GOVERNMENT SERVICES ESTIMATES COMMITTEE

May 6, 1991                                     DEPARTMENT OF FINANCE                                  (UNEDITED)


 

Pursuant to Standing Order 87, Mr. Norman Doyle, MHA (Harbour Main) substitutes for Mr. Robert Aylward, MHA (Kilbride) as Vice-Chairman for this meeting.

The Committee met at 7:00 p.m. in the House of Assembly.

MR. CHAIRMAN: Order, please!

This is our third meeting of the Government Services Estimates Committee. Tonight we will be reviewing the estimates of the Department of Finance. My name is Melvin Penney, I am the MHA for the District of Lewisporte. Sitting in as my Vice-Chairman tonight is Mr. Norman Doyle, the MHA for the district of Harbour Maine.

The Committee Members are: Mr. Percy Barrett, MHA for Bellevue; Mr. Sam Winsor, MHA for Fogo; Mr. Neil Windsor, MHA for Mount Pearl; Mr. Oliver Langdon, MHA for Fortune-Hermitage; and Mr. Larry Short, MHA for St. George's, who will be along shortly.

Our Clerk of the Committee tonight, who will be sitting with us for the duration of the Committee hearings, Elizabeth Murphy. The Minister responsible for the Department of Finance is the hon. Dr. Hubert Kitchen. Dr. Kitchen will introduce his officials shortly.

The format we will be using is one that is a pretty established format. The Minister will be given fifteen minutes to make his introductory comments. A spokesman for the official Opposition will be then given fifteen to reply. In this particular case tonight the reply will be coming from Mr. Windsor, who I understand is the official finance critic. Once we have gone past the official reply we will then throw it open to the Committee Members for questions. I would like for all Members to cooperate in asking concise questions and I would like the Minister and his officials to cooperate by giving concise answers so that we do not end up with a ten minute speech with twelve or fifteen questions hidden in it.

We will use the system very similar to what we use in Question Period in the House of Assembly. The only thing I will say is that I will not allow any Member to monopolize questioning for a period exceeding ten minutes.

I would remind the officials of the Department that they are not permitted to reply to a question because the Members of the Committee are not permitted to ask questions of them. They can reply only if requested to do so by the Minister. Even then their answers must be pertaining to fact and not policy.

The role of the Chair tonight is very similar to that of the Speaker. It will be my job to maintain order and to establish an acceptable level of decorum. I would remind all hon. Members and officials that it is a much more relaxed atmosphere here though. You will be permitted to remove your jacket if you so desire. If you want to bring a coffee or a cup of tea into the Chamber you are permitted to do that as well. Also you are not required to address Members by title, you may address them by name, which is something that would not be permitted in the regular sitting of the Legislature.

For the sake of Hansard I would ask everybody, particularly the Minister's officials, if before you speak you would identify yourself because this has to be recorded and Hansard would have great difficulty in doing that without proper identification. I see we do not have any members of the media here tonight but I anticipate that will change in due course as we go along.

Having said that, Mr. Minister, I will now ask if you would introduce your officials, and once you have introduced your officials for the record you could begin with your opening statement, sir.

DR. KITCHEN: Thank you, Mr. Chairman and Members. On my right is seated the Comptroller-General, Mr. Bernard Carew.

The Department of Finance, as you know, is divided into two sections. One is the Comptroller General's office, the Comptroller General is the Deputy Minister, and on the other side is the Deputy Minister of Finance. To his right is Mr. Bob Clarke, Assistant Comptroller General, and on my left is Mr. Phil Wall who is the Assistant Deputy Minister in charge of debt management and pensions. The Deputy Minister, Mr. Gill, is away at the moment and so are the others. Behind me on my far right is Mr. Bruce Hollett who is in charge of fiscal policy. His job is to monitor the negotiations between Ottawa and the provinces under the Assistant Deputy Minister who is not here tonight. He is very good at answering questions having to do with transfers. Next to him is Fred Lyall who is an accountant with the administrative section. The person who would normally be here tonight would be Mary Mansfield, but she is sick in Montreal. Next to him is Max Baldwin who is Mary Mansfield's left arm. So, between us all we should be able to answer a question or two, hopefully. If we cannot we will dig up the answers.

MR. BARRETT: A point of order, Mr. Chairman.

MR. CHAIRMAN: On a point of order, Mr. Barrett.

MR. BARRETT: I would like to point out some errors in the minutes of the last meeting -

MR. CHAIRMAN: The minutes of the last meeting have been circulated. Are their been any errors or omissions?

MR. BARRETT: Mr. Chairman, it says Oliver Langdon, MHA in place of Percy Barrett. That should be Oliver Langdon, MHA in place of John Crane. It says also present is Walter Noel, but I think the hon. the Member for Burin - Placentia West was also sitting on the Committee for a brief period.

MR. CHAIRMAN: The error as I understand it is where it reads Oliver Langdon MHA in place of Percy Barrett, it should read in place of John Crane. It should also show that Percy Barrett was in attendance, and also present was Walter Noel MHA and Mr. Glen Tobin. Are there any further errors or omissions?

On motion, Minutes as amended, carried.

MR. CHAIRMAN: Mr. Minister, you may begin.

DR. KITCHEN: What I will do briefly here is to walk through the estimates very, very briefly and indicate that the Department of Finance is responsible for two sets of estimates here. One is the consolidated fund services, which I understand is to be debated in the main House, but if there are questions about it we will do our best to answer them here as well. Then the estimates of the Department of Finance which are contained starting on page 27 of the estimates and running right through to page 36. What I would like to do is just take you through the Department of Finance briefly to indicate the sort of things we do and tie that in with the estimates document.

The Minister's office, that is us here: me, my two secretaries and my executive assistant, and the general administration that applies to the Deputy Minister of Finance and his two Assistant Deputies and their secretaries. And then the general administration which looks after the administration of both sides of the department, generally speaking, the accounting forum and so on, and that is where Max Baldwin and Fred Lyall come in. Then on the Deputy Minister's side of the Department we have the financial policy which deals with debt management in investments, all the borrowing that the Government does and these are the expenses that we incur in running that part of the Department, the salaries and the things that go along with that research, the investments and so on, and Mr. Wall runs that part of it, that is under his bailiwick.

Then on the next page, page 30, we get into the investments and the industrial assistance and in IVC and pensions. The Department of Finance looks after pretty well all Government pensions, it used to be under the Department of Education for teachers but that now has been transferred to the Department of Finance, so that we look after pretty well all Government pensions, including the Money Service Pension Plan, although the actual fund itself is being administered by a private organization on that particular part.

Then pension policy: pension policy deals with the pension policies for the whole Province, not just for the Government, but for all the pension schemes in the Province. They come under the jurisdiction of the Department of Finance and we have people who are monitoring these pensions and then, the pension policy of the Government, the pension administration in Government -

MR. CHAIRMAN: Order, please!

Mr. Minister, I wonder if I could get some indication from Hansard, where we are recording at a relatively high level, whether we are getting it; is everything okay up there? Some of our Members seem to have some trouble hearing.

DR. KITCHEN: Are you hearing what I am saying?

MR. CHAIRMAN: Yes, could you pull the microphone probably -

MR. DOYLE: Yes, Wince has one there, Neil; Wince has a pretty good one there that he uses all the time.

MR. WINDSOR: They are cutting back in the night time.

DR. KITCHEN: Okay, away we go again. On page 31, we are looking at Pension Administration, the administration cost of administering the pensions, we have quite a number of people working in the pensions division and then we come down to Fiscal and Tax policy.

Tax policy has been a very busy division, it is only a small division but it is a very busy one, not only in preparing budget but in all the tax reform on which we have embarked in devising payroll taxes and devising the changes we are embarking on with respect to the retail sales tax broadening and all that area, so anything that has to do with the tax policy of the Government comes under that group.

Then Fiscal policy, basically that deals with Federal-Provincial relations in matters of finance and Bruce Hollett and his group spend a fair amount of time dealing with the Federal Department of Finance and right this year, we are into the five-year fiscal arrangements with Ottawa, in trying to increase our benefits if you like from Confederation, and these negotiations between the Federal Government and the Province are taking up quite a fair amount of time right now, but we are hoping that good things will come out of that, but that is what Fiscal policy does.

On the Mail Services on page 32, we are quite proud of our Mail Department. We have been able to achieve some very substantial savings in conjunction with Canada Post, some of which have been made public and some of which have not been made public but this has been happening over the past several years and perhaps beyond that and as you see, the mail budget is not up very much even though the volume is up. I will be glad to answer your questions on that one.

