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

MR. CHAIRMAN (P. Dicks): Order, please!

I would like to call the meeting of the estimates committee for the Department of Finance to order.

The people from Hansard indicated to me, Mr. Minister, that when your officials speak they should identify themselves, the reason being that the delicate voices of the members are well known to the people of Hansard, but not necessarily those of our benighted civil service. So, Dr. Kitchen, I would ask you to make any opening statements you wish.

DR. KITCHEN: Thank you, Mr. Chairman. I think first of all what I would like to do is to introduce the people who are here to help me with this difficult task of defending my estimates before this committee opposite. On my right is the Comptroller General of Finance, Mr. Carew. On my left is the Deputy Minister of Finance, Mr. Gilbert Gill. Over here on the right again, in back, is Mr. Ray Gruchy who is the Assistant Comptroller General in charge of government accounts and internal auditing. Next to him is Bob Clarke, Assistant Comptroller General in charge of tax collections. Next to him is Phil Wall, Assistant Deputy Minister of Finance, who is in charge of debt management and pensions. Next to him is Fred Lyall, who is an accountant with the Department of Finance looking after the department's accounts - just the departments within the department, and for both sides of our department. Missing is Assistant Deputy Minister Bob Vardy who supervises the tax fiscal policy and tax policy.

I would like to say a few words. I would like to just give you a brief overview of some of the things that have happened in the Department of Finance during the past year, and some of the things that we anticipate doing that are different from what we have been doing in the past. I think I will start with Ray Gruchy's department - government accounting. I think, Ray, the main thing that we have been doing is computerizing, upgrading our computerization of accounts, so that things become extremely efficient.

AN HON. MEMBER: Could you turn up the volume a little bit?

DR. KITCHEN: Oh, I will shout a bit louder.

AN HON. MEMBER: Yes.

DR. KITCHEN: Okay.

What we have been doing in government accounting is basically improving our computerization of accounts so that things become more effective and efficient. In the tax collection part of it, which in my view is one of the hardest jobs of government, the most thankless jobs of government in some cases and sometimes the most thankful jobs of government, because we have so many people coming in, business people and others, who talk to us about taxes they collect, so that particular group collects all our taxes. They collect the retail sales tax, almost $600 million worth every year from businesses of all sorts, both in the Province and they go outside the Province. We have a series of auditors up there who move around and travel, and we have people who help out businesses in getting their accounts established. Then we have the collectors up there who, when things are not sent in on time, get on the phone and take various steps to do it.

This past year we have gained experience with the payroll tax, and this coming year because the payroll tax is going to be extended down as far as the ceiling is concerned, we are going to collect now from everybody who has a payroll of $100,000 or more, that means we will be having to hire a few extra people - not a lot, but a few, to help us with that.

Then we have also been entrusted, or will be entrusted now starting the first of July, with taking over the remnants of the school tax and collecting all these arrears. So that is an extra responsibility, a temporary one, for the tax collection department. That is about all I can say on that.

On the pension side, coming back to the other part of the department now, the part that Phil Wall is running, he looks after debt management and pensions, and just a word about pensions. We have changed the pensions quite a bit now so that the current cost is now paid for, so that this deficit that we have in the pension fund will remain more or less stable in the future; it will not be added to, because we are covering the current service cost. So every year that a person gets pensioned, that you build up in your pension fund now, the employee pays so much and the government pays so much, and that is enough, when it has been properly invested, to take care of the additional pension that person will be getting for that year's service. So the current service cost is being covered - it is a major change - for all three pension funds; but one is not handled yet, and that is the MHA's pensions. We are hoping to be able to come to grips with that in the coming year; maybe it will not take too long.

Another thing that has happened in pensions is that there has been a transfer of the administration of teachers' pensions from the Department of Education to the Department of Finance. The small contingent of people there, I think there were five or six in the teachers' pensions, are now working for the Department of Finance in this building.

On the debt management side a number of changes have taken place this year. You know interest rates have gone down and that enabled us to refloat, to pay off some of our loans that were callable, and to replace them with loans at lower interest rates, saving the government considerable sums of money.

In addition to that, we have increased our treasury bill borrowings from $10 million a week, these thirteen week treasury bills, which is about $130 million - a maximum of $130 million we had all along - to $22 million a week. We have done that to enable us to take advantage of the fact that short-term rates are lower than long-term borrowings and debentures. That too has saved us considerable sums of money. These are two of the major changes in the debt management side.

The other part of the department, fiscal policy, I would like to say a few words about tax policy and fiscal policy changes. Fiscal policy is largely concerned with negotiations with the federal government with respect to fiscal arrangements, and they were concluded this year but normally these are five year arrangements on equalization, on EPF, and all the other transfers from the federal government, and these are now going to be in place only for two years to enable further changes to be made before they are locked in for five years.

A couple of major things have happened in Canada as a result largely of the activities of the people in our department. One is that the federal government has decided that they are going to look seriously at the notion of expenditure need. Under the constitution, the equalization clause there, I think it is Section 36, states that provinces should have comparable levels of service at comparable levels of taxation. Up until now the equalization has dealt with comparable levels of taxation and it has not looked at the fact that in Newfoundland, for example, it is harder to provide a given service because of our geography and the terrain and things like that than it would be, say, in Alberta. It is harder to dig a road in Newfoundland than it is to put one across Alberta, or across the prairies of Saskatchewan. So we feel that this concession by the federal government to explore seriously this question of expenditure need will be of great value to this Province should it be realized.

We have had people study that and we will be increasing slightly the size of that small division to study expenditure need in great detail. We have also, on the same thing, been able to get the federal government to look seriously at the question of tax back on offshore oil because right now if we get revenues from offshore oil we get our equalization reduced just about dollar for dollar. This doesn't seem much of an incentive to develop offshore oil, so the federal government has agreed to study that more seriously. These are two major things that have happened I think largely because of the initiative and hard work of our department, also I would like to pay a tribute to the federal government as well in this because Mr. Mazankowski, whom I used to know in another life, has been very thoughtful with respect to his dealings with this Province on some points. So the federal government agreed to do what we asked them to do, and they did with a will. So I would like to pay a tribute there because it is deserved.

Now on the tax policy question there are two parts to that part of the department. The tax policy side: we have in the last year or so been engaged quite seriously on the question of whether we should harmonize with the GST and what direction the sales tax should take. We have had a general look at this because there are many possibilities or roads down which we could go. We have narrowed these down considerably after considerable public input. We had quite a number of briefs presented to us. I can't remember exactly how many, maybe it was sixty to eighty or more. It was a large number. I have a great big binder with them all in it, and I have read them all. We have looked at it and now we are going to look precisely at whether we will harmonize with the GST, lower the rate and extend it to the services side, and what it will mean to businesses.

So we have already asked them for their input, other sectors of the community, not just businesses, to give us their input as to how, if we harmonize - now that they are use to the GST - how about if the Province goes along with that and taxes the same items and the same services that they do, how that will affect each business, so everyone will know how the GST affects them so they will be able to tell us how the other will affect them - if it will be harsh. We have some pretty good ideas how it will be, but we want to check it out very thoroughly because we don't want to do anything that would be inappropriate. So that is a major thrust of the tax policy division in the coming year.

Mr. Chairman, I will be very glad to answer questions on our estimates here in the estimates book running from pages 27 to 36. They are not very long actually. We might be out of here in half and hour. Now that is basically our estimates in that section.

The consolidated fund which also comes under the department is usually examined, as I understand, Mr. Chairman, in the House itself rather than in committee. Though I suppose if people do have questions on that I don't see any particular reason why, if you so desire, I wouldn't answer some questions here as well. Anyway, we are ready.

MR. CHAIRMAN: Thank you, Mr. Minister. Perhaps we will start with Mr. Winsor.

MR. WINSOR: Obviously the estimates book runs from page 27 to 36, but another document with which the Minister of Finance might have some familiarity with is obviously the Budget of 1992 which he delivered in the House. But first I want to react to some of the issues that the minister raised and one of them deals with the pension funds.

The minister indicated that the pension fund is stable, henceforth on, I would assume that the current service cost basically will take care of any of the pension funds that will accrue from this day forth, type thing. The minister failed to address the question of the unfunded liability, which is considerable, and I think I will come back to it later on, but I do not know if the minister will want to react to it in a few minutes.

The infamous payroll tax to which the minister alluded, I am sure the minister has had representation as we have, from a number of small businesses out there who feel that that payroll tax will impact significantly on them. For example, a business that last year had a payroll of $350,000 for example, we will just use that, last year paid a payroll tax at 1.5 per cent on $50,000, and this year that same business is paying the payroll tax of 2 per cent on $250,000. Certainly in the construction sector, a small business, electrical, carpentry and so on it would not be unusual to have that kind of a payroll during the summer and the ones who have voiced concerns to me, indicate that that could have a significant impact upon their businesses to the extent that it would take one person paying them $300 or $400 a week, ten weeks which is basically the summer work, they are quite concerned that they will be unable to afford it because there are a number of other businesses that are marginally smaller, who will not be impacted by the payroll tax and they are going to find difficulty in competing. I wonder if the minister did any studies before he implemented this as to the impact this tax would have particularly on small businesses.

