Thursday 25 June 1992

1992 budget

Ministry of Treasury and Economics

Phyllis Clark, assistant deputy minister and chief economist, office of economic policy

Kevin Costante, acting director, fiscal policy planning branch

Hon Floyd Laughren, Treasurer and Minister of Economics

Alan Puttee, director, intergovernmental finance policy branch


*Chair / Président: Hansen, Ron (Lincoln ND)

*Vice-Chair / Vice-Président: Sutherland, Kimble (Oxford ND)

*Caplan, Elinor (Oriole L)

*Carr, Gary (Oakville South/-Sud PC)

*Christopherson, David (Hamilton Centre ND)

Jamison, Norm (Norfolk ND)

*Kwinter, Monte (Wilson Heights L)

*Phillips, Gerry (Scarborough-Agincourt L)

*Sterling, Norman W. (Carleton PC)

*Ward, Brad (Brantford ND)

Ward, Margery (Don Mills ND)

*Wiseman, Jim (Durham West/-Ouest ND)

Substitutions / Membres remplaçants:

*Klopp, Paul (Huron ND) for Mr Jamison

*In attendance / présents

Also taking part / Autres participants et participantes:

Owens, Stephen (Scarborough Centre ND)

Stockwell, Chris (Etobicoke West/-Ouest PC)

Clerk / Greffier: Decker, Todd

Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service

The committee met at 1612 in committee room 1.


Consideration of the 1992 budget.

The Chair (Mr Ron Hansen): I call to order this meeting of the standing committee on finance and economic affairs.


The Chair: We have a special guest here today, the Honourable Floyd Laughren, Ontario Treasurer. The Treasurer will start off with a few comments. I believe he has a short brief to present to us. We'll start off with questions from the official opposition for 10 minutes, then go to the third party and then over to the government and rotate as much time as we can get in on questions. You have the floor, Treasurer.

Hon Floyd Laughren (Deputy Premier, Treasurer and Minister of Economics): I appreciate the invitation to attend. I don't get very many friendly invitations. With me is Phyllis Clark, the assistant deputy minister in the office of economic policy, and other people, also enormously talented, who are here to help me when I get into trouble this afternoon.

I received a list and I'll deal with it later. I don't know how you want to handle that. Mr Phillips had some very pointed, focused questions; most appropriate questions, I might add.

The Chair: We can have Mr Phillips ask those questions, the ones he wants to ask.

Hon Mr Laughren: I'm in your hands on that.

I'll just make a couple of opening comments, if I might. I don't want to make a long statement because this is really time for members of the committee.

We have been through a very tough year. In the last two years there has been a little over 300,000 job losses in the province. That's caused all sorts of other problems, not just to the people who were laid off but in a fiscal sense too, with our social assistance case loads and dramatically falling revenues. It's been very, very tough. Anyway, I know members understand that because in their own constituencies that will have been reflected.

We have a sense that things are starting to turn around. If I'd been here a year ago I would have said the same thing, and in fact it didn't turn around a year ago. But even then most experts were saying what they're saying now, that the turnaround was starved and there are some signs out there that the recovery has begun.

Everyone knows it's going to be a slow, painful recovery. Unemployment's going to remain high for the next three years, as we laid out in our medium-term fiscal plan in the budget. We don't like that, but at the same time we have to put in the numbers that we feel are accurate. That problem will stay with us for a while.

This year so far the revenues have been relatively flat and not far off our projections. I used to say "spot on" but --

Mrs Elinor Caplan (Oriole): But you don't say that any more.

Hon Mr Laughren: Well, not as often.

Mrs Caplan: How about "not even close."

Hon Mr Laughren: I wouldn't say that. Anyway, I'm certainly feeling more optimistic than I was six months ago, and I hope things are turning. It's to all our advantage for that to happen.

We prepared in Treasury not a thick document, a fairly lightweight document, called the Ontario Economic Report. It was distributed to the cabinet committee on economic and labour policy. I think that's the only other place it's been. If the clerk wishes, I would table it with the committee. It hasn't been tabled anywhere yet. It is simply a report that's almost like a status quo; where we're at, basically. It deals with current economic conditions, the macroeconomic outlook, labour market performance and outlook, sectoral performance and outlook, and some notes on regional performance and outlook as well. It was really to provide members with a snapshot rather than any hefty analysis, so it doesn't pretend to be that.

Mr Norman W. Sterling (Carleton): Was it lightweight because of the committee it was presented to?

Hon Mr Laughren: I would not talk about this committee that way, Norm. I will stop talking and turn it back to you, Mr Chair, to deal with as you will.