The next section there, Government Personnel Costs: over half our expenditures are in that area and that is the employee benefits for the whole public service. They are paid through the Department of Finance, things like unemployment insurance, Canada pension, and things of that nature. The Liquor Licensing Board comes under the Department of Finance, and their budget is given in the form of a grant. That will be merged, as you know, with the Newfoundland Liquor Corporation, or at least the administration of it will be merged. That is the Deputy Minister's side pretty well.

Now we will come to the Comptroller General's office. This is one of the hardest areas of Government because those are the people who look after all Government accounts and in addition collect all taxes, and get people to pay up when they do not want to pay up, and things of that nature. It is not a very popular job I could say, but a very important one, a very, very important job in Government, this collection of taxes, and seeing that everything is done fair and square and that people understand what it is all about.

Here is the executive support, Mr. Carew and his two deputies and their secretaries. There is a section there for Government accounting and we can answer questions on that. Here are the various ways the accounts are paid, various sections having various functions, the processing of payment, the exchequer, the central cashier's office, the pre-audit, preparing Government accounts, and preparing and issuing the payroll. Then, also there is the internal audit where most of the internal audit of Government functions. It is a relatively small Department, ten or eleven auditors, and they advise various Government Departments on appropriate financial procedures to be followed, and run running checks on things.

Then we come to the tax administration. We have the Compliance and Audit which is a fairly heavy expenditure by comparison to some of our others because of the fair number of people in that section. They are the ones that go auditing retail sales tax. They travel, and sometimes they go to the Mainland to ferret out retail sales tax owed from people who collected sales tax on their sales in Newfoundland. There is a fair amount of that going on and you will note that the actual cost of that division is relatively low. It is actually about the same as school authorities cost and we raise millions of dollars here. The support services of the tax administration are indicated there, and we will have some short remarks about the Newfoundland Stocks Savings Plan, which we have had to reduce over the past few years.

Mr. Chairman, that summarizes it. Our total Departmental expenditures are $49 million which is up a bit from last year. I think I will conclude my remarks there and if there are any questions I will try to answer them.

MR. CHAIRMAN: Thank you, Mr. Minister.

I now turn it over to Mr. Windsor. I guess for Hansard's sake I should mention we have two Mr. Windsors here tonight, I should clarify that. I now turn it over to Mr. Neil Windsor to make a fifteen minute comment on the opening statement by the Minister.

Mr. Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

I thank the Minister for his presentation although I have to confess he told me absolutely nothing that we did not already know. We could have read all of that in the Annual Report of the Department of Finance as to what everybody does. So, he is not really giving us any information other than to tell us what the Department does.

Let me try to deal with a few specific questions as we go through and no doubt my colleagues will have many other questions and my colleagues from the other side of the House too, hopefully, will have some questions of their own to ask. I am not going to get into a lot of the details of the Department as I happen to know it pretty well. I know the people there and I know how things work.

Let me ask the Minister a couple of questions, starting with the payroll tax: Would the Minister like to tell us how effective that has been? We have had a couple of debates in the House of Assembly he and I as to the effectiveness of the payroll tax. How much money is he actually collecting and what the impact has been on business and industry in this Province? I happen to know a number of companies are feeling the adverse effects of that quite heavily. One company I spoke with last week, I think is paying $62,000 a year as a payroll year. The Minister knows my views, Mr. Chairman, on the payroll tax and the rationale for bringing it in but I would like to have some details on just how much is being collected by that. When the Minister introduced it he told us that Crown Corporations and Agencies would be given that money back, I will not say under the table, but by some other means. The only possible means obviously is through the Estimates of the Departments and so would the Minister confirm that the payroll tax being paid by Government agencies is in fact given back to them but reflected in the Budget. So, you can reduce that from the actual amount you are given.

I think we will see that many Government agencies have in fact zero increases for this year when we look at the Estimates. I have referred to Memorial University in the House in Question Period where they received $1.2 million additional, I think, this year, which is about exactly what they are paying in payroll tax. In other words, they have not received any increase whatsoever. Perhaps, the Minister would address that and tell us whether he is in any way considering repealing that tax in view of the negative impact it is having in the Province on business and industry and the impact it is having on our position from a competitive point of view in relation to other Provinces, particularly other Maritime and Atlantic Canadian Provinces with whom we are generally competing. But certainly, in some areas and particularly in service areas we are competing on a national and sometimes international basis.

Maybe the Minister would also address to the degree that he can, I can appreciate that he cannot give us all of his ideas, but I would like to discuss with him his proposals for RST reform and what he is proposing to do there and how he is proposing to deal with it. I recognize that he cannot give us full details but I would be interested in whatever thoughts he might be able to tell us. What are some of the options that he is looking at? Perhaps he could do that. I suspect Government has not yet made a decision on what form, if any. The Minister has told us in his Budget that before January 1, if I recall correctly, or effective January 1, 1992 some measures would be in place. Perhaps, we could have some of the options?

I might say that the information given on the back of the Budget was greatly appreciated. I thought it was a good presentation of some of the options that are available and perhaps the Minister has other information that he can give us.

Tax compliance, as the Minister quite properly said, is a difficult area, a difficult job and a thankless one.

MR. CHAIRMAN: Order, please!

I remind visitors to the gallery that they are not permitted to respond verbally, by gesture, or by placard, in any way, shape or form. I ask all Members who are visiting the galleries to now leave and take the placards with them. They will be permitted to come back once they leave the placards outside.

I again remind visitors to the gallery that they are not permitted to respond in any way, either verbally or by gesture of any kind.

Failure to comply would result in them being evicted.

Mr. Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

Just to carry on with the few questions I have for the Minister: the area of tax compliance is a very delicate area, and a very important area. As I mentioned in the House many times, generally the feeling I get from people is that it is not the paying of taxes that bothers them but the fact that some people can find ways and means of not paying their fair share of the taxes. I think everybody accepts the fact that taxes are a necessary evil in this particular system we operate under. Can he tell us how effective his collection efforts have been? Particularly, as I recall, there were a number of positions declared redundant in that area, there are now fewer tax officers?

MR. DOYLE: Ten less.

MR. WINDSOR: Ten less. What has been the impact of that, particularly what has been the impact, for example, in Port aux Basques, where the tax compliance officer that was assigned to Port aux Basques dealing with goods brought into the Province, was eliminated, or at least it was announced that it would be eliminated? Was it indeed eliminated, and are we aware of any loss of revenue as a result of that? I can add to that the proposed closure of the Clarenville office. I was pleased to note that the Minister at least deferred that, whether or not that proposal was eliminated completely or simply deferred, I do not think the Minister has been totally clear on. I think he announced that it would not close at this particular time. The Minister knows my views that I put forward in the House that time, on the impact that would have in the area. I am just wondering if the Minister can give us any information on what he proposes to do there?

The Newfoundland Stock Savings Plan is a program that I was very supportive of. I notice there is $500,000 in the Budget this year for the Stock Savings Plan. Perhaps the Minister could tell us how much activity he proposes to generate with $500,000? What interest has been expressed in the Stock Savings Plan, and in fact does the Stock Savings Plan still exist, or is this simply a token amount to deal with ongoing commitments under that particular program?

Government Personnel Costs, 2.5.02: I see it increased from the budgeted $18 million last year to $28 million this year, almost a 50 per cent increase. Perhaps the Minister can explain why Government personnel costs would increase so dramatically in one year? It seems to be an unusual amount. Perhaps the Minister would address that one? Industrial Assistance, 2.2.02: Last year we had budgeted an amount of $4.3 million and this year we have no amount whatsoever. Is that related to industrial assistance under Capital 2.2.02, Loans, Advances and Investments of $4.3 million? If my memory serves me that may well be connected to the development of Bull Arm, or it may be as a result of a Federal-Provincial agreement? Perhaps the Minister or one of his officials could tell us what that amount is? It is clear it shows no capital assistance for industry this year whatsoever. I assume that the Minister does not expect there would be any activity in that area, and if not, why not?

The Liquor Licensing Control: as we all know the Liquor Licencing Board has been eliminated, or at least the chairman of the board has been eliminated. I understand now that the board may well still be in place. This is a cost-saving measure that the Minister announced some time ago. Would he like to tell us how much he has, in fact, saved by eliminating the chairman's position? I am not sure that any other positions have been eliminated actually, other than the chairman.