In 1991 if I recall, the old policy of tax reform came up in the back section of the Budget, a discussion paper I think it was referred to in the paper, and the minister spoke then of harmonizing GST and the retail sales tax with a one standard tax across the board. The minister had a full year to study it, he has had input from a number of people and there certainly are some thoughts and confusion as to what direction this Province is going to take. Are we going to harmonize completely? I think one province might have done it already, why didn't the minister choose to do so, and does he intend to do so? On the matter of transfer payments, both transfer, equalization and EPF, could the minister give some indication as to the actual difference in money we received in 1992 as opposed to 1991. I will stop there now.

DR. KITCHEN: Okay. I can answer three, I may need some help on the fourth one, on the EPF, because I do not have the precise figures in front of me now.

The unfunded liability of the pension fund: the three pension funds together I think, are somewhere in the vicinity of $2 billion or maybe a bit over $2 billion. The year before last, I think, when we found it out first, we put in $20 million to start, covering the unfunded liability, with the thought that we would try to make periodic contributions into that fund. We were unable to do so this year because of budgetary restraints but it is still our intention to put money into the pension fund, and over time to reduce the unfunded liability perhaps to 50 per cent or something of that nature. We are on that target at the moment but we did not do anything this current year and we did not do anything for the last year. What did we do last year? I cannot remember when it went in but we did put $20 million in.

MR. WINSOR: Of that unfunded liability - you say it is $2 billion now?

DR. KITCHEN: Yes, it was something over $2 billion.

MR. WINSOR: That is based on actuarial studies that have been done?

DR. KITCHEN: Some of the actuarial studies are somewhat dated now, because we do it every three years.

MR. WINSOR: What is included in that? Could the minister give some indication? What is the assumption, in those studies?

DR. KITCHEN: Well the assumption is that if government stopped operating now - no more collections, no more government putting in - and everybody drew out what they were entitled to draw out, and they lived until they died and kept getting their pension, and their survivors took out what they were entitled to, we would be $2 billion or so short, and the teachers' fund would have run out - I cannot remember the year, 1997 or something like that?

AN HON. MEMBER: 1997.

DR. KITCHEN: 1997, and the public service pension plan some time later.

MR. WINSOR: But that is on the assumption that contributions cease?

DR. KITCHEN: Yes, that is right.

MR. WINSOR: Is that a fair assumption to take, because I see these figures all the time.

DR. KITCHEN: Yes, but if contributions are made then the amount that you can draw out increases. What we are doing now is that our present contributions take care of any additional liability that is established for the year. So if an individual puts in his 6 per cent and the government put in their 6 per cent, and that is properly invested in our fund, that is part of the point, then that will accumulate to enough to pay him that additional year's pension that he has built up. So it will not get any worse in that sense, but the unfunded liability will still be there.

MR. WINSOR: Of that $2 billion, or the unfunded liability of the pension plan, how much of it is a result of government for a number of years, I think from 1949 up until 1979, not matching dollars? I know that the contracts usually say that the government is responsible to maintain the pension plan - but in the actual dollars and cents, what is the government's share that, I guess, it owes that pension fund?

DR. KITCHEN: Yes, how much of it was caused by government not contributing to, or in the case of the Public Service Pension Plan, neither government nor employees contributed until a particular year. I cannot remember the year.

AN HON. MEMBER: 1967.

DR. KITCHEN: Until 1967, alright, so some of it was caused by that policy; but as far as teachers were concerned, teachers had been contributing a portion, 3 per cent or 4 per cent, and government had not been contributing anything until about the same year... was it?... that government started contributing to teachers? I do not know the exact date.

AN HON. MEMBER: The same date.

DR. KITCHEN: It is the same again. Government started contributing then, but teachers had been contributing for many, many years before that; but even the teachers' contribution was not sufficient to pay the teachers' share of the liability that was set up each year, but the government -

AN HON. MEMBER: You said -

DR. KITCHEN: Now I cannot break down at the moment that $2 billion to tell you how much was due to each of the policies, but I believe it is contained in the task force or commission we have set up on pensions. I have a feeling that we may be able to get that figure for you.

MR. WINSOR: If I understood what the minister said then - and it is the first time I have ever heard it and it certainly is not what has been said before - the minister said that the government started to contribute to the teachers' pension fund in 1967, in actually putting in dollars?

DR. KITCHEN: Is that right?

AN HON. MEMBER: 1980.

MR. WINSOR: I think 1979 or 1980 was more like it.

AN HON. MEMBER: That is when we started funding as opposed to -

DR. KITCHEN: We started funding the teachers' pension plan in 1980, the government did.

AN HON. MEMBER: (Inaudible) start funding everything.

DR. KITCHEN: But now the teachers - what about the 1966; is that -

AN HON. MEMBER: That is when we started contributions.

DR. KITCHEN: Oh, government did not even fund the public service until 1980, is that right?

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Okay, I am sorry if I mislead you. I just misunderstood the comment. So the public servants began paying in in 1980?

AN HON. MEMBER: They began paying it in in 1967, any contributions, but they went into the consolidated revenue fund.

DR. KITCHEN: Okay.

AN HON. MEMBER: In 1980 they started to actually fund.

DR. KITCHEN: So there was no fund before 1980? Okay.

I am sorry about that.

MR. WINSOR: I understand that system, but I have seen all those studies and occasionally there is some speculation as to what government's liability is, in that for all these years with the teachers' pension fund the money just went into general revenues to build roads, hospitals and water and sewer throughout this Province. I've seen some studies that the NTA has done, whether they're accurate or not, as to what should be in that fund had government matched dollars and that had been invested wisely. I know the NTA did one a number of years ago. I'm wondering if the government has done a study and got a breakdown of the individual components of each plan.

DR. KITCHEN: I don't know. I seem to remember that question was addressed in the Commission, but I don't know for sure, so I can't give you the breakdown here now on that. I can say that the government has accepted the unfunded liability as something that the government will put in. It's not something that we're expecting the employees to fund. We are expecting employees to share 50-50 the current service cost, the additional amount that we're building up. But as far as the past is concerned government has assumed full responsibility for funding that when the time comes.

On the payroll tax question, and its impact on small businesses, we have increased the amount of the payroll tax and we have lowered the threshold to $100,000 from $300,000. Some businesses whose payrolls are in the order that you indicated will be paying more payroll tax. On the other hand you have to realize that some of these businesses - perhaps all these businesses - were paying school tax as well. Now they will no longer pay the school tax. So the actual impact would have to be - in assessing the impact of the increase in the payroll tax, one would have to also look at the impact of the reduction in the school tax.

We have had very little negative reaction to our move from businesses on the payroll tax, almost none. We've had some. The people who are hard hit by the payroll tax, at least in the first year when the change is made, are those people who are heavily into labour. Anyone with labour contracting. That is all they do. They don't have any premises, they're basically labour contractors. They contract labour out to other businesses and so on. Their payroll was up, and they'll say: well, sometimes we're caught in a fixed contract. Well, sometimes the contract is not fixed, so that it can be adjusted for taxes; sometimes the contract is fixed for a period. Then at the end of the period it can be adjusted. Some of these businesses didn't pay much school tax. Some operate out of a small office.

So it is true that there is a minimum, a very small number of businesses which are negatively impacted by the payroll tax, and they have made their concerns known. It's not that drastic and it's not going to be permanent, they're not going to be permanently injured. The thing to remember is that the total impact on business of our moves this year was positive. Businesses this year paid $2 million less in taxes than they paid last year as a result of the elimination of the school tax and the substitution of the payroll tax.

Anyone want to explore that one a bit more?

MR. WINSOR: I take exception to the minister's remarks. I don't think the business community that I've talked to - I talked to some fish plant owners, I talked to owners of small businesses - that certainly doesn't reflect in the information that they have. I see certainly that there would be very little difference maybe in the owner of a large building here in St. John's, who paid a significant amount in school tax through the mil rate assessment.

It doesn't take into account the reality of what is happening out there. Small businesses might have paid a property tax of $1,000, but they could have a significant payroll. I think that at the end of the day when the minister's assessment comes in he will find that it has impacted much more severely. In fact I know already of three businesses that have told their accountants to find one person in the system to lay off because of the implementation of the payroll tax. It is, again, all in service sectors where they pay virtually no property tax because many of them could operate out of their homes or some small shed, ten by ten if you are into the carpentry, electrical, plumbing, that type of thing, and they didn't need to have buildings.

DR. KITCHEN: There aren't too many carpenters who have payrolls of $350,000. We are talking about a $100,000 payroll. If you are talking about part-time people in summer employment, you are talking about quite a large business. The minimum wage comes to about $8,000 per year, and on $100,000 that is about ten or twelve people. If it is only a part-time operation, let's say three months a year, that is the equivalent of thirty people. So we don't want to exaggerate what is happening out there. Overall, businesses are pleased and they sure as heck haven't made any representations to me about reinstating the school tax.

MR. WINSOR: The minister keeps using that line, about reinstatement of school tax. I don't know when anyone has called for the reinstatement of school tax. Since he brought the subject up I am curious. Two things have happened with school tax: one, the announcement of its elimination effective June 30. Under the present guidelines that we have, if a person's income is below $7,000 a year, they are exempt from paying school tax. Because of the seasonal nature of employment in Newfoundland, it is quite conceivable that a number of people's income will be substantially reduced. What provision, what kind of formula is being used to allow people to write off that portion of the income tax as an exemption as it presently does, if you don't make $7,000 you are exempted, how does government intend to address that?

