It stays in the trust until decisions are made. Then, as the money is spent, they write - I think Terry is the trustee - they write to the trustee and -

MR. KELVIN PARSONS: Yes, no problem, but where do I look here? You are telling me there is a $23 million pot. You are telling me this year we are going to take out $7.3 million of it. My question is: If you had not told me that there was a $23 million pot, where do I look to see where the $23 million pot is? I know you are going to spend $7.3 million out of it. Where do I look in all of the Budget documents to find where the pot is parked?

MR. PADDON: It is over a three year period. Some of the money would have been spent in 2008-2009. For instance, the forestry diversification money; you would have seen that in Natural Resources. In 2009-2010 you have the $7.3 million budgeted in the Department of Finance, but there would also be some money budgeted in other departments - for instance, INTRD - and presumably the year after, then, whatever is residual would be budgeted that year.

MR. KELVIN PARSONS: That is where I am lost.

How much have you spread to other departments, of the pot, of the $23 million pot? What you did not spread is left in the trust fund. Where do I look, and where can someone look, to say this is what they got, $23 million, this is when they are going to spend it - for example, $7.3 million, which includes the central initiative - but there is where the rest is.

MS BREWER: We can get you a list and show you what activities.

MR PADDON: If you want (inaudible) to show you year by year and department by department, that is not a problem.

MR. KELVIN PARSONS: Because it is not clear, and they do not know where it is.

The second question, this goes back to the issue that I started with about the confusion on the documents in the presentation. The NDP, again referring to - if you refer to the 2008 Estimates, when it talks about the total expenditures for the Department of Finance, and I refer to page 39, last year, if you look at page 39, down at the bottom, the total for the Department of Finance, it shows $235,140,400 last year, but when it is restated this year it is only $86,581,900.

MR. PADDON: Yes.

MR. KELVIN PARSONS: It is a massive difference, and again it is totally confusing how you do it that way.

MS BREWER: If you look at page 33 you can see, under Government Personnel Costs –

MR. KELVIN PARSONS: You looking at –

MS BREWER: Page 33 of the 2008 Estimates.

MR. KELVIN PARSONS: That would be the pot that was reserved for the 8 per cent.

MS BREWER: Right, and to me it is transparent. It says, "Funding is also provided for compensation and contract adjustments, with relevant funding transferred to departments, boards and agencies during the year.…"

Then, when we come in to do – in order to be comparative, because we feel if we do not do the restatements…. For example, we look at the increase in the Education budget. I think that the Budget document said that spending in Education has increased by $130 million. If we had not done the restatements it would have made it seem that the salary increases, which were budgeted in 2008-2009, were actually an increase in the Department of Education during 2009-2010. That would have been another $37 million, and we would have felt, from our perspective, that was misleading.

The same with the Department of Health; the Department of Health grew close to $200 million. If we had not restated, it would have made it seem like the government was investing another $64 million in Health.

So we feel, from our perspective, if we do not do the restatements – we do take your point and, actually, it might be a good report for our co-op student that we are going to hire this summer, to take a look at what the other provinces do. Maybe there is a reconciliation or something we need to put in to assist you; but, as I say, we feel to not restate would be misleading.

MR. PADDON: There was about $137 million of that transferred during the year to other departments.

MS BREWER: We have a list, if it would be helpful, that the minister could table, if you wanted to see it. We have that $137 million (inaudible).

MR. KELVIN PARSONS: I wonder if you could point out where the $1,000 Child Benefit program – because that comes under Finance, right?

MR. PADDON: That is a reduction in revenue as opposed to an actual outlay of – it is not a voted amount as an expenditure. It is delivered as a tax credit, so you would see it as a reduction in our personal income tax revenue, the amount of the Child Benefit.

MR. KELVIN PARSONS: I take it the same would be for the Seniors' Benefit and so on?

MR. PADDON: Yes.

If you look in the Estimates on page 263 you will see a list of all the tax expenditures that we have there, and one of the items is the Family Growth and Parental Leave Benefits, $9.9 million in 2009-2010.

MR. KELVIN PARSONS: Okay.

Thank you.

That is all of the questioning on the Finance piece.

CHAIR: Okay.

I will ask the Clerk to call the subheads.

MR. KENNEDY: Mr. Chairman, before you begin, I indicated yesterday when this was scheduled that I had a difficulty with time frames in that there is a meeting I have to be at, at 10:00 o'clock this morning. Before we move into the OCIO and Public Service Commission, I am just wondering whether or not it would be possible to break at this point and come back and do it later. I indicated clearly that I could only be here for an hour-and-a-half this morning. It is my understanding that three hours is set aside.

CHAIR: That should not be a problem. What I will do is call the subheads here now for Finance. I guess with the approval of the Committee we will adjourn the meeting and then we will come back at a later date. We will ask the Clerk to reschedule another time and we will do OCIO and the Public Service Commission.

I will just call the subheads and then we will ask for adjournment. Is everybody fine with that?

Shall 1.1.01 to 2.4.02 carry?

SOME HON. MEMBERS: Aye.

On motion, subheads 1.1.01 through 2.4.02 carried.

CHAIR: Shall the total carry?

SOME HON. MEMBERS: Aye.

On motion, Department of Finance, total heads, carried.

CHAIR: Shall I report the Estimates of the Department of Finance carried without amendment?

SOME HON. MEMBERS: Aye.

On motion, Estimates of the Department of Finance carried without amendment.

CHAIR: Could I also have a motion to approve the minutes of April 1, 2009, on Intergovernmental Affairs and the Volunteer and Non-Profit Secretariat?

MR. BUCKINGHAM: So moved.

CHAIR: Moved by Mr. Buckingham, seconded by Ms Marshall.

On motion, minutes adopted as circulated.

CHAIR: I will now call for adjournment.

I guess we will notify Committee members when the time is rescheduled, and the Clerk will work with the minister's office.

I call for adjournment.

MR. DINN: So moved.

CHAIR: Moved by Mr. Dinn.

Thank you very much, folks. We will see you soon.

On motion, the Committee adjourned.