Would the Minister also like to tell us, now that he has had a chance to review it - I asked him the question in the House about four or five weeks ago - whether or not he saw any conflict of interest there with the chairman being the chairman of both boards? The two board clearly have different roles, one being a role of selling and distributing alcoholic beverages with a mandate, in fact a direction from the Minister to generate $80.5 million, I think, this year from the sale of liquor, up $500,000 from last year. So, they had direction from the Minister to generate a certain amount of sales to provide that revenue to the Minister. How does the Minister view the conflict between that role and the role of the Liquor Licensing Board, which is to enforce compliance with the Liquor Act. These are clearly two contradictory roles, and that was the rationale for which the board was established some time ago, as a result of a Royal Commission study into the matter, under the previous administration. I am told that there is a great deal of concern by both boards that there is a conflict here. Would the Minister like to address that and tell us if he now sees that there is a conflict between the two roles of the boards, and what savings, indeed, have we seen in the Liquor Licensing Board as a result of that? Am I out of time?.

MR. CHAIRMAN: No, no! Carry on. You have four more minutes.

MR. WINDSOR: (Inaudible) because I will obviously have more opportunity to get them.

MR. DOYLE: There are a lot of questions in that.

MR. WINDSOR: There are a lot of questions in that. Why don't I just stop here, because we can go back and forth any number of times. There are a lot of questions here, and if we could get those answered I would be delighted.

MR. CHAIRMAN: Before I turn it over to the Minister, again I would like to acknowledge Mr. Kevin Aylward, the MHA for Stephenville district, here with us tonight. If Mr. Aylward wishes to ask questions, he will be afforded the opportunity to do so, provided there are no objections from the other Committee members, who would obviously be given preference.

I would like to, as well, before I go back to the Minister, make a comment on the fact that there was a photograph taken here a little while ago. I wish the member of the press were here, but he will be back shortly, I presume. That cannot be permitted, unless he has the permission of the Committee. Does the press have leave from all members of the Committee to do this? Is there anybody on the Committee who objects? Very well. I will not have to ask him to surrender his role of film then.

The hon. the Minister of Finance.

DR. KITCHEN: Thank you, Mr. Chairman.

There were quite a number of questions asked there, and I will do what I can to answer them.

The payroll tax has proven to be an effective tax, and it is generating the amount of revenue that we had anticipated. It could be generating more revenue this year than last year because we are in place twelve months now, and last year it was only in place eight months, from August 1. We have to subtract the amount of flow through just as we had to do it with the retail sales tax, because the Provincial Government, as in some of its institutions, pay retail sales tax as well. So, it is wrong, when you look at the retail sales tax figure, the amount collected, to say, `Ah, this is revenue from the public,' because some of it is being paid by the Government to itself, and you have to subtract that amount of money. The same thing with respect to the payroll tax, a fair chunk of it comes from the provincial coffers and the related institutions.

I am glad the member raised the fact about the adverse -

MR. WINDSOR: (Inaudible).

DR. KITCHEN: No, no, no! I am saying that the gross RST figures that are shown in the budget, the revenue from the RST, is a gross figure.

MR. WINDSOR: Is this reflected in the RST?

DR. KITCHEN: No, no! What I am saying is, just like the payroll tax figure under the revenue section is a gross figure, the net figure is somewhat less, because the Government pays some of that tax. If you want to get the net effect of the payroll tax you have to subtract the amount that the Government pays to itself, similarly with the retail sales tax. That is basically what my problem was.

Yes, we have had some complaints from companies, not just the general complaint about taxes that most people would have, it is not just against taxes, but I think the payroll tax does affect companies which have a high proportion of their cost in personnel as opposed to capital. Some companies have come to me, and I think you are right in that some people who are basically labour contractors, that type of person, have had some adverse affects, and particularly if this is coupled with GST as well, some companies are. And we are looking at some of that in our overall tax analysis that we are conducting presently. But we have no thought of eliminating the tax at the moment.

Some provinces have health taxes in place, several provinces have payroll taxes - Quebec, Ontario, and Manitoba have it - and their rates are quite a bit heavier than ours, although Manitoba's exemption is higher than ours. But in Quebec there is no exemption at all. Every company pays payroll tax and the rates are quite high. The rationale for having it - at least our rationale - was that when the Federal Government was cutting back on health and post-secondary grants a payroll tax was a good supplement for it. Some provinces actually do have health premiums. You pay an insurance premium. They had that in Ontario up until quite recently and some of the other provinces have it. I believe Alberta has it where you pay health premiums, and everybody pays it as a tax. It is quite heavy, it could be - I think it is thirty-odd dollars a month per family. I can dig out the exact figures, I am just speaking from memory.

Also it is felt that when we compare the tax burden on companies we should look at not only that but also health premiums and realize that education is a good thing for companies, because that helps their profit line if their work force is well trained and if it is healthy. So in the United States, say, where companies would pay health premiums for employees, here the payroll tax in a sense helps with that. So there is a rationale for it.

As far as the competitive position with the other Atlantic provinces, no other Atlantic province has a payroll tax. Therefore you would think that we would be in an adverse competitive position, but some of our taxes are lower than the Atlantic provinces' taxes, particularly in the area of property tax. Our property taxes in Newfoundland are quite low, they are the lowest in Canada, and that is the way Newfoundlanders apparently like to run it. Our property tax rate is quite low compared to national standards. We have to take that into account too when we are comparing our competitive position with those of Nova Scotia, New Brunswick and some of the other provinces. So it is not just a matter of picking out a single tax and making comparisons. We should look at the whole package and see who is better off.

I would like to have a word or two on the RST reform. You asked us about that. We would like very much to lower that rate from 12 per cent. It is the highest in Canada and it is too high in my view, it is quite high. But the problem is, where do we get the revenue? If we lower the rate we will obviously get - I think it is obvious that we get less revenue, although some people may disagree with that. But we get less revenue. So the question is, how will we keep our revenues up if we lower the rate?

One of the ways we are considering is broadening the base to conform more towards the GST rate than it does, realizing that if we broaden the base that means we have to tax items which are not presently taxed. That is what broadening the base means, we have to tax goods that are not presently taxed or services which are not presently taxed, and every time you do that you have to look at the effect that has on whoever will be paying it who did not pay it before. I believe one of the members of the press asked me once about what items would be considered. I said right now the items considered are not taxed. We do not pay RST on books, on crafts or on home heating, we had no intention of moving into the home heating area, but these are the basic three commodity items that we do not tax and there is a fair amount of public pressure not to move into the books area and not to move into the crafts area. Now on the services side we do not tax many services. We do tax some; we tax automobile repair wages, for example when you bring your car in you pay tax on the wages, although if you go to see a lawyer you do not pay tax on his wages. Maybe that is not quite fair either, but the question is every time we move into a new field to tax we have to look at the effects that tax will have on the people who will be taxed who were not taxed before.

So we are exploring that and shortly we are going to be distributing to the business community in the Province a package indicating the things we are considering and asking for a reaction. I am hoping to be able to spend most of the summer at that, and we will decide in the fall whether we will bring in legislation to alter or to bring in some tax reforms which might affect the retail sales tax and bring it closer in line with the goods and service tax. Perhaps we will, after we have listened to what people are saying, we must have the responses of people, and hopefully it will be done before rather than after. We will also be considering the school tax because that is something that our party has a position on; we are either going to reform or abolish it and we have not decided on that yet, but that will be part of what we will be considering. There may be some other minor tax changes that have to be made to make up any difference because it is not meant to be a fund raising measure. This tax reform thing that we have on our minds for the fall is not meant to generate more taxes, it is just meant to spread the burden more fairly and perhaps lower the RST rate. Am I running out of time?

MR. CHAIRMAN: Before I turn it over to Mr. Barrett for questioning I would like to acknowledge the presence of Mr. Jim Walsh, the MHA for Mount Scio - Bell Island. I welcome him to the Chamber.

I would also like to make a comment for the benefit of the news media. A photograph was taken here in the House some time earlier and no permission was given for that so in your absence I asked permission from all Members of the Committee for you to take photographs and permission was granted, so I do not have to ask you to forfeit your film to us, but I remind you that photographs are not to be taken and cameras are not to be used in the House of Assembly unless permission has been granted but for tonight you do have permission.

Mr. Barrett.