DR. KITCHEN: Government is unable to address that question because we can't exempt A from paying income tax and not B. Income is a general tax that is collect (inaudible) -

MR. WINSOR: I think the minister might have misunderstood. You are liable to paying school tax from January up until June. Under the old system, if you went from January to December and you made less than $7,000 you would be exempt from paying school tax. Now every person who is on the role of the school tax gets a bill saying that they owe $130 of which if they pay $65 before June 30 then the rest will be forgiven. Is there now a threshold at which a person doesn't have to pay school tax?

DR. KITCHEN: It is $7,000 for the calendar year, so that when the person pays his $65 or whatever it is he has to pay, and at the end of the year he comes in income tax wise under a threshold, we will issue a refund. We don't know until the end of the year, for those people who are on the margin, whether they are taxable or nontaxable. They pay and then we will get them a refund. I just want to check that. That is correct.

MR. WINSOR: I am finished for now.

DR. KITCHEN: There are a couple of more questions, Mr. Chairman, that he asked.

MR. CHAIRMAN: Yes.

DR. KITCHEN: One has to do with why didn't we harmonize recently -

MR. WINSOR: I didn't ask why. Are you going to, or what do you intend to do with it.

DR. KITCHEN: Okay, I thought you were asking why we had to do further studies. I won't answer that part. We haven't decided whether we are going to harmonize yet because it depends - and I will refer to what I was going to say before because when we looked at it last we could have harmonized, but the problem of harmonization was that we would have to allow businesses to get rebates equivalent to $180 million or something like that. I think it is $180 million that businesses pay in retail sales tax. Under the goods and service tax method, businesses get rebated pretty well all they pay and what we would have to do, would be to replace $180 million, and in order to replace $180 million for the government to break even on it, we would have had to increase other taxes by $180 million, and part of that could have been accomplished by the spread into the services because we would be taxing services and certain items for the first time, but, even if we had done that, we would not have been able to retrieve $180 million and we would have had to raise other taxes or, the economy, if the economy were on an expansionary mode, some of the taxes that were in place might be able to realize more funds so that we would not have to raise the tax quite as much, so when we came to that decision point last year, we decided that this is not the time to do it and also we had a lot of questions about the precise impact on a variety of businesses that we were not able to answer as well as we would like, so that is why we decided to do it and so, when you asked the question, will we harmonize?.. the answer is the decision has not been made, but I think there are great advantages to harmonization from the point of view of economic expansion in this Province, because the Province is basically an international trading Province, Newfoundland has always been an international trader; almost all our products are sent outside the Province and in international trade the person who has the business without retail sales tax in it, that province is in a very good - it gives a great boost to businesses engaged in international trade and indeed in interprovincial trade as well, so from our point of view there are many advantages to this Province to harmonize; now there are certain disadvantages as well of course. I do not know if the member wants to pursue that point a bit more or -

MR. WINSOR: Okay.

DR. KITCHEN: The other one, the member asked the question, what did we get from EPF? What we had planned to get this year as opposed to last year? We are estimating we will get $945 million in the coming year and last year the revised budget was $886.5 million that is on equalization and on EPF which is your question, it is down this year. We are estimating we will get $222.8 million and last year we got $224.5 million, so we are estimating that on EPF we will be down a bit this year, but on equalization, we will be up. Any more questions?

MR. R. AYLWARD: I have just a couple of brief questions. Can the minister explain to me what was the change he made this year in the Budget on the Newfoundland Liquor Licensing Board and the Newfoundland Liquor Board?

DR. KITCHEN: The Liquor Licensing Board in last year's estimates, the cost of operating the board was included in our estimates in finance. Now, the Liquor Licensing Board is part of the organization, the Liquor Licensing Board employees and their operating are part of the Newfoundland Liquor Corporation and they will be paying out of their revenues. The two boards are distinct, the only link being the Chairman, but the two boards have different people on them, they had to preserve the integrity of the Liquor Licensing Board so that it would not be dominated by the Liquor Corporation, but the estimates of the Liquor Licensing Board have been moved from the Department of Finance to the Newfoundland Liquor Corporation.

MR. R. AYLWARD: Does the minister see any conflict of interest in the way it is set up there now? The Newfoundland Liquor Commission is in the business of selling booze, as much as they can hopefully, and wherever they can, and now the board is indirectly under their control. Would you not think that it would be more to the Newfoundland Liquor Commission's benefit now to have liquor licences, as many as possible, and as scattered as possible, so they can get as many outlets as possible?

DR. KITCHEN: Well I guess what you are saying, there is a potential danger there; but the reality is that the Liquor Licensing Board can have five representatives, one of whom is the Chairman. The Chairman of the Liquor Licensing Board is also the President of the Liquor Corporation. That is the only connection, except for the employees. So the board itself, which revokes licences and gives direction to the employees of the Liquor Licensing Board as to the policies that they must carry out, that board is, apart from the chairman, different individuals and they are appointed; but there is that possibility, I will grant you, there. We have to be very much on guard against that.

MR. R. AYLWARD: Did the minister or the Premier have any say in revoking the beer licence in North West River?

DR. KITCHEN: The licence was revoked by the board after a hearing. As I understand it, the person was asked to come before the board for a hearing and the board then revoked the licence. I think they temporarily suspended it prior to that meeting because of some information that was made available.

MR. R. AYLWARD: The public information is that the person who applied or was given the licence had a record.

DR. KITCHEN: Yes.

MR. R. AYLWARD: Has the minister had any investigation done on the possibility of that person's wife getting the licence now, because the reason for refusing the licence is not the case if the other person who is a partner in the business applies.

DR. KITCHEN: Well normally I stay out of all of this unless someone makes a complaint. If someone complains, about not only the Liquor Licensing Board but any part of the department for which I am responsible, I look into it; but I do not usually go in and tell people what to do. If somebody does not like what is going on in tax then I will listen to the tax collector out there, the person, the business who comes in, and listen to their point of view. Then I will arrange a meeting with people in the tax collection department to make sure that there is an understanding; but I will never, ever, tell the people who collect tax to revoke this and do not do that, alright; the same with the Liquor Licensing Board. If that person were to - because some people come to me and say: You know, it would be nice if so-and-so had a licence. So I say: Well I will make sure that remark is passed on, but I will not be advising one way or the other. I will just be making sure that this communication that you make gets where - you can pass it on and make sure that is there. If someone should not have it, I will pass that on too, but it is not my recommendation; it is just the communication channel.

If anyone who has been denied a liquor licence comes to me with a very strong case, I will ask the Liquor Licensing Board to look into it, but I do not tell them to change it and I do not mean for them to change it if they should not. It is just a matter of - that is how I operate anyway. I do not know if it is right or not, but that is how I try to operate.

MR. R. AYLWARD: I do not necessarily disagree that the licence was suspended, by the way. I am not saying that. It is a very sensitive area up there and I believe that you or somebody, because it is such a sensitive area, should be involved in it directly.

DR. KITCHEN: Well, it is a sensitive area; there is no doubt about it. I do not know what will happen, what the board will do. It will be an interesting conundrum if some other person applies for a liquor licence in North West.

MR. R. AYLWARD: It is a tough situation.

DR. KITCHEN: Yes.

MR. R. AYLWARD: I tried to restrict the sale of yeast in Nain when I was there. It is a big problem up there. If it is not selling beer it is home brew.

You mentioned when answering questions from the Member for Fogo that overall businesses saved somewhere around $2 million, I think you said, in taxes, when you take away the school tax and put on the payroll tax. Do you have any figures in what areas were saved the most? You take Newfoundland Light and Power company, which was paying a lot of school tax throughout the Province, I guess they're paying triple the payroll tax that they did last year now, because it went from $300,000 to $100,000. Is there a figure on a corporation like Newfoundland Light and Power or the telephone company or Hydro, one of those large companies that would have fingers into every community, no doubt, and were probably assessed in every community for school tax? Do they say whether they lose? Do we know?

DR. KITCHEN: I don't have that before me now but we did do a rundown as to how much people would be affected by the payroll tax. I'm just trying to figure out what the amount was but I can't remember the amount. I don't know if the Member for Fogo remembers the answer I gave in the House one time when you mentioned some fish companies. I went and checked it out. I had it at my fingertips then but I don't have it now. That's something that I could find out, though. You don't want necessarily to know the increase in a particular company.

MR. R. AYLWARD: I would like to know how Light and Power made out. A large, affluent company as compared to a service station in Kilbride which would have fifteen employees, because it's open twenty-four hours a day, and it's a marginal operation.

DR. KITCHEN: We'd have to find out how much Newfoundland Light paid to the twenty-odd school tax authorities and add that up. Then our payroll tax calculation would be pretty straightforward and we'd have to subtract one from the other. I guess we could find that out, but I don't have that figure.

MR. R. AYLWARD: Maybe you could supply it to the Committee later on.

DR. KITCHEN: Pardon?

MR. R. AYLWARD: Maybe you could supply it to the Committee some other time if you get it.

DR. KITCHEN: Yes.

MR. R. AYLWARD: One other thing which had to do with the question one time from the Member for Fogo on the fish companies, fish plants in particular, that are now charged payroll tax. One of his questions at the time was the implication of fishermen on the payroll. Can you remember what the answer to that was? Because I can't remember. Are the fishermen considered part of the payroll or just the fish plant workers?