The Chair: I'm pleased that with the short notice we gave your office and your staff that you're able to come forward today. It was the request of Mr Phillips. We didn't know how the House was sitting at that particular time, but we're able to have you here and I'm glad to see you here.

Mr Gerry Phillips (Scarborough-Agincourt): I appreciate the Treasurer being here and I hope the committee might on a fairly regular basis, perhaps quarterly, have a chance to talk with the Treasurer. I find it useful to get updated on where we are. It is virtually at the end of the first quarter now, within a few days, and the message I get from the Treasurer is that things seem to be proceeding, I gather, essentially as you had predicted in the budget.

I have a feeling that I may use up our whole 10 minutes with the three questions I asked. They are side issues, but important issues. Perhaps the Treasurer could just fill us in on those three. I think I've given copies to most people.

Hon Mr Laughren: The first question Mr Phillips asked was:

"I would like to discuss the teachers' pension plan as well as the public service pension plan. For each I would be interested in knowing the following:

"1. What has been the schedule of payments to each plan in each year for the previous three years?

"2. What will be the effect of the delayed payment, and what will be the interest costs payable as a result of the delay?

"3. What are the contribution requirements for the next three years?"

I could deal with each one of those in turn as they're now on the record for Hansard.

The schedule of payments to each plan each year for the previous three years: If we go back to 1989-90 and then deal with 1990-91 and 1991-92, for the public service pension, the matching contribution, the employer's contribution, for the public service in 1989-90 was $176 million. There was a special payments catch-up -- if I'm using the wrong language, Mr Puttee or David will correct me -- of $22 million, for a total of $198 million. That's the public service 1989-90.

For 1990-91 the matching contribution was $228 million, special payment catch-up -- am I using the right language, that it's an actuarial deficiency?


Mr Alan Puttee: My name is Alan Puttee. The special payments are in respect of the unfunded liability, which is being paid off over 40 years.

Hon Mr Laughren: And for 1991-92 -- did I give you that already? -- it is $264 million for the matching contribution and $119 million for special payments, for a total of $383 million.

Mr Phillips: What's the total in 1990-91?

Hon Mr Laughren: Maybe I didn't give it to you. For 1989-90 the total is $198 million, for 1990-91 $319 million, and for 1991-92 $383 million. Just to stick to precisely the first question, it was the schedule of payments.

For the teachers, switching over to them now, for 1989-90 the matching contribution was $420 million, with a special payment of $187 million, for a total of $607 million. For 1990-91 the matching contribution was $408 million, special payment $246 million, for a total of $654 million. For 1991-92 the matching contribution was $596 million, special payment $225 million, for a total of $821 million. That deals with the numbers in the first question.

The second question under pension payments: "What will be the effect of the delayed payment, and what will be the interest cost payable as a result of the delay?" Just so everyone understands the question, because there may be some who would not, we normally pay our public sector pensions every two weeks. For the teachers we normally pay it once a year, which we're continuing to do. For this year, 1992-93, we've decided for both of them that we're making no payment until April 1, which is the beginning of the next fiscal year, 1993-94, and in the case of the public service -- let me get my question correct here: the effect of the delayed payment and the interest cost payable.

What that really means is that for 1993-94 the payments will be made in 1993-94, but the $500 million that's been deferred -- in the teachers, I'm thinking of now -- won't be paid in 1993-94. It will be a lag payment, which will be built into the system. I don't know whether that's the precise word either, but it is a delayed payment which will continue.

For the public service plan, the first quarterly payment will be in April 1993 instead of January. That will have interest of about $600,000. For the teachers' plan, the $500 million doesn't constitute the entire amount. I think the entire amount is $666 million, and we've deferred $500 million of it to the following fiscal year, so that will still leave $166 million to be paid this year out of the total and matching contribution. That payment that will then be made on April 1, 1993, will include the interest we have to pay on that amount for those three months; the teachers aren't that benevolent, that they would give us an interest-free loan for three months. That amount will come to about $13.3 million.

If you consider, because of the deficit and so forth, that if we had paid it out of borrowed money -- Mr Phillips and I had this exchange in the Legislature one day -- there is a difference in the rate we are paying them, because of the agreement with the teachers, than the amount we would be paying on borrowed money, if I'm making myself clear.

Mr Phillips: Yes. Which is lower?

Hon Mr Laughren: The amount we can borrow ourselves is much lower than the interest we're paying the teachers because of the agreement. I'll read this section because I want to get it right:

"Schedule 1 of the Teachers' Pension Act required that the government use an annual rate of 11.25% to credit interest on the contributions rescheduled from January to April. This is the average rate of the government debentures that have been held by the plan and it is the rate used to credit the government's matching contribution to the plan which are paid with a lag."