MR. BARRETT: Thank you, Mr. Chairman. I have a few comments and some questions. The first one is with regards to the payroll tax, and of course the hon. Member for Mount Pearl and myself disagree on the payroll tax, and I think I expressed my views in the House in debate on the Budget last year. As a former person who was involved in post-secondary education in this Province and who looked at some of the things that have happened in the European countries and in the Scandinavian countries, I find that, particularly in Newfoundland and probably in Canada, we have given business trained personnel on a silver platter. There are some companies in Newfoundland who have a great reputation for investing a fair amount of dollars in training, particularly some of the early paper companies, the Iron Ore Company of Canada, but on the whole I do not think we can expect the ordinary taxpayer of the Province to foot the bill for a trained labour force. A trained labour force is a resource that is available to businesses, and I agree wholeheartedly. I know that businesses will complain but businesses complain about taxes, individuals complain about taxes, everybody complains about taxes and, of course, it is unfortunate now that the country is in a recession and that makes it a lot more difficult to put a tax on the business community. But I think in the long run I support and endorse the Minister and the Department of Finance in maintaining the payroll tax, a tax particularly to provide opportunities for Newfoundlanders and Labradorians to become trained. God only knows we need more money. As a matter of fact, I would almost recommend that we raise the tax from the present level so that we could reduce some of the cutbacks that we presently have in post-secondary education, and if we did not have that revenue right now from the payroll tax then we would have to do more cutting back of the post-secondary system so I endorse that.

I guess one of the areas that met with some favourable response, particularly from the business community, was the elimination of the bonding for people who are out collecting the retail sales tax. I know there were some people very excited about that, but I am wondering will this make it more difficult for the Government to get its revenues if businesses go bankrupt? If that is so, are there checks in place to make sure the Province is not left holding the bag in not being able to collect some of the taxes? What was the reasoning for the bonding in the first place? Why would it be eliminated now? The Minister or one of his officials could possibly explain why the bonding was in place? Why they think it is not necessary at this particular time? Will we be sort of left out in left field without being able to collect the taxes without the bonding?

MR. CHAIRMAN: Mr. Minister, be at liberty to answer at any time, Sir.

Basically, what we have been doing at the Committee stage is that a Member is given a maximum of ten minutes. I would prefer they ask a single question and get a single answer. You do not need to be recognized each time.

DR. KITCHEN: Thank you for that particular question about the bonding.

We have not eliminated bonding completely. We have eliminated it in general but we have the right to insist on the bond or some other security for businesses which we have trouble collecting taxes from. So, that is the extent of this elimination. But I think I will ask Mr. Carew if he would like to comment on why, if he can remember, bonding was put in in the first place. I seem to remember it may be related to a remark in the Auditor General's Report some years ago, I am not entirely sure about that. I do not know if you can recall it.

MR. CAREW: As far as I can remember the bonding was increased some years ago partly as a result of comments in the Auditor General's Report, partly arising out of recommendations made by the Public Accounts Committee and partly because of recommendations from studies within the department.

We went to universal bonding a few ago for all new businesses but on second review of it we found that it was probably bonding too many people to get at the ones who are really at fault, so we felt it was better to be selective in it and just bond the ones who had a bad record with us and had previously broken the rules or the laws and secondly, perhaps thirdly, the cost of bonding has become fairly excessive and apart from the cost it has been difficult for some, particularly new businesses, to raise the amount that was required for a bond. The bond premiums have gone up, so really the greater beneficiaries were the insurance companies rather than the Department, so it was felt it was better to go back to selective bonding.

MR. BARRETT: Mr. Chairman, if a company for example, goes bankrupt and owes the Province an amount of retail sales tax, a high amount or any amount is important. They declare bankruptcy and then they come back, the same share-holders, get another vendor's number and collect taxes. Are there any safeguards to make sure that does not happen?

MR. CAREW: The question of bankruptcy where we lose a lot of money is not a normal thing to happen, it happens quite often but the percentage of companies to go bankrupt as compared with the total number of vendors, we have 13,000 registered vendors approximately, and once in a while companies go bankrupt and bankruptcies have increased recently due to the economic times in which we live, but it is not our greatest form of loss really.

Usually, when you lose one you lose a big one, but it does not always happen, there are other ways. But as I said, we are reasonably selective and your second question I think, was about, if there is any way we can stop people from coming back under another guise - there is.

Under the new bonding policy, the Minister has the right to refuse to issue a license to a company which is controlled by share-holders who previously owed us some money and did not pay up, so we have that element of control there still.

DR. KITCHEN: I might add to that, that we were finding in the bonding that a fair amount of our staff, instead of collecting the tax and being after the slow to pay taxpayer, were attempting to get after them to get their bonds in place, not to get their taxes paid but to get their bonds in place, and a fair number, I do not know how many people we had at it, but several people were at that, now they are not at that, they are auditing now or getting the money in. What do you call that, compliance? Yes, compliance rather than trying to put bonds in place. They were writing letters, you know, letter after letter going out saying, `You have not got your bond in place, and if you do not get your bond in place, we will cancel your license,' and all this stuff. Really getting the bond was not the main issue, getting the tax was our problem. So now we have freed up some staff and some money. We are not wasting money now on staff to get bonds in place. We are having the same staff devoted more fully to getting the taxes in. So that was an interesting point.

Also, I think that the amount of money we actually collected from the bonds was miniscule, even compared to the cost of the personnel we had collecting or seeing that the bonds were in place.

MR. CHAIRMAN: Order, please!

Your time is up, Mr. Barrett, I am going to have to turn over the questioning to Mr. Sam Winsor.

MR. BARRETT: I will come back to it.

MR. WINSOR: The Minister, in his budget, announced that there were, I think, somewhere in the range of 2,000 layoffs, 900, 650, 350, plus 100 others, somewhere in the range of, I think, 2,000, and an additional 500 vacant positions would be eliminated. That was nearly a month and a half ago. Has the Minister yet had a chance to do a final total, because we know it was out of whack in education, that the 350 positions the Minister announced were not the case. How many were there actually in Education, or throughout, and the spinoff effect, as it related, for example, to school boards, how many school board personnel? Does the Minister have a handle on the exact number that were actually terminated from their positions as a result of the budget announcement?

DR. KITCHEN: No, I do not have an answer to that. That part of it is co-ordinated by the President of Treasury Board. I do not mean to dodge your question, but he is co-ordinating that and keeping that in mind. I cannot answer that question now. In some areas, I think, it was a bit higher than we anticipated and in some others it may have been a bit lower. I do not want that answer to be a definitive one. I understand that the President of Treasury Board is compiling the figures and he will be stating these in the House, because I believe that question is on record in the House. Somebody asked that question and, in fact, I think they asked each Department that question. I believe it is going to be co-ordinated back through the President of Treasury Board. So, that answer will probably be given in the House before too long.

MR. WINSOR: In the Budget, the Minister announced a certain amount of revenues that would be raised, retail sales tax would be up by some $25 million, and personal income tax by $22 million or so, a whole measure of revenue projections that the Minister had. In view of the fact that it seems the projections in layoffs were not quite accurate, and that we have gone into a wage freeze, can the Minister explain how he expects to get some $22 million extra in personal income tax, with the unemployment rate escalating steadily, practically every month for the last number of months?

DR. KITCHEN: These figures were compiled after the decision had been made to freeze the Budget. It should be noted that going into that Budget, the people who buy things in shops are not just public servants but other people in the economy. We have made the statement that the economy of Newfoundland, the gross domestic product of Newfoundland, will be up this year over last year, one of the few provinces in Canada where it will be up. The signs at the moment are that it will be up quite a bit, or not quite a bit but up as predicted. So, that would account for increased sales. Also, of course, as prices go up the retail sales tax goes up as well. So with somewhat rising incomes, that would explain the increase in the retail sales tax, I think.

MR. WINSOR: The Minister is fairly confident that the retail sales tax in this Province will increase by $20 million or $25 million. The unemployment rate now is higher than it has been in any number of years, and yet the Minister is projecting a $22 million increase in revenue.

DR. KITCHEN: (Inaudible).

MR. WINSOR: With that number of layoffs - we have just taken another 3,000 plus people out of the civil service - is the Minister expecting that the only major employer in the Province, Hibernia, will compensate for all of that, despite the fact that Government expenditures on water and sewer are going to be down somewhat, it appears? It is going to be down in the road construction sector in the Province from last year. And the number of major constructions that the Province undertook is certainly scaled down. Is Hibernia going to account for that massive increase in personal income tax? In view of the fact that you are looking for $22 million more?

DR. KITCHEN: Well, the actual maximum increase predicted is $22 million over last year's figure of $446 million, about a 5 per cent increase. I might add that this is a general rise in the economy that we are predicting. That would be a major component of that. I think on the road construction though, road construction this year is bigger than it has been for a number of years, the overall, counting the Federal Government expenditure through the Provincial Government. So our actual road construction is very high this year compared to previous years. In fact it is one of the highest ever.