DR. KITCHEN: No, people who work on trawlers are part of the payroll but people who are in long-liners aren't.

MR. R. AYLWARD: Inshore fishermen who would be getting deductions are not -

DR. KITCHEN: Inshore fisheries are (Inaudible) payroll, yes.

MR. R. AYLWARD: It is on the payroll?

DR. KITCHEN: Pardon?

MR. R. AYLWARD: An inshore fishermen who gets deductions taken out from the product he sells. That's not -

DR. KITCHEN: No. His unemployment is taken in that thing. That's a special arrangement that's made. But we have no such arrangement on the payroll.

MR. R. AYLWARD: In the minister's Budget there was fairly significant mention made of all the licence fees and I don't what else you call it. Licences, I guess, and fees and everything else.

DR. KITCHEN: Fees.

MR. R. AYLWARD: Yes, whatever it was called. The reduction in these things. I think the critic said there were only seven really eliminated. The rest of them were...

DR. KITCHEN: Yes, that's right, I remember the critic's comments. The problem in the Budget is that I don't get a chance to respond until the end. So I have all these things ready to respond and I haven't responded to it.

I believe they're in the back of the Budget, so perhaps I could just look at that and comment directly. Because what he said wasn't really correct because he was saying that we didn't eliminate any of the paper burden. We really did eliminate a tremendous amount of paper burden. I'll just go down through here, some of these things now, to indicate that... just a second now.

The only licence a person will need now is a new licence. A new person getting a liquor licence for the first time will need it, but he will never have to renew that licence or have to pay for it again, alright? So the only paper burden is at the first time. It is not an annual paper burden; it happens once.

AN HON. MEMBER: That was for what?

DR. KITCHEN: If you have a retail store and you have a beer licence, or if you have a lounge, if you have your licence now you keep it. There is no further charge that you will ever have to make for your liquor licence, and there is no more paperwork on that, alright, unless you lose it. That is a different point, or if it was taken away or something like that, but as long as things are operating normally there is none.

A lot of these things are in the same vein. For instance, looking at development we have eliminated the fee for tourist development. We have not removed the licence, but once he has his licence he keeps it.

AN HON. MEMBER: What one was that did you say?

DR. KITCHEN: That is the tourist establishment licence. That is the first one on Schedule B in the Budget. So if you have a tourist establishment with nine rooms or less, you used to pay twenty bucks a year, and that involved sending in a cheque and getting your licence renewed. Now you have your licence; you do not have to renew it next year; no twenty bucks, and nothing to send in either.

AN HON. MEMBER: Had to renew it this year, though.

DR. KITCHEN: Yes it is now renewed. We did not give the money back because they had already paid up last January; they have a certain time to pay. So next January when the time comes they will not have to pay any money and they will not have to have any paper burdens sending in letters and all this old stuff. I think perhaps the letters, in many cases, were more important than the money, the actual nuisance of trying to remember to send in your licence. The same thing is true with most of the other stuff here.

We hope to be able to go even further than that this year, and we have a person and a bit assigned to do that. We are going to try to concentrate on a couple of departments where we did not get much this year because we did not have time to finish this. We are hoping to get as much as this because there is a big problem. It has been identified by The National, that thing that Peter O'Brien heads up for the Atlantic Provinces, that there is a tremendous amount of paper burden, particularly on small businesses. A large business probably has an accountant who can handle it, because that is all he does. With a small business where the owner is also the operator of the business and doing the books in the night, and stuff like that, we want to eliminate as much of the paper burden as we can. We have not really started to make a dent in it yet, a little bit but not much.

MR. R. AYLWARD: The idea for the eliminations, as you say I guess, was to save the paper burden for government as well as anyone else.

DR. KITCHEN: Exactly.

MR. R. AYLWARD: But there is one example you gave as an elimination of a fee, birth certificates. Now what could you save by eliminating a first time birth certificate? What kind of paper burden - I do not know of anyone who, when they have a youngster, does not go out and get a birth certificate before they are five or six and go to school.

DR. KITCHEN: Yes.

MR. R. AYLWARD: So you do not save anything.

DR. KITCHEN: Well maybe I should not say that here, but this is step one. My thought is that we eliminate the damn birth certificates completely so that if you want your birth certificate for some reason, and you usually want it for some governmental reason, to get a passport or to prove something or other to government, then the government issues you a birth certificate; but there is a lot of money in birth certificates and we did not have the money. They cut me back. I got so much money I could eliminate, but they said: We cannot spend all our money eliminating taxes; so, sorry old man. So next year I will be back for that one. I do not know if I am going to get it, but I will try.

AN HON. MEMBER: (Inaudible) budget leak.

MR. R. AYLWARD: A budget leak for next year. Well he will not have a budget next year.

MR. CHAIRMAN: I think, for the purpose of the record, Dr. Kitchen, the intent is to eliminate the fee, not the birth certificate.

DR. KITCHEN: Yes, that is true.

MR. R. AYLWARD: No, but what is the sense of eliminating a fee for one time only? The major fees, or the major paperwork, or the major saving to government would be to eliminate it - period.

DR. KITCHEN: Every child that is born, automatically now gets a birth certificate sent to the mother, and maybe that is the only one they will ever need. They may need another one later on if he or she loses it.

MR. CRANE: It is always full of people down there looking for birth certificates.

MR. R. AYLWARD: Now I do not understand that. Every youngster that is born will get a birth certificate sent automatically, and a ten dollar bill for it?

DR. KITCHEN: No bill. The initial one is free.

MR. R. AYLWARD: Oh, I see.

DR. KITCHEN: There was some confusion about what initial meant because some people were coming and saying: Here I am, I'm forty years old, I've never had a birth certificate and I want my initial birth certificate. That sounded sensible, but what I meant by initial - it was my fault because I should have been clearer in the Budget Speech - I should have said that when a child is born the birth certificate would be issued free of charge to the parent for that child.

MR. WINSOR: Automatically or only upon request?

DR. KITCHEN: Automatically. That is what we instructed the Department of Health to do. The birth has to be registered. Once the birth is registered the certificate is supposed to be mailed out.

MR. R. AYLWARD: So what other fees or licences were done just for show rather than for any general benefit?

DR. KITCHEN: That wasn't for show. They are all pretty general -

MR. R. AYLWARD: There is no general savings to government for sending out one birth certificate free. You didn't save any paper burden. I mean this was the intention of it.

DR. KITCHEN: No, it is not just paperwork.

MR. R. AYLWARD: You are still doing the same thing. You are still sending out receipts for $10. You still have people down there collecting it. You still have cashiers down there to do the same work that they did six months ago.

DR. KITCHEN: There is a partial break there in the sense that some of the people will never have to contact the government for a birth certificate. They have one. Everyone in Newfoundland from now on will have a birth certificate. The only question is they may lose it or they may not retain it and they may need two in which case the second one under the present rules, they will have to send for it again. From the point of view of the citizen, they gain from that in my view because it is an automatic procedure now. When the birth is recorded, the birth certificate is sent out because the birth does have to be recorded. The same group who record it can issue the birth certificate.

MR. R. AYLWARD: It is not the same for that fellow who was forty years old to get one because he didn't want one when he was one year old and he wouldn't have kept it until he was forty.

DR. KITCHEN: You have to keep track of it, yes.

AN HON. MEMBER: (Inaudible).

MR. R. AYLWARD: He only wanted it because it was free probably.

The Newfoundland Stocks Savings Plan, that is eliminated completely now.

DR. KITCHEN: The plan is not eliminated but the money is, so in a sense it is on hold. There is no money for it this year, but we haven't revoked the legislation.

MR. WINSOR: I want to find out about parks. It is a pet peeve of mine because I think the minister last year sent people into gravel pits by the change of taking the people who were sixty-five years and older who were senior citizens and many of them were campers and charging them fees. I drove this Province several times last year, and for the first time I have seen villages spring up all along the coast within two to three miles of a provincial park. The reason was simple, several seniors told me that they leave their homes in June month and there are little groups almost like caravans, it is not like the big airstreams that come in from New York somewhere, it is senior citizens in pickup trucks with a little camper on the back and so on.

They, for a number of years, travelled and got together in the provincial parks in the province, stayed a week or two weeks there then they moved on to another place. I went on throughout the province everywhere, and last year for the first time they had to start to pay the fee of whatever it was, $7 to $10 a day seven days a week because they were camped in the park for seven or eight days. They chose not to pay it, so they set up those little villages all along the coast of Newfoundland. The part of the coast that I live where a lot of people go berry picking bake apples - I shouldn't tell you that because you might come out next year - but all along, every place that normally would have been in the park you couldn't even get a place to pull off the side of the road because there were fifteen campers out there. How much extra revenue accrued in provincial parks last year as a result of the imposition of the $10 a day charge or whatever it was for seniors?

DR. KITCHEN: We can check that, I guess, or try to. The reason wasn't a money saving device. The main reason for that, if I remember correctly, and I think I do, was that there were a lot of complaints from non-seniors. In some parks seniors would block off the parks and leave their campers there the whole summer regardless of whether they used them or not. Not only seniors, but other people as well, but particularly some seniors. When some other person wanted to use the park, for their family for instance, there were no places there because they were all taken. I think that was the reason.

MR. WINSOR: Yes, the reason was - because I remember going through it last year - it was on a number of weekends, and specifically about three weekends during the year when that occurred. The rest of the time these parks are vacant. Most of them in this Province are vacant during the week. From Monday until Friday the parks are vacant. If there are fifty campsites there are ten to twelve utilized. The rest are vacant.

So if you had to do something with it the simple solution could have been to charge them for weekends, these specific weekends. Because what we've done is set up again the underground economy for the people who are outside the parks. While most of them have been quite good with their garbage, there's the occasional person who chooses not to be. There's no sewer disposal facilities, no water, so they have to do all kinds of things. Is any consideration being given? It should be interesting to check the utilization of the parks last year compared with the year previous.

DR. KITCHEN: That's probably within the department that looks after parks. I think it's Environment and Lands. But I can look at the revenue figures here, and our revenue figures last year were $600,000. Now, I don't have the previous years, but this year coming up we're estimating it'll be less than that by $466,000 but that's not an answer to your question.

MR. WINSOR: That's the elimination of the seasonal -

DR. KITCHEN: Because that's because we've been eliminating these day figures, right. I would have to look up the year before that in order to get (Inaudible) -

MR. WINSOR: Well, what department?... I'll tell you, I have the 1991 Estimates there.

DR. KITCHEN: Have you? The revenue is shown under Exhibit II in the new book. In the old book it's probably still Exhibit II, in the back, over in the back. Over in viii, Roman eight, over in the back, in the new book. So it's probably around there in the old book.

AN HON. MEMBER: (Inaudible).

MR. WINSOR: The minister can go on, I'll look for it in this book.

DR. KITCHEN: Yes. In the provincial tax sources there's another thing called "other provincial sources," and well down there there's a thing called "park permits."

MR. WINSOR: Which heading did you say it was under then in the...?

DR. KITCHEN: It's under a heading called Estimated Provincial and Federal Revenues, Exhibit II.

MR. WINSOR: Oh, that's 1992, I want this year's.

DR. KITCHEN: Oh, I'm looking at the Budget, sorry, and you're looking at the Estimates. Sorry about that.

MR. WINSOR: In 1991 park permits were $860,000. You ended up with....

DR. KITCHEN: Six hundred.

MR. WINSOR: Six hundred.

Is there any consideration being given to changing this policy?

DR. KITCHEN: I don't know -

MR. WINSOR: Because the minister, if he drove through this Province last year, must have noticed it himself. There's certainly an increase in the amount of what we call gravel pit parking. If you talk to the seniors who are there they'll tell you that it was because of the imposing of this....

DR. KITCHEN: I think it's an interesting point that you make. I shall bring it to the attention of the appropriate minister too. That's the Minister of Environment and Lands, who looks after parks. Maybe she can make a special arrangement for caravans or something of that nature on weekends. I'll mention that, she'll probably have a chat with you about that.

MR. SHORT: There was also another problem there, Minister, in that it wasn't only the seniors who were using the sites. I believe one of the other problems we were trying to get rid of was other family members on sites. Once the senior got in there for free then their brother or son-in-law or the daughter or son or whatever, there was a whole raft of those people who were also taking up park sites, I believe. It wasn't just the seniors using the sites and nobody else getting in, it was everybody else kind of sponging off the system.

MR. WINSOR: The point is, though -

DR. KITCHEN: Through the seniors, you mean?

MR. SHORT: Pardon?

MR. WINSOR: But if they're not being used for these number of days in the week then we might as well have them in the park as out in the gravel pit. On weekends if there's a problem it is an easy matter to address in that everybody who uses the park on a weekend has to pay. But if it is during the week when they are not going to be filled anyway, the amount of revenue you collected was peanuts and in fact was even down from the $860,000 projected and is growing less each year. If that kind of a trend continues the utilization of the provincial parks - and it costs a fairly substantial amount of money to run those parks throughout the province. Maybe that is why they are going to privatize some - I don't know - and cut back the number of weeks that people work there.

In any event, there is certainly a concern out there that people who have used the parks for a number of years simply refuse to do it. It was based on the fact that they were going to have to pay seven times whatever the daily rate is. I don't even know what it is.

Getting back to this year's estimates, last year in 1991-92 the Budget had estimated that the retail sales tax would be to the tune of $586 million. Your revised figures brought it in at $564 million. You are estimating this year at $562 million. In light of the fact that we have seen certainly a dramatic increase in the number of bankruptcies in the Province, the economy is not performing as was anticipated, the mail order catalogue type things are increasing throughout the world, what gives you the confidence, in this recession, that you are going to come even closer to making that targeted figure, because the unemployment rate continues to escalate in this Province?

DR. KITCHEN: I might add that the final figures are in for this year on the retail sales tax, I guess we can call them final. The revised figure is pretty well accurate. That is the final one. I think that is right; $564 million through revised. Virtually the same within a million. Next year we are estimating roughly the same amount, and your question basically, and I can't answer it, is how do we do in April? We won't know in April for a while yet. Usually what happens is that the people who collect retail sales tax have until the 20th to send it in. We wait until the end of the month, and then about the second week of the next month we do an analysis as to what we predicted we would get that month because they predict it on a monthly basis and add them up as opposed to what we actually got. I won't have that figure for this April and I won't have that figure for close to another month yet.

MR. WINSOR: The minister last year, in his 1991-92 Budget, projected $586 million.

DR. KITCHEN: Yes.

MR. WINSOR: We got $564 million.

DR. KITCHEN: Right.

MR. WINSOR: The recession was really just getting a hold then. All the economic indicators out there for this summer, if we believe what we have been told, suggests that the economy is in even worse shape in this Province, and the minister is still projecting $560 million, basically the same as last year, despite the fact that the recession and the UI rate, Hibernia, the failure of the fishery, everything seems to be worsening in this Province. What gives you the confidence to predict this? I hope you are right, by the way.

DR. KITCHEN: Well I can't answer precisely what things went into that, but I could say that there is an inflation rate on most goods. The inflation rate in Newfoundland is projected at about 1.6 per cent for the coming year. So 1.6 per cent inflation on goods, much of which is taxable, would yield more revenue, and that would be part of it. The inflation rate would bring in some extra to counteract some small decline in the economy. The economy is going down .5 per cent; the inflation rate is going up 1.6 per cent, and that probably would be the main figures in that, but I do not know for sure.

AN HON. MEMBER: It is gone up 1.8 per cent.

DR. KITCHEN: 1.8 per cent is it? Oh yes, I said 1.6 per cent for inflation; it is 1.8 per cent. We base these figures on 1.8 per cent inflation and the dwindling in the economy of .5; but the Canadian economy is not expected to diminish in size this year, and the equalization payments are going to be greater this year than last year. Some of the money that people spend is not from equalization payments; it is from transfer payments, most of which are indexed, are they not? The old age pension is indexed a little bit this year, not much, and the unemployment is indexed. It is all indexed a bit, so all these transfers that are coming in to individuals will be at a higher rate than they were last year, and the number of people getting them, but the rates will be somewhat higher so that there is an inflation figure built into the money that people get. That is probably what caused it, but I would have to ask the people who made the calculations, and that is the one gap that we have here tonight, the projectors.

MR. WINSOR: Okay, you also projected that last year, and basically were right on target with your projection of what your personal income tax would be. This year you have increased it by 517, some $40 million of which I know is going to come about through the increase in the personal income tax because of the school tax. When you did your calculation on the personal income tax for this year, was any consideration given to the fact that the deep-sea fishery was shut down in February, with a real possibility that several thousand people would be thrown out of work for the remainder of this year?

DR. KITCHEN: All of these numbers are built in. The Hibernia jobs are built in and the fishery is built in.

MR. WINSOR: The decline, was it based on a normal fishery?

DR. KITCHEN: We have the economic projections that are developed in the Cabinet and Secretariat, that unit, that economics unit, and they make predictions and they publish that book on the economy. We take their projections and sometimes modify them if we have any particular reason to do so. All that stuff is calculated. Modifications were made for the size of the fishing industry, the total allowable catch and things of that nature, and each industry was taken, itself, and that formed part of the overall projections.

The deputy reminds me that our projections that came out of Cabinet and Secretariat for gross domestic product for the coming year, was -5 per cent on the economy; we were going to shrink by half a per cent. The conference board was still suggesting for us a 4.5 per cent expansion; Toronto - Dominion 2.8 and so on. We were very conservative compared to any other projection.

MR. WINSOR: These were early projections, though. Most of these have been revised downwards since. Those are the projections that came out in January.

DR. KITCHEN: Nothing very much has happened since we made those projections in this Province. Hope Brook has opened. That is the positive thing. Nothing more negative than that. Lundrigans may be a bit of a - we do not quite know how that is going to shake out yet. If it is just a matter of somebody else picking up a car dealership here and there it may not make much of an overall effect, but it will have some effect. So it is pretty hard to gauge the effect that has on personal income tax. If the economy further deteriorates we will not get that money, for sure.

MR. CHAIRMAN: Mr. Short.

MR. SHORT: Yesterday in debate, the Premier raised the issue of current revenues coming from the federal government - transfer payments. This is in exhibit 3 in the budget document (IX). I guess people probably do not understand this and I want the minister to make a comment on this shortly, but since 1989, 1990 and 1991, from federal sources, the money has actually gone down, the actual dollar amounts. The audited figure for 1989-1990 was $1,359,626,000 and then when you get over to 1991-1992, it is $1,328,000,000 -

DR. KITCHEN: Yes.