But that is not the main component anyway but it is part of it. The general improvement in the economy and the increase in the inflation factor would account for that in personal income tax. There is an inflation factor of about 5 per cent this year and the increase in personal income that we are predicting is 5 per cent. I do not know if there are any other components to that. I do not know if Mr. Hollett wants to elaborate on some of that.

MR. BRUCE HOLLETT: No, I do not have much to add to that. Incomes in the Province are expected to be up slightly this year and that will contribute to the increase in personal income tax.

DR. KITCHEN: (Inaudible) reminded me that a number of the people who are laid off will be getting severance pay and pensions and so on - not all of them, but some. So that this year at least, it may not be as bad as, I am not saying it is good for those who got laid off, but it is not nothing. They still have some for a while, anyway. But not everybody is in that category.

MR. WINSOR: Certainly the income that was generated is not going to be nearly equal to what would accrue from working, because I would assume that most people would roll over severance into a tax shelter as opposed to taking it for this year anyway.

AN HON. MEMBER: Sure.

MR. WINSOR: The gasoline tax increases by some $12 million. How much of that is going to be attributed to increase in sales, or is the bulk of it going to be now attributed to the fact that the ad valorem system was changed and you are taxing now at a higher rate than was taxed last year? You have $12 million thereabouts, $12.7 million.

DR. KITCHEN: Yes. I would think a fair amount of that is due to the increase in the fixed amount.

MR. WINSOR: I could not hear the Minister. You say most of it is due to -?

DR. KITCHEN: Yes, I cannot answer in detail the break down of the actual $11 million increase here but we did increase the average level of, if you take it month by month, the gasoline tax we have in place now is higher than that average.

So, some of it at least is attributed to the rise and the rest, I suppose, I do not know what the other amount would be. I could dig that into it but our tax people are not here at the moment.

MR. LANGDON: It would appear that Newfoundland's debt has been growing steadily since 1950-1951 and the Province has not managed to do anything but run a budget deficit. I think it would also be fair to say that the fiscal capacity of the Province is presently virtually identical to that of the 1970s apart from Hibernia coming on stream.

In the 1987-1988 Budget the Newfoundland Government received 46 cents from the Federal Government, 45 cents from the Province, and the remainder would be borrowed. That, approximately on a budget of $2.5 billion would be probably $225 million for current and capital account expenditure. I guess it points to the vulnerability of the Province's dependency on financing from Ottawa.

I was wondering how do these figures stack up for the 1991-1992 Budget, 46 cents from the Feds and 45 cents from own capacity, taxes and so on, and the 9 per cent of borrowing.

DR. KITCHEN: I will have to work that one out.

Our provincial taxation is $1.345 billion this year, our general revenues from Liquor Corporation, vehicle licenses and lotteries is $164 million, and then there is other revenue recoveries, interest income for $166 million, for a total provincial revenue of $1,675,000,000; and from the Government of Canada we get from equalization $934; EPF, $210, Provincial Shared Utilities, $10 million; Term 29 award $8 million and other statutory subsidies $1.744 million. From the Government of Canada under these fiscal transfers we get $1.164 million. Then there are certain cost-shared programmes that the Federal Government helps us out with so that the total we get from the Government of Canada is $1.367 billion. It actually works out according to the figures just presented to me that $44.2 comes from the Federal Government and $54.1 from the Province and $1.7 million is in additional borrowings.

MR. DOYLE: Borrowings would then be down.

DR. KITCHEN: Pardon? Yes but our total expenditures are up too.

 

MR. LANGDON: So, it does show then that the amount of money received front the Federal Government has been reduced substantially over a number of years.

AN HON. MEMBER: Not the amount the percentage.

MR. LANGDON: Okay, the percentage has been reduced which puts extra pressure on the Newfoundland Government.

The other thing I want to zero in on is the fact that in the Province property taxes, apart from St. John's, Grand Falls and Corner Brook, are partly non-existent and many of the smaller communities have poll taxes that range anywhere from $45.00 to $100 per year, and with that type of tax structure in place in the municipalities in the Province it adds an extra burden as well on the Provincial Government. I was wondering in my own mind here as I was going through how much per year does the Provincial Government carry in guaranteed annual loans for water and sewer, and infrastructure in general for the municipalities in the Province?

DR. KITCHEN: We will look up that one. $600 million would be the total outstanding and not in any one year. You asked me for a particular year?

MR. LANGDON: For this particular year.

DR. KITCHEN: We will get the answer. We will look it up.

MR. CHAIRMAN: You can take the question under advisement and give the answer later, or you can bring the answer to the House of Assembly if you so desire.

DR. KITCHEN: We will probably have it in a few minutes.

MR. LANGDON: What affect does it have on the Government's current fiscal situation, the fact that these property taxes are so low?

How does it affect the Government's fiscal situation? Let me phrase it another way. Supposing we had a system of property tax in place where the norm was $300 per household per year, how would that affect the Government in its borrowing capacity, its need to borrow and so on? What would it mean to revenues?

DR. KITCHEN: That is a hard question because if the municipalities could just raise their revenues it would certainly help the Province, but the question is, what money is out there to raise? - and if it goes to property tax perhaps it will not come in as much in retail sales tax because if they give it to the Municipal Council they will not spend it. Even with the reduction in retail sales tax it would help the Provinces fiscal position but I do not know at the moment by how much, but it would certainly help, as one of our problems is the low rate of municipal taxation across the Province. Then you have also to look at the ability to pay.

MR. CHAIRMAN: Mr. Aylward already stated earlier that he was prepared to allow the other Members of the Committee to ask the questions before him, but if Mr. Aylward wants to go next that is fine with the Chair.

I am terribly sorry. Mr. Doyle.

MR. DOYLE: I have just one question. I believe the Member for Mount Pearl asked it. Maybe you answered it when I was out but in any event I did not hear any answer. The question concerns the fourteen gasoline tax inspectors. You had ten laid off, I believe, ten Inspector 1's were laid off leaving just four, which is quite a large cut. I am wondering if four people can now do the job of fourteen? Has something happened to reduce that need to audit the companies responsible for compliance under the Gasoline Tax Act?

DR. KITCHEN: Let me answer that one. The Member for Mount Pearl asked a number of questions. I was only able to answer three and then we sort of ran out of time. If you like I will roll his answer and then I will answer your part if that is alright?

MR. DOYLE: Okay.

DR. KITCHEN: He was raising the question with respect to Port aux Basques. We had somebody in Port aux Basques who was checking trucks as they came in to see what the level of gasoline was and we found that to be rather unsatisfactory, because we did not have somebody on there all the time. It was a one person shift. In order to cover the whole thing we would probably have to have four or five people there.

Now we have a different system that we are about to embark on with respect to that which will be the same as other provinces have. Where every inter-provincial carrier will be registered and will make regular reports to this and other Governments as to the mileage that was travelled in Newfoundland and elsewhere, and the amount of gas that was purchased. If they purchased more gas in the Province than their mileage in the Province warrants, then they get a refund. If they purchased less in the Province than their mileage warrants then they will have to pay up some more taxes. I think that is basically the system.

Now on the elimination of the ten people. Because what we did, in each of our divisions we had several people who go around checking to see that the right colour gas was in the car or whatever. That people were not using coloured gas where they should not have and so on. We have ceased that except we do have one person who makes sure that the companies which sell gas do have the colour in their gas. I think I would like to ask Mr. Carew or Mr. Clarke to comment on: have we lost much tax by eliminating those ten positions?

MR. CAREW: Carew, Comptroller-General. No. Our statistics indicate no significant losses. Actually they do not indicate any losses at all. The first preliminary statistics, the figures for (Inaudible) well anyway, the proportion of diesel versus marked fuel and so on, an analysis of that indicated that no, the sales of marked went down and clear went up. Which indicates that there was less tax leakage. But I think somebody said: who is doing the work of the people you laid off? The work is being spread over the other people, like tax auditors, tax compliance officers, and so on. But we still have a senior gas tax inspector stationed in each one of the regional taxation offices. Now that person can handle, as the Minister noted, the injectors which inject the coloured fuel at (Inaudible) plants and so on. That stuff can be well handled by one person in each region. The actual field enforcement has been spread over our seventy-odd auditors and (Inaudible). So it is being done but it is being done by different people.

MR. DOYLE: Yes, so people who probably never had that responsibility before will now pick up some of the slack that might be left with the layoff of those ten people. And there will be no significant revenue loss because of it, do you think?

MR. CAREW: No. As I said our statistics indicate that there are no significant losses, if any.

MR. DOYLE: Interesting.

MR. CHAIRMAN: Thank you, Mr. Doyle.

Mr. Short.

MR. SHORT: Thank you, Mr. Chairman. One of the questions Mr. Neil Windsor asked related to section 2502 on page 32 and had to do with the Employee Benefits or Government Personnel Costs. You did not get a chance to answer it and it was a question I had as well, so maybe you would like to tackle it now, that $10 million difference between-

DR. KITCHEN: Yes, I think that is a pretty key question because if you look at the total expenditures of the Department of Finance in the coming year as opposed to last year's, you will find that we are spending almost $6 million more, but we are spending more than $10 million in Employee Benefits, Government Personnel Costs, we call it, and I would like to give you the details on that because I have them here.

Workmen's Compensation: last year we budgeted $2.2 million, this year we are budgeting $2.6 million because the rates have increased, I think that is what has happened. Unemployment Insurance Premiums: last year we budgeted $6.6 million, the premiums went up a bit during the year to $8.0 millions and now they are going to be bumped up again, I think it is in July, to 10.5 million, so with Unemployment Insurance, the Budget amount increase is $4 million over last year, this the employer will have to pay out, because as you know, the Federal Government is not putting any in and the employers and the employees costs have gone up, particularly the employers.

Also, the Canada Pension Premiums have increased by about $800,000 over last year and Group Insurance has gone up by about another $600,000, the balance is the payroll tax which is not a fair figure, because the Government pays its own payroll tax and so we have to take off- there was none in last year's budget because you remember last year we brought in the payroll tax at the last minute and we had to put in a special amount in the budget but it was not under Employee Benefits, but this year we are going to spend $4.8 million on that but it is not really an expenditure, so the net there is about $6 million.

That basically is what accounts for it, the increases in Unemployment Insurance are the main reasons for that and to some extent Workmen's Compensation, Canada Pension and Group Insurance; apart from that, the expenditures in the Department of Finance have not really increased.

MR. SHORT: Another question. I believe after Ontario introduced its budget, I do not know if the figure was $9.7 billion or something deficit, I think Ontario was put on a credit watch and I was just wondering what the re-action has been to our budget in the financial market in terms of some of the things we have tried to do to I guess, keep our borrowing down and layoffs and all the things we have tried to do, what has been the re-action by the credit rating agencies, if you like, to our budget?

DR. KITCHEN: The discussions we have had with the credit ratings have been quite positive, we did not have the luxury that Ontario had, they had an AAA rating and I suppose it does not matter a great deal whether their rating goes down a little bit or not; if it goes from AAA to AA to A, they are still A rated, it will cost them more to borrow, but they will still be able to borrow; they will still have a better credit rating than ours.

We were in the position where we were being B rated by three agencies and we had an A- from one, and had we lost that A-, we would have been in pretty bad shape, not only with respect to the rate of borrowing but whether or not we could borrow at all all the amounts we wanted, when we wanted it. We may have had to go with little dribs and drabs and get it where we could and pay high prices and maybe some times not be able to do it.

We would have been in a very, very serious situation and that really is why we had to do what we had to do in the Budget, in order to maintain our ability to borrow because this year we are going to be borrowing something like over $600 million I think, counting the repayment of other debts and counting Hydro borrowings and the whole works, it is a tremendous amount of money to borrow.

MR. CHAIRMAN: Could you lean into the mike a little.

DR. KITCHEN: Oh, I am sorry.

MR. CHAIRMAN: Normally during debate here in the House, we speak from a standing position, so when you are seated there is a tendency to lean back in the chair; so either you lean into the microphone or you speak up.

DR. KITCHEN: Okay, I will do both. So, to answer your question, our credit rating is not in peril at the moment and we are not on credit watch, which is good over the long term because it looks like we are going to have to borrow for a long time yet.

In other words, we are going to have to go in debt more ever year for a while yet, and all we have done by this is to preserve the ability to go further into debt; it is not a very good thing to have to do, because, what I would like to do, personally, and I guess we all would like to do with our own personal finances, is, not to go into debt at all, and I would like very much for the Government to be able to balance its budget, like once in a while a Canadian province does, but we are not in that position of coming close to balancing our budget, that is taking capital and current account all together. We are not even close. This year we will be down close to $300 million and that is an awful lot to have to go in the hole this year and next year we will have to pay another $30 million interest and we have more than we have to pay this year even with reduced interest rates. So it is a pretty horrendous thing to be proud of - being able to go in the hole further - and that is really what we have done. But that ability to go in the hole further has not been imperiled by our Budget. I do not know, Mr. Wall, if you have had any late - Mr. Wall looks after dealing with the investment community, that is his main job and he has a group of people working for him who do that. I do not know if you have any late word on that.

MR. WALL: Yes, we have had several conversations with the rating agencies prior to the Budget and we have also discussed the Budget with the rating agencies since it was brought down, and they have indicated that they are not considering changing the rating. The reaction was, I might say, mildly positive to the Budget. There was certainly no adverse reaction like they had to the Ontario Budget or even the pre-reaction that they had to the Ontario Budget and some comments that had been made publicly by the rating agencies as well about the Quebec Budget and the expected deficit there. But having said that, they will be visiting us in the next couple of months to discuss a number of things, including the Budget and Hibernia and Hydro and things like that. So the answer is there has been a positive reaction from them.

MR. CHAIRMAN: It being -

MR. WINSOR: (Inaudible) borrowing if I could do it before we have a coffee break.

MR. CHAIRMAN: No problem. Mr. Winsor, we will when you are finished your questioning take a ten minute coffee break and we will meet in the Government common room, but I will permit you to ask your question first.

MR. WINSOR: It will not take long. The subject of borrowing and financing intrigues me. I do not know if it has anything to do with my own that I do or not, but in 1990-91 the revised estimates showed that we needed $488 million.

AN HON. MEMBER: What page?

MR. WINSOR: We are looking at thirteen in the roman numerals (xiii). Okay, there is the pie and it shows that we needed $488 million for revised estimates. The Budget itself on page one at the back shows that we actually borrowed $614 million. In the same token, for this year our Budget at the estimates show that we will have $527 million and we are actually going to borrow $574 million, which means that each year we are gradually sinking into debt a little bit further.

Now in debate in the House it always appears as if the debt of this Province is some kind of a monster that was created by former administrations, but from looking at what we see happening this is just a continuation of an ongoing trend, that each year the Province has to borrow more money, which really means that it never pays on its principal, it just borrows to pay on loans it had a number of years before. I did some preliminary research that shows that this has always been the case for this Province. I did not go through every Budget, but for a number of years it shows that the borrowing that we have had has always been greater than the amount of debt charges that we had. So we are not making any grounds, and in this Budget we do not make any grounds. Last year, because of extended borrowing, we had to do it because of difficult fiscal times, it exacerbated an already bad situation and I am just wondering, in terms of the overall deficit we have, I think $5.4 billion or something like that, have we ever, in the history of this Province, paid anything on the debt that we had? Are we just paying off the debt that we had twenty years ago, where we retired a principal on that one only to assume another new principal, and if so, has there ever been a calculation done of the total amount of interest that has built up over the years because of the inability of the Province to make payments, have we just made interest payments?

DR. KITCHEN: There is no doubt that what you are saying is absolutely right that we are sinking further in the hole every year, and it is something that we should all, I think, be very concerned about.

Some economists say that this is not something to be concerned about; they look at the ratio of debt to gross domestic product and they say that as long as your debt to gross domestic product ratio is not increasing, then you should feel fairly good about it; I dispute that personally, because I think that the calculation of gross domestic product is in error and I will tell you why.

The gross domestic product as used by economists has to do with cash income and there has been a major change in productivity over the years; nowadays, almost all income is in the form of cash income and productivity is almost all that you do in the marketplace, whereas in this Province, some years ago, and in other places as well, a large amount of the productivity never entered the marketplace.

For instance, the work of women who used to spend their time in the home years ago, they worked, they cooked, they reared their children, they did all sorts of productive work, physically productive work and now, people go and get jobs, women get jobs and they are in the marketplace, that is great, but, their labour now is counted in the gross domestic product, but it was not before, but they worked hard before.

They probably worked just as hard before as they do now and were just as productive but now it is in the marketplace and before it was not, so that the figures for gross domestic product, while they are increasing, there is something phoney about it all and that is, this part that is no longer counted, so I do not take any comfort from the fact that our debt to gross domestic product ratio is not increasing, because that other factor bothers me very much and I cannot get a handle on it.