MR. SHORT: - so, is that a result of the Canadian economy and recession and so on? Transfer payments were less because the economy in say Ontario and places like that was worse, is that what is causing that figure to fluctuate?

DR. KITCHEN: Well that figure, from federal sources is the total of several components, the main component being equalization and the equalization ceiling, because it would have some effect on that. But for the coming year, and you will notice that the figure went up a bit this year, the coming year they changed the ceiling on to this current year so there is no ceiling in effect next year.

The ceiling works this way: equalization can increase as fast as inflation but no faster. If the GDP goes up 10 per cent in Canada then equalization can go up 10 per cent, but if the GDP in Canada stays constant then the equalization cannot go up, even though when you make the detailed calculation showing a particular province is entitled to more, because the entitlement is not quite the same and the ceiling is there to prevent the entitlement kicking in if the GDP for Canada has not risen as fast as the provincial provinces entitlements. So even though when the federal government makes the detailed calculations, and they are very complicated, there are I think thirty-seven separate formulae added together, each one of which is a composite of what goes on in each of the provinces, for a variety of tax revenue measures, and even though a particular Province like Newfoundland may be entitled to a 15 per cent rise over what they had last year, if the economy of Canada has not expanded by 15 per cent, then they cannot collect 15 per cent more. They can only collect as much as the economy has expanded, and that is what the effect of the ceiling has been.

Last year what they did was they changed the ceiling and because the economy has been dwindling a bit, the ceiling really hasn't had a great deal of affect. This particular year coming up, where they've changed the ceiling base - because it was in 1987 I think it was - and what it was, they referred the GDP back to 1987. So in the four year period if the GDP had increased 20 per cent you could go up 20 per cent over 1987.

Now they've changed the base, so they don't refer to 1987 at all, they refer to this current year. So that may be part of the reason why there's an increase, because the ceiling has no affect this year. I don't think that's the only reason though, I think there may be other reasons there as well.

MR. SHORT: So we're expecting an extra $85 million?

DR. KITCHEN: We're expecting next year an increase of $85 million over what we had last year in federal revenues, yes. Most of that is equalization. Or a fair chunk of that is equalization. Today I saw a breakdown. Do we have that breakdown of what we're expecting under each item?

AN HON. MEMBER: Yes.

DR. KITCHEN: Okay. That's where the (Inaudible).

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: So federal sources of one billion, four hundred and thirteen million (?)-

SOME HON. MEMBERS: (Inaudible).

DR. KITCHEN: Do you know where he's getting this?

AN HON. MEMBER: That would have been probably more than this (Inaudible).

DR. KITCHEN: Oh yes, that would include other items as well, wouldn't it? Excuse me. We have to go back with this. This federal source is more than equalization and EPF. It also includes the cost-shared agreements and things of that nature. So it is kind of hard to say what causes that unless we have the breakdown. The breakdown is not shown there.

AN HON. MEMBER: On that particular table.

DR. KITCHEN: It might be better to look at Exhibit II and see that we are predicting more from equalization this year than last year. We can answer your equalization question, and EPF is going down a little bit, and Term 29 is the same, of course, and so on. That gives us the Government of Canada revenues under these items - let me see if I have that right. That does not include those cost-shared agreements and the revenue for cost-shared agreements would be shown under the various departments, would it not?

AN HON. MEMBER: Related revenue.

DR. KITCHEN: Under related revenues to the various departments in the estimates. When you look at the estimates you will see that under any department you will see related revenues here. Some of that is federal sourced, and that must be added to this on exhibit 2 to get exhibit 3. So it is almost impossible for me to comment on exhibit 3 as to what makes the cause, unless I go back and get the background, and I do not have it here. We could look at it though, if you want to.

AN HON. MEMBER: That is fine.

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Is it?

MR. SHORT: It is not exhibit 2; it is statement 2 - two pages back.

DR. KITCHEN: Statement 2, is it?

MR. SHORT: Three pages back.

DR. KITCHEN: Okay, let's go back to statement 2; 3135 - here we are. Yes, that is right. Go back to statement 2.

AN HON. MEMBER: In the estimates?

DR. KITCHEN: No, no, in the Budget.

AN HON. MEMBER: The Budget?

DR. KITCHEN: Statement 2 in the Budget breaks it down there; that is right. You see under statement 2 the 3135 or 2974; that is the basis of your question, and you can see which ones are great. The equalization is up considerably and the Canada Assistance Plan is up by $8 million. The resource programs are up by $16 million; and that is it.

MR. SHORT: The other question I wanted to ask was concerning a comment the Premier made yesterday, in discussion as well, when he was talking about this same topic. I am just going to read a little bit from Hansard from yesterday. I was just looking for an explanation of his comment. It says: Not only did we have to cope with the reduction from 1989 down to 1991 - the ones we just talked about - but he also said: Not only did we have to cope with that, which if my memory serves me correctly - and here I am going from memory - resulted in actual loss of about $500 million from what it would otherwise have been from the rate of growth that was enjoyed in expenditures by the former government when they were there - $500 million. To what would he have been referring?

DR. KITCHEN: I do not know.

MR. GILL: I could attempt to answer that.

Back in about 1984 - since then there has been a freezing of the EPF, that is the established program financing, and in the last three or four years the equalization cap has kicked in as well. Now the combination of the effect of those two things over the last eight or nine years has been in excess of half a billion dollars; in fact it is close to three-quarters of a billion dollars. So I suspect that is what was being referred to there, the combination of those two things.

There is a table on page 7 of the Budget Speech that shows the transfers as a per cent of revenue. The federal transfers have gone down from 50.2 per cent down to 45.1 per cent since about 1986 or 1987.

MR. R. AYLWARD: (Inaudible) every year, sure. We have been taking too much out of Newfoundland taxpayers. That is why the percentage is down. We have been taking an extra $200 million or $300 million out of our own taxpayers. That is why the percentage is different.

MR. GILL: Well the cut in the federal transfers coming back is quite real. The cash portion of the EPF has been frozen and reduced. It has been frozen for the last two or three years. Before that it was reduced below the levels that it had been previously, as reduced to a level - say GDP growth of -3 or -2.

So the effect has been that we have received less money than we would have if that cap was not in there.

MR. R. AYLWARD: But in real dollars we have an increase in funding by about 3 per cent over the last ten years. We have in real dollars not what we expected to get but what we are actually getting. But it looks as if, here in this Budget, we're getting an extra $90 million this year.

MR. GILL: Yes we are.

MR. R. AYLWARD: (Inaudible).

MR. GILL: Yes, and the minister -

MR. R. AYLWARD: So we should get $120 million but we are getting $90 million.

MR. GILL: The minister explained that for this year, 1992-1993, the difference is that the equalization cap has effectively been removed. They have re-based it, which means that there is no effect of the cap in 1992-1993. That is the big reason for that change in equalization. You will see that EPF is down this year from last year, and that is because of the continued constraint. The actual growth in the EPF is frozen for year over year, so that is still down.

MR. R. AYLWARD: To $1 million?

MR. GILL: Yes.

MR. R. AYLWARD: Another big loss.

MR. SHORT: But, of course, that is only an estimated figure - right - that $85 million?

MR. GILL: Yes, that is actually based on federal estimates.

DR. KITCHEN: And it will change, guaranteed.

MR. R. AYLWARD: It changed last year $30 million to the good, didn't it?

MR. WINSOR: The only real glitch in the entire thing, though, is from 1989-1990. In 1989 you audited $1,359,000,000 and it went down in 1990-1991 to $1,318,000,000. But, if I recall correctly, the reason for that was that the Ontario economy had slowed down, we were overpaid in the year previous, they took some $30 million, I think, and we chose to take the $30 million in one shot, which accounts for that little discrepancy there. But every other year it shows a growth. If you go back to 1988 and look at the federal contribution, you will see it was audited at $1,266,000,000. When we look at 1992-1993, we're up to 1.4 - 150 million more over the period. The only time it showed a decrease was in 1989-1990. Every year since it has shown a steady progression.

If you look at percentage, obviously, as my colleague said, the percentage of the overall Budget has changed because the Province has increased revenues, and you would expect that now in the last two or three years since the good doctor put 6 per cent on our personal income tax. So we are all paying the shot for it, and we would expect it to go up.

MR. CRANE: Be quiet now. Don't be nasty, boy!

MR. CHAIRMAN: We normally break around 8:30 for a few minutes. If we could finish up the next two or three, certainly, we could continue on. But absent that sense I think we would probably normally take a break and have a coffee or what everyone might be inclined to do.

MR. WINSOR: I have only a couple of more questions and I would just as soon finish it up.

MR. CHAIRMAN: Okay, perhaps we could go on.

MR. WINSOR: The minister's officials are going to have to be congratulated, because in the Salary Estimates for 1992-1993, I see the total for the department is $333,000. I have written here, plus four. The total for 1991-1992 was $329,000, I think. Do you have it there, $329,000?

AN HON. MEMBER: What's that?