I do not know what you would like, but I would certainly like to be able to come to the position where our debt stops growing, because paying interest on debt is non-productive usually for Government, although not everybody believes that; they say that if you go in the hole and you are building up the economy, by building schools and things and infrastructure, good productive infrastructure, you can -

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Yes. Anyway that is part of the argument. Thank you.

MR. WINSOR: One final question. It seems that we are spending about 17 per cent of total revenues for debt repayment; I think it was 17 per cent one year and 16.3 per cent this year. How does that stack up against the western world? - 17 per cent of your total budgetary -

DR. KITCHEN: The Federal Government pays one dollar in three on debt charges, one dollar in three. From our revenues, it is one in six, but, a lot of that comes from the Federal Government; if you look at what we raise ourselves from our own taxes, it is about one in three.

MR. DOYLE: So we are pretty well on par?

DR. KITCHEN: With the Federal Government. Bruce can you answer about the other provinces?

MR. HOLLETT: Yes. The other provinces pay around eleven cents out of ever dollar on average, some provinces are higher than Newfoundland, but several are lower.

MR. WINSOR: So in relative terms we are still not really badly off in terms of the percentage of our total budget that we use in debt charges.

DR. KITCHEN: Who is worse than we are, do you remember?

MR. WINSOR: New Brunswick I guess and PEI.

AN HON. MEMBER: What did he say?

MR. DOYLE: Who is worse than we are?

MR. WINSOR: Prince Edward Island, I seem to recall seeing a figure somewhere.

AN HON. MEMBER: I cannot remember now what it is.

We could get that answer if you want.

MR.HOLLETT: Nova Scotia and Quebec both spend more of their revenues on interest payments than we do. Nova Scotia spends seventeen cents on the dollar, Quebec is 16.8, so we are the third highest of the provinces.

MR. DOYLE: So is there any magic figure as to when this all becomes unmanageable, you are saying eleven cents now, that is obviously manageable I suppose, and I guess it is manageable, but is there any magic figure at which point you could say that the debt is unmanageable, we are officially bankrupt?

DR. KITCHEN: I suppose the bottom line is when the credit agencies say: 'you have had it brother', and you cannot borrow any more; I suppose that is the bottom line, is it not? - that is the real bottom line.

MR. DOYLE: Yes; when your debt is higher than your gross domestic product.

DR. KITCHEN: Or when they do not want to lend you any more money; when you find it hard to borrow in the marketplace. We are not to that stage yet but we almost made it.

MR. CHAIRMAN: Mr. Winsor?

MR. WINSOR: Okay, go ahead; we are finished, we are just chatting.

MR. CHAIRMAN: We will now take a ten minute recess, but before we do, I would like to acknowledge that we still have two visitors in the gallery and I would like to explain that normally at Committee stages visitors would have been invited to sit in the Speaker's Gallery, but because of the large numbers we had come in here tonight, it was impossible so we had to ask you to sit in the visitor's gallery, but I would like to invite you to join us after we come back from our coffee break in the Speaker' Gallery at the back of the Chamber, if you wish.

RECESS

MR. CHAIRMAN: Our meeting will now resume. The Chair would like to recognize, Mr. Neil Windsor.

MR. WINDSOR: Thank you, Mr. Chairman. While I was out I understand the Minister answered some of the questions that I had asked earlier and I wish I had been here to hear some of those answers, but I can read them. Is there a transcript of these proceedings kept?

MR. CHAIRMAN: There is a transcript kept but I do not believe it will be delivered until next year.

MR. WINDSOR: It will be a historical document by the time we get it I suppose.

MR. CHAIRMAN: Well, based on what we did last year, we received them about eight or nine months later. You may be able to get a copy of them though if you request, is that possible?

MR. WINDSOR: Mr. Chairman, with your concurrence and with the Minister's concurrence, perhaps we could just have a couple of quick questions back and forth, rather than my making a fifteen minute presentation as we did before and then the Minister trying to answer them.

My colleague from Fogo talked about the layoffs that the Minister announced; can the Minister give us any idea of how effective that has been and how many layoffs have actually occurred? I do not know if he gave you that information in answer to your question. How many actual layoffs do we know off and are we going to realize the savings that the Minister expected when he announced in his budget that there would be these massive layoffs? - and is the positive impact on the budget or in the deficit actually going to take place, could he respond to that?

DR. KITCHEN: Let me answer that one now. I understand that the President of Treasury Board is presently compiling all those figures, because he has been asked that in the House. I believe he is about to make some sort of a statement on it and that is how it will be; it really comes under his end of the financial operation and so I will be leaving it to him to gather his data, but if he does not come forward, I will remind him about it. I cannot do much more than that tonight because I have not been compiling it.

MR. WINDSOR: Mr. Chairman, would the Minister tell us then at this point in time where does he see his projected deficit at the end of the year? Are we still looking at $53.7 million?

DR. KITCHEN: We do not have much to go on yet because the first month of the new Budget year is not - it is over, April it is finished. But the figures on revenues are just coming in now. And we should be able to see how our revenue projections are holding up at least for the first month. Now the other major unknown in the equation is the Federal transfer payments. Up until now everything is fine with those. This is the year of renegotiation, and that cuts in next March, is it Bruce?

MR. HOLLETT: The new transfer arrangements will take effect April 1, 1992, so they will not affect this fiscal year, but there are several re-estimates before the end of the year of the current year payments. That is the normal process.

DR. KITCHEN: And just let me ask Bruce the question, to follow it up, do we know that the projections that we put in the Budget with respect to Federal transfers, have there been any changes in those?

MR. HOLLETT: No. We have received some new information from the Federal Government since the time of the Budget but it has not change the numbers at all. The projections are the same. There was a difference this year in that the problem that we had last year of the numbers coming out after the Budget, there was an advancement of the timing of the estimates by the Federal Government by one month. So the numbers that were received just after Budget last year, that same scheduled re-estimate occurred prior to our Budget this year. So that the numbers are still the same as they were in the Budget.

DR. KITCHEN: So in summary, and in answer to the question on our revenue numbers, we will get our first reading on that shortly, within a week or two. It looks like the Federal transfers are on target, at least as far as we know. The other unknown is the actual expenditures, and we will be getting regular reports from Treasury Board now, watching that very carefully. So perhaps in a week or two I will be able to answer that question, at least for the first month.

MR. WINDSOR: So you have no estimates yet of RST receipt for example for the first quarter?

DR. KITCHEN: No, that is not in yet for this month, the April month, yet.

MR. WINDSOR: The Minister in responding earlier to (Inaudible) question dealing with payroll tax talked about the overall level of taxation of other municipalities. It was stated that we have the lowest property tax in Canada at the municipal level. Obviously the Minister was (Inaudible). Is the Minister aware that in other provinces of Canada largely health and education taxes are included in the municipalities? Municipalities are responsible. So you do indeed have to look at the overall package. So we do pay a fairly high share. If I am not mistaken are we fifth, I think we are just fifth in Canada, the overall incidence of taxation? I believe that was the number. I wonder has that changed any in the last two years?

DR. KITCHEN: I will ask Bruce to comment in a minute. My recollection is that if Canada is a hundred, the Canadian taxpayer pays $100, we pay 101 or something like that. What is it? Or is it 102?

MR. HOLLETT: Bruce Hollett. Yes. Our tax effort this year is around 102 per cent of the national average, and that fluctuates in that range of ninety-nine to 102, 103. We would be around fourth or fifth of the provinces. On the property tax we are 45 per cent of the national average.

MR. WINDSOR: As I said earlier, that is misleading, because property tax in other parts of Canada include a lot of other things. Certainly, it is curious to see that that has not changed any.

That is it. I am assuming all my other questions were answered while I was gone.

MR. CHAIRMAN: Mr. Sam Winsor.

MR. WINSOR: Recently, several senior citizens have come to me complaining about the levy of a fee for the use of provincial parks by senior citizens. It has never before happened in this Province, at least to their memory. The question they were asking me is: How much money does Government expect to realize by charging senior citizens admission fees, or whatever you call them. I think it is at the rate of seven dollars per day. What is the expected revenue to be generated for the Province by having imposed this fee for the first time?

DR. KITCHEN: I will dig that one out. The main purpose of that, as I recall, was not a revenue measure. It was, I think, to make the parks more accessible to many people. As I remember from the discussions, some people were sort of hogging the parks, and we wanted to spread it out more evenly by charging everybody.

Your question is: How much extra money do we anticipate raising? I will have to dig that one out. You haven't got that figure, have you?

AN HON. MEMBER: No, not here.

DR. KITCHEN: Do you?

AN HON. MEMBER: No, I do not have it here, either.

DR. KITCHEN: You do not have it. Okay. I will have to get back to you on that, and I will announce it in the House. We have to make a note of that one.

MR. CHAIRMAN: Is the Committee ready for the subheads?

Mr. Neil Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

Just a couple of other things that I would like to quickly run through.

I asked the Minister, a moment ago, about the projection of the deficit for this year. Does he have any projection for the deficit for next year? What are we looking at for next year in the way of any projected deficit, at this point in time?

DR. KITCHEN: I have asked the officials to work at that one pretty quickly so that next year we can get regular reports as to how we stack up. That is so we can update it on a monthly basis as new information becomes available. I have yet to get the first report, but it should come soon.

Just to clarify, there are two or three things that we are going to have to watch carefully. One is, assuming that the freeze goes off next year, we are going to have to provide the money that we saved by putting the freeze on, which is fifty-odd million, I think. Then, as the agreements are reached, there will be money in for pay equity. So that whatever that comes to we will have to provide in next year's budget. We did not have to provide it in this year's budget.

There is another amount that you questioned me about some time ago in the House, on the surplus from redemption of the sinking funds. When the sinking funds are due, very often there is a surplus amount in these sinking funds, as a bond issue is paid off. This year there is, I think, sixty-odd million, sixty-seven or sixty-nine - I forget the figure - whereas last year it was about twenty-nine or thirty. Next year it is going to be considerably less. It is going to be in the forties. So we are going to have to find another $25 million there. So, if you add the pay equity and the freeze money that we are going to have to provide, plus the other, we will have to worry about a fair amount of money, perhaps. But it is a bit early yet to make these projections, but it is certainly a concern of ours.

MR. CHAIRMAN: Are we ready to call the subheads?

Well, we will go first to the sector, Executive and Support Services.

MR. WINSOR: On pensions: The Government had a study done on pensions last year and there was a report published that shows the pension plans in this Province, generally speaking, are in a fair amount of trouble financially. Has the Minister anything new to add to it, and is it the intention of Government to implement the recommendations of that White Book you published last year on pension reform?

DR. KITCHEN: Is it our intention to implement -?

MR. WINSOR: -implement the recommendations that were there and how soon?

DR. KITCHEN: Of that pension committee? Well, we are in the process of implementing a number of these. We have the two pension bills now that are before the House. That will substantially take care of the long range problem by increasing the rates so that the unfunded liability of the Public Service pension plan should not grow; neither should the unfunded liability of the Uniform Service pensioners grow, nor the teachers' grow. So these three - the teachers' one is not ready for introduction to the House yet - but it looks like these are the main problems with the pension plan. It looks like we have them pretty well under control, assuming that the House agrees. The one we have not come to grips with yet is the MHAs' pension plan. The amount of money is smaller there so it is of lesser priority but it is still important to do.

The other question is, what do we do with the - up until now - unfunded liability? We have made a decision that we did put some money in that one year, and there is none budgeted to go in this year. I think that is correct. But we will have to be making payments into that from time to time. But it looks like the major problem with respect to the pension fund is under control. At least it will be much better than it was before.

MR. WINSOR: (Inaudible) I know the teacher pension, I think there is some $200 million of unfunded liability that is the responsibility of Government by having used the money for general revenues throughout the years. In the case of the Public Service pension plan I would assume the same thing applied to that. It just went into general revenues. How much of that portion of the public service pension plan of the unfunded liabilities is actually a responsibility - I know governments' admit it - but in financial terms, how much is actually Government's share that it had not paid?

DR. KITCHEN: Okay. There is a difference between the two pension plans, in that the teachers have been paying a pension for a great many years. The rates were low, but they have been paying since... when? The 1940s or something like that?

AN HON. MEMBER: 'Twenties.

DR. KITCHEN: The 1920s. Whereas the public servants started paying towards their pensions in 1967. So there is somewhat a difference in circumstances. Now, the unfunded liability with respect to the public servants, I do not have it off the top of my head, but it is considerably less than that for the teachers, $500 million as opposed to (Inaudible).

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Alright, okay. So the teachers' unfunded liability is considerably higher than that of the public service. But that was not quite your question.

MR. WINSOR: I was asking how much unfunded liability is in the -

DR. KITCHEN: It is due to Government spending what was there.

MR. WINSOR: How much unfunded liability is due to the Government spending what was there?

DR. KITCHEN: If we had done what we are going to do from now on, if we had done that, Government would have been matching the contributions, and the contributions of the employees would have been half the cost to fund the pensions. The employers were not paying half, and Government, in the case of the teachers, was paying nothing until - when did we start paying, 1981?

AN HON. MEMBER: In 1980.

DR. KITCHEN: In 1980. So, for all those years, from 1920 to 1980, the teachers were paying in something, not enough, and Government was not paying anything until 1981. So, that is one amount. I do not have that amount at the moment. I do not know if we could calculate it.

MR. CHAIRMAN: Would the Minister like to take the question under advisement?

DR. KITCHEN: We could take that question under advisement, unless Phil can answer it. I will ask Phil to answer it and shed more light on that subject.

MR. CHAIRMAN: Mr. Wall.

MR. WALL: There have been a number of calculations done, and I guess most of those calculations would only be estimates because we have to estimate the amount of interest and the rates of interest that will be earned over those years on the amounts, if they were in it. If the amounts that had been contributed had been invested there would probably be somewhere in the neighbourhood of $400 to $500 million more in assets there. So, instead of the unfunded liability in excess, as the Minister said, of $2 billion - that number was an indexed number. The number not indexed is about $1.2 billion. Instead of having $1.2 billion you would still have $700 or $800 million of unfunded liability. That is because the contributions, even the ones that the teachers and the public servants were making, for instance, since 1967, were not enough to cover the current benefits or the current service costs of the plan at the time. So, even though we were contributing, the contributions, if they had been matched by the Government and put into a fund, were still going to build up an unfunded liability.

As the Minister said, starting now we are increasing contributions such that the current service cost, as of the new legislation, will be covered by the contributions. So there should not be a growth, at least from that point on, in the unfunded liability. The big concern is trying to offset or to pay back the unfunded liability that remains on the books.

MR. WINSOR: So, in addition to what we have had in the past, the latest round of redundancies and pensions that are going to be paid as a result of the recent layoffs are obviously going to impact significantly on the fund because of two things it is going to do. One, it is going to mean there are a lesser number of contributors to pay premiums, which means Government's share is also going to be missing from it, and secondly, there are now more people drawing pension at an earlier time. So, the study that was done last year, which looked at the overall pensions in the Province, is not really now an accurate reflection, because there is going to be more money needed immediately as a result of the last round of layoffs. Would that be correct?

DR. KITCHEN: Partly correct. You are right, that this does build up the "unfunded liability." The actual amount we are not sure of yet, because it depends on who gets the redundancy pensions. We are keeping quite good track of that. There is money set aside to cover a fair amount of that, but it is not enough to cover the total unfunded liability, but there is money set aside in the plan to do it. I think it is this year's share of that unfunded liability that is provided for, but not the future year's share.

So, you are right, the unfunded liability, however it is defined, will increase as a result of these redundancy pensions. But by comparison with the total unfunded liability the amount is not great.

MR. WINSOR: So if I understand the Minister correctly, you are saying that for this particular year Government has taken an amount of money over and above what it would normally contribute to the pension fund to compensate for that particular - this year's share.

DR. KITCHEN: This year's share of the rate. Yes.

MR. WINSOR: So that does not come out of the accrued pension that employees have been paying in for the last number of years. Government actually put x number of new dollars into it for this year.

DR. KITCHEN: Yes.

MR. WINSOR: Okay.

MR. DOYLE: So to avoid calling, say, individual subheads, maybe we could call the subheads from 1.1.01 to 3.4.03.

MR. CHAIRMAN: Will you make a motion to that effect?

On motion, subheads 1.1.01 through 3.4.03, carried.

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

MR. CHAIRMAN: We have reviewed the estimates of the Department of Finance and we have carried the subheads. I would now like to thank my Vice-Chairman for the evening, Mr. Doyle, and the Members of the Committee who have done an honourable job of asking questions. I must commend them for the manner in which the questions were asked, in an honourable and orderly fashion, and to commend the Minister and his officials for having answered them in exactly the same fashion. I would like to thank Hansard; our Page, Paula; the Clerk of the Committee, Elizabeth Murphy; the one member of the media who sat with us with his camera during the evening.

I would also like to thank the two ladies who sat as guests for the evening, first in the public gallery and then in the Speaker's gallery. Thank you for bearing with us. I thank you all.

On motion, the Committee adjourned.