MR. WINSOR: The Department of Finance's figures have increased by $4,000, yet the minister, in his opening remarks, talked about a number of changes that have occurred within the department. He has had to have more tax collectors and he has to take some people now from School Tax Authority to - not the people, but personnel to do that job. How does the minister account for all these increased responsibilities and yet there are only four extra staff people? Is it because computers have become so good or are the minister's officials - does he drive his staff so that they are at a point of no return? Is that what the minister is doing?

That's the way he's going. Some of the minister's officials are nodding in agreement, so I'll be going to the Minister of Labour tomorrow about an unfair labour practice in the minister's department.

DR. KITCHEN: Thank you. There have been a fair number of people laid off. That question was asked about the number of layoffs last year - I think the critic asked that question - the number, by sex, job classification, bargaining unit, and a few other things. We laid off seven people, four of whom were female and three male, which isn't very many. We laid off three in the mail room, and two Clerk I, one Clerk II, and one Clerk III. We eliminated twelve vacant positions and declared some positions redundant. This year, we have declared some redundancies, a tax consultant position redundant, and we are going to keep a number of positions vacant. Ten positions, we think, are going to stay vacant, and we have abolished a position, as well. But there hasn't been a great deal of change in personnel and, as you said, everybody works very hard.

MR. WINSOR: The minister's answer was as clear as mud to me. I was saying that the minister increased the number of staff by four with everything the minister seemed to indicate then. He talks about freezing positions, laying off, reducing. Now, the actual figures show a four increase, but I am wondering, with all the new duties and responsibilities assigned to them, with the school tax and a number of other agencies for which they will be responsible, how is it possible to do all this work with an increase of only four people?

DR. KITCHEN: You are looking at the permanent -

MR. WINSOR: I am looking at page 28.

DR. KITCHEN: Page 28, that is the permanent staff.

MR. WINSOR: Three hundred and thirty-three -

DR. KITCHEN: Yes. Now, we have that thing called temporary, and the people we will be having, if we add people for the school tax, will be added temporarily, they will not be permanent positions. The people we added last year for tax policies were temporaries and we are going to continue to have some temporary positions in tax policy until we get this issue resolved about the tax (inaudible), but they are temporary positions which do not appear here.

MR. WINSOR: So there is no indication of the number of people who are temporary employees, then, because the tax policy still only increases the total budget in tax policies, where the minister said temporary and other employees this year is $108,000, last year was $85,000, so that is only $20,000, one employee.

DR. KITCHEN: Where are we now? - Tax Policy.

MR. WINSOR: Page 19.

DR. KITCHEN: The Tax Policy Estimates - Salaries, $379,000.

MR. WINSOR: No, - Temporary and Other Employees - you are including permanent in that.

DR. KITCHEN: Yes. Last year we had some temporaries added, as well, in tax policy, because we were carrying out some analyses there then. I think some of these people are gone, but we are having some temporaries, as well, in Tax Policy, so that is the reason why the increase is not that much. There is an increase over last year's because we budgeted last year $342,000, on page 31 of the Estimates, and this year in Tax Policy, we are budgeting for $379,000, so I suppose there is some step progression there, too, is there not?

AN HON. MEMBER: Not much, just about $35,000.

DR. KITCHEN: Let me give you the breakdown on that. Last year it was $342,000 and this year it is $379,000. A permanent is $245,000, a temporary is $108,000 this year, and the rest is a bit of overtime poked in there.

MR. WINSOR: I will make one last shot at it. The minister, in his opening remarks, said that because of the department's increased responsibilities, he has had to hire extra staff.

DR. KITCHEN: Right, or will have to.

MR. WINSOR: He talked about a number of people. Now, if you look at the totals, in total number of employees that are full-time, they have increased by just four. The total Budget has increased by really only an insignificant amount, not enough to accommodate any great number of employees. I think one of the totals is $11,936,000, and the other is $12,125,000. So the total is only a small amount. Where, in the system, are those people you hired? They aren't working for nothing, surely. How do you account for them? Where, in the system, are the extra people you hired?

DR. KITCHEN: In the Tax Policy group, we had extras there before.

MR. WINSOR: So they weren't hired this year, then.

DR. KITCHEN: They're gone, if you like, and new people are there, roughly in the same complement. Now, the additional staff - I am going to have to defer here on the school tax. I don't know if the extra staff we may need for school tax is in there yet.

AN HON. MEMBER: No.

DR. KITCHEN: That isn't in there yet, because the decision wasn't made that Finance would take it over until several weeks ago. So if we need extra money - we don't know yet, because we will be scurrying, trying to save a few bucks here now - you know, we won't be hiring on this person if someone quits. We'll be trying to cover that under our present budget if we can.

So, the school tax people, we may be able to come up with a fair amount of that - it won't be allotted to them anyway. But if there are a few people we have to hire for school tax, then we will have to find the money. We will try to find it internally, and if we can't find it internally then we will have to get some extra money. I expect we will be able to cover it internally.

MR. R. AYLWARD: May I just get in one question? Does the minister or the department have any estimate of what percentages of school tax have been collected by the Authority up until - well, it won't be until the end of June, but you should know now if they have in 80 per cent of it already or what percentage has been collected.

DR. KITCHEN: I myself don't know, but I will defer to - we haven't taken over yet so we don't know what the state of the thing is.

MR. R. AYLWARD: So you can't answer that.

DR. KITCHEN: The Department of Education has indicated to us that they expect the arrears to be, I think, between $3 million and $20 million. But I guess some of those arrears are aged receivables, and some of them probably go back to five or six years. I'm not sure about that. I don't know. They are fairly ancient and may not be realistic. So we haven't really had a look at the receivables, or the arrears yet, to see which are realistic and which are just paper figures.

MR. R. AYLWARD: But this year's figures - I would suspect, because in people's minds school tax has been eliminated, people are just giving up paying for it, period. Even though the details, if you pay a half year, and all this kind of stuff. So I would expect you are going to have 60 per cent or 70 per cent arrears for this year. I'm not including what was left over from other years.

DR. KITCHEN: Yes.

MR. R. AYLWARD: You have to know that to plan how many people you're going to hire and how you're going to attack it.

DR. KITCHEN: Yes. We haven't really come to grips with that yet, because we are not running it at this moment. One of our senior people has gone around to visit the School Tax Authorities to get a preliminary look at the state in which they keep their finances and all that, whether it is done manually or by computer. So we are getting a fairly good look at it. When we get it, we will be able to make a final determination. It is hard, at this point, to make an estimate.

The Minister of Education did tell me some time ago that some School Tax Authorities were doing pretty well, thank you very much, because some people were paying up to take advantage of the 50 per cent discount. Other school tax authorities apparently have not been so fortunate. But I don't really know yet.

MR. R. AYLWARD: I have some figures here. We have been told - or the Province has been told, about the reduction in federal transfer payments, and the impression is that we are not getting as much money as we should be getting. I know we are not getting as much money as we could have been getting under an old formula or without the caps, but that is not the impression that is out there. The figures I have, which is an estimate, show, since 1980-1981 to 1992-1993, in real terms, at least a 16.6 per cent increase in that length of time. In normal value, whatever that is supposed to mean - I guess it doesn't take in inflation and whatever else. There has been only one year of reduction, 1991-1992, a 2.6 percentage reduction; every other year, there have been increases of 15 per cent, 10, 13, 6, 10, 4, 13, 3.8, and so on, significant in the normal values. Now, when you reduce them, they all total up to be a 16 per cent increase. So, how can the minister continue to say that we are getting less money from the federal government, when we get a 16 per cent increase in real value?

DR. KITCHEN: I don't know. I would like to look at those figures to see where the 16 per cent real income occurred. I suspect a lot of it occurred in the earlier years and very little occurred in the later years, but I am not sure. I will have to look at it, examine the figures and have them analyzed.

MR. R. AYLWARD: I will give you a copy of it and I would like to have these researched on my behalf -

DR. KITCHEN: Okay.

MR. R. AYLWARD: - through the federal system mostly. I don't know where our figures are getting mixed up. It definitely shows that even in real terms there is an increase.

DR. KITCHEN: Okay, but were the increases in real terms in recent years or were most of them in the earlier years before they put the caps on them?

MR. R. AYLWARD: The only decrease in real terms, which was an 8.2 per cent decrease, was 1991-1992; that was the only actual decrease in real terms, the rest of them were 2 per cent or 3 per cent increase in the last two or three years.

DR. KITCHEN: Okay, and that includes all federal transfers to the Province, including shared cost agreements.

MR. R. AYLWARD: (Inaudible), yes.

DR. KITCHEN: Okay, we will look at that.

MR. R. AYLWARD: Anyway, I will give it to you.

My final question is - I refer the minister to salary details page 19 - and this is my standard question to all ministers: I want to know who gets paid the $10,000 overtime in the minister's office, overtime and other earnings?

AN HON. MEMBER: Page 19 - salary.

DR. KITCHEN: What is that? Oh, the $10,000.

MR. R. AYLWARD: Do you get that yourself?

MR. CRANE: He wouldn't know. He is getting so much he doesn't know anyway.

DR. KITCHEN: Well, that is my car allowance, boy!

MR. R. AYLWARD: How come you get $10,000? Did you get an increase this year?

DR. KITCHEN: The $8,000 is for the car and the $2,000, I suppose, is for gas - gas and milage.

MR. CRANE: Telephone bills.

DR. KITCHEN: I suppose it could be for a telephone. If I put a telephone in the car, would that be covered, Mr. Carew? Would you be able to say that?

MR. CAREW: (Inaudible).

DR. KITCHEN: (Inaudible).

AN HON. MEMBER: It all depends on what we see is billed.

MR. R. AYLWARD: I would appreciate it, though, if some of the minister's staff could tell me why the $10,000, if it is gas -

DR. KITCHEN: Well, that is so, isn't it? The car allowance is $8,000 -

AN HON. MEMBER: The car allowance would be $8,000 and maintenance, $2,000; gas -

DR. KITCHEN: - and the gas and the oil; that is all we get, gas and oil, anyway, isn't it? - as far as I know.

AN HON. MEMBER: Basically.

DR. KITCHEN: And that is a taxable allowance. Anyway, I am not - that's what it is, gas and oil.

MR. R. AYLWARD: Yes, I realize that.

DR. KITCHEN: I don't know about the telephone, whether it comes under the $10,000 or not.

AN HON. MEMBER: No.

DR. KITCHEN: The department would have to pay that from other funds, if we had a telephone in the car, but I don't have a telephone, anyway.

MR. R. AYLWARD: I realize that. The minister's department is one that is a bit high, by the way, and I am surprised at that because he is very careful about spending money, extremely careful, I know that. Most departments are at $8,000, some at $8,500 but the Minister of Development and Tourism got $20,000 and I don't understand why there are differences. I know they are all supposed to get car allowances, $8,000 in there.

DR. KITCHEN: Wait now - let me look at the Estimates and see how I did in the cash, the actual expenditures. If you look at the Minister's Office, on page 27 of the Estimates, since that came up, we spent pretty well all our Salary, $149,000 of the $150,000. We didn't spend much on Transportation - we spent $24,000 and our allowance was budgeted at $42,900. Supply is $3,400 and we spent $1,600. Under Purchased Services, $3,700, we spent $1,200.

Overall, we were something like $9,000 under budget, and this year we are planning to splurge.

MR. R. AYLWARD: I don't disagree that the minister is careful with his money. What I don't understand is that heading, which, as we found out last year, was where the ministers tried to hide away their car allowance. That was found out - I do not mind that, but now - and I can see; I think the minister is one of the few honest ones, by the way, who put in his car allowance and expenses, maintenance or gas, whatever it is. Most of them have $8,000 period, so I can assume that most ministers don't get any maintenance, don't get any gas bill - except for the Minister of Development, who must pay the whole shot for everyone else because he gets $20,000. I don't understand it, I am telling the minister. You prepared the Budget and this is your document. Is there a way to explain to me why each - not each department, but many of the departments, are different.

AN HON. MEMBER: (Inaudible) Treasury Board.

MR. R. AYLWARD: Well, we will blame that one on Treasury Board, okay. It wasn't the last government and it wasn't the media and it isn't the feds, so we got it down to Treasury Board now.

DR. KITCHEN: Now, government accounting is our responsibility. Maybe I can ask - Ray, can you answer that question?

MR. R. AYLWARD: Well, he can answer for his department, but I am asking the minister, is it policy? This had to go through Cabinet some time to be approved, when all departments were discussed, and if the policy is -

DR. KITCHEN: No, I was thinking about the differences in accounting, because you were mentioning that some people have $8,000 there, and therefore they must put the gas and so on, in another item, and if someone is up to $20,000, what in the world could that be? I was going to ask the person in charge of all government accounting here, the Assistant Comptroller General, or Mr. Carew, the Comptroller General, if they could help me answer that question.

MR. GRUCHY: Basically, the answer is that different departments put the allowances and overtime and car maintenance in different votes. As Mr. Carew said before, we can always blame it on Treasury Board, but what happens is that it does get put in different spots for different departments. So the $20,000 in Development could include a lot more than just the car allowance. As other departments could have just $8,000, the maintenance could be in another vote somewhere else within the department. That is basically what happens. It is not consistent throughout each department.

MR. R. AYLWARD: The overtime, too?

MR. GRUCHY: That could be a portion of overtime, yes.

DR. KITCHEN: (Inaudible) don't get any overtime. I don't pay my staff any overtime, but some people might, I don't know.

MR. R. AYLWARD: That was the question I asked other ministers. I know, when I had a department it was not considered - you had your secretary, your executive assistant, yourself, and maybe a departmental secretary, but it was never considered that you would pay overtime in your office. I don't know the reason for the heading. I know why the heading was put in there last year or the year before - it was to hide away the $8,000 and they called it overtime and something else. That is the reason for it.

AN HON. MEMBER: Okay.

MR. R. AYLWARD: But there was never any consideration of paying overtime to people on the minister's staff, surely; they wouldn't expect it.

MR. CRANE: That's right, Bob, You learn some things, don't you?

MR. R. AYLWARD: Well, we were pretty good at it, too, sometimes.

MR. CRANE: Sure, you were.

MR. WINSOR: One final question that I don't understand. If you will look at your Estimates, let's just take Fiscal and Tax Policy, section 2.4.

DR. KITCHEN: What page is that?

MR. WINSOR: That is page 31 in your Estimates.

DR. KITCHEN: Okay.

MR. WINSOR: It says Salaries $379,400. Are you with me?

DR. KITCHEN: Yes.

MR. WINSOR: If you look at your Salary Details, the departmental ones on page 23, you will find Fiscal and Tax Policy, Salaries -$252,266. If you go through all of these headings you will find that some of them are within a few cents; some of them are several dollars out. Pensions, for example, is 1.5 and in your detail there it is 1.2.

DR. KITCHEN: Now, let me see, Tax Policy.

MR. WINSOR: Heading 2.4.

DR. KITCHEN: Page 31, is it? Let's look at Tax Policy for a minute. The $379,400 consists of some permanent and some part-time salaries. The permanent people come to $245,000. Those are the ones we should compare with the Salary Details, because only permanent people are listed in the Salary Details, and that is $252,000. So the question is: Why do we have $245,000 in the Estimates and $252,000 in the Details?

MR. WINSOR: (Inaudible) you have $245,000 in Details?

DR. KITCHEN: Of the $379,000 only $245,000 is permanent.

MR. WINSOR: Okay, that's not in the Estimates, that's in a document you have there, is it?

DR. KITCHEN: Yes, right.

MR. WINSOR: Yes.

DR. KITCHEN: That $379,000, I will give you the breakdown: There is $25,000 for overtime, $500 for other earnings, and $108,900 for temporary. But the $245,000 permanent compares to the $252,000 in your document, and the question you raise is: How come it is $252,000 in the Salary Details and $245,000 in my breakdown? I think that is the clear question.

MR. WINSOR: Yes.

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: That is the freeze, do you see? This Salary Details was prepared before the final Budget was done, and that was

before the freeze was initiated. So that assumes an increase. When Treasury Board got finished with telling departments about the freeze and other adjustments they made in the salaries, that reduced it down to the $245,000 that I am keeping track of.

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Okay, because Treasury Board made a $7,266 adjustment in that after the Salary Details were prepared.

MR. WINSOR: So none of the figures in this, then -

DR. KITCHEN: Pardon?

MR. WINSOR: None of the figures in this for Salary are actually right.

DR. KITCHEN: They are actually correct. If they do it's just by chance. Because the freeze - I am correct in that, am I not? That is basically what it is.

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Pardon? What other adjustments would they make?

MR. GILL: If you take that page 19 in the salary document, you will see the permanent salaries at $252,266. Over in the fourth column you have Permanent and Other Adjustments of minus $7,266. The net of that is the $245,000 which the minister mentioned is in permanent salaries. That bracketed figure really is forced savings. What's happened is we have to hold positions vacant in order to live within the budget. That is part of the restraint program and that's the way we have to do it.

MR. WINSOR: So the vacant positions don't show up as salaried employees there anywhere, then? Positions that are vacant don't show up in the Department of Finance as, for example, if there is someone in Administrative Support, that position is held vacant, and it shows twenty-two, there isn't actually twenty-one there, is there?

MR. GILL: Yes, it would be included. Twenty-two would be the total number and from that we might be holding one vacant, or vacant part of the year, that sort of thing.

DR. KITCHEN: We're getting there. The answer that I gave (inaudible) correct, that the freeze is not there. The person's salary that is listed in the salary estimates is the person's salary. How you find that money is up to the deputy.

MR. WINSOR: Well, we have that figured out; you have already explained it.

DR. KITCHEN: Alright. So he can only spend $245,000 even though he is committed to spend $252,000.

MR. WINSOR: He is taking overtime and travel away, and gas allowance and everything else.

AN HON. MEMBER: Or he is firing somebody somewhere.

MR. WINSOR: I have no further questions, Mr. Minister.

MR. CHAIRMAN: Thank you, Mr. Winsor. Are there any further questions?

MR. SHORT: Mr. Chairman.

MR. CHAIRMAN: Yes, Mr. Short.

MR. SHORT: If there are no further questions I move that the Estimates subheads from 1.1.01 to 3.4.03, inclusive, be passed. On motion, Department of Finance, total heads, carried.

MR. CHAIRMAN: I have one further matter of business, namely, the minutes of the last meeting of this Committee. Copies have been circulated to the members.

On motion, minutes adopted as circulated.

MR. CHAIRMAN: Thank you, Dr. Kitchen and your officials.

On motion, the Committee adjourned.