So there's no question that there's a price for that deferment of the $500 million. If we look at the cost, the difference is what we really would be talking about, in my mind. The cost would be roughly -- and it really does depend on how long a period of time you look at this -- about $2 million extra cost on the interest.

That I hope deals with that aspect of the teachers' and the public sector plan.

Mr Phillips: I haven't written down yet the actual payments in the three years of 1992-93, 1993-94 and 1994-95.

Hon Mr Laughren: I'm sorry, I didn't do that. I have it here, though, because that's the next question. For the public service first, for 1992-93, $214 for the matching contributions and $110 for the special payment, to take it up to $324 million. For 1993-94, $299 in matching contribution, $117 in special payment, for a total of $416. These are hundreds of millions; I have to remind myself of that from time to time. It impresses Gary Carr as well. For 1994-95, the matching contribution's $314 and the special payment $123, for a total of $437. I have the next year too if you want it.

Mr Phillips: No.

Hon Mr Laughren: That's okay? For the teachers, the biggie. As I've already indicated, for 1992-93, $166 will still have to be paid in this fiscal year, and then $272 for the special payment for a total of $438.

For 1993-94 -- this was what Sean Conway was talking about in the House yesterday afternoon and last night, if you recall; we're getting into those kinds of numbers that he was quite accurately depicting -- for 1993-94 the matching contribution is $695, special payment is $349, for a total of $1,044. That's $1.044 billion. For 1994-95 the matching contribution is $724, special payment $376, for a total of $1.1 billion.

Those special payments go on and on. The matching contribution, it is obvious, is the employer's side. The special payment is the one that surprised me when I first saw it, when I first started becoming aware of this whole issue of the catch-up and so forth. Anyway, those are the numbers.

Mr Phillips: I realize we may never get through all this, but just to simplify it in my own mind, we're borrowing $500 million from the teachers' pension for ever?

Hon Mr Laughren: I see what you're saying: the lag in there.

Mr Phillips: We've decided to buy $400 million or $500 million that --

Hon Mr Laughren: Unless government decides it would like to make that up in any given year it felt flush.

Mr Phillips: And the premium we pay in interest is 3% or something like that?


Hon Mr Laughren: No, it's more than that. It obviously depends on interest rates. Go ahead, Alan.

Mr Gary Carr (Oakville South): That's what created the problem in the first place.

Mrs Caplan: No, that's not what created the problem.

Mr Puttee: Could I just add one point of clarification? The 11.25 rate that has been mentioned and that the Treasurer mentioned and that will be the rate used to credit the plan for the deferral that is occurring between 1 January 1993 and 1 April 1993 won't happen in subsequent years.

First of all, it's important to understand that that rate is in the act really for another purpose: The government makes its contributions to the teachers' pension plan with a lag, and therefore for administrative reasons there's a lag built in there. Therefore there was a necessity in the act, in schedule 1, to have an interest rate that is used to account for that.

When the question of the three-month deferral was being considered, the legal advice was that the same rate would also apply to that three-month period. However, that's in schedule 1 of the act, which can be changed by the partners. The teachers' pension plan is now subject to a partnership agreement between the government and the teachers, and therefore there's been an agreement between the government and the teachers that the interest rate that will be used in subsequent years, should the government wish to again defer amounts as it has done this year, will be subject to negotiation. It hasn't been determined, but it will not be the 11.25.

Mr Phillips: The way you've structured this you've borrowed $500 million for ever, and there is a premium you pay on that, the difference between what the government can borrow on the market at and what the fund will negotiate. That's all. I understand.

Hon Mr Laughren: That's right. We think the difference if we borrow long-term money is about 1.75% difference. So there's no question it's a difference.

The Chair: Okay, Mr Sterling -- oh, you've got another?

Hon Mr Laughren: I'm in your hands because I don't know your time breakdown.

The Chair: We've just gone to 15 minutes. I went past the 10 because I thought you wanted to get as much answered as you could. So we now give the third party 15 minutes, starting off with Mr Sterling. Maybe if we don't have enough time to get back to some of these other questions on here --

Hon Mr Laughren: I'm not adverse to letting Mr Phillips finish his as long there's not a problem with the overall time. I don't care who goes first.

Mr Phillips: It may be of great help to me if there's written material the Treasurer could provide us with and I could just glance at it and then ask questions on it. Would that be better?

Hon Mr Laughren: I only have my copy here, but I could very quickly give you one of the questions while Alan Puttee, who deals with this matter, is here. We could deal with the fiscal stabilization fund very quickly, because I suspect that the third party would be interested in that as well. But it's up to you.

Mr Phillips: Maybe if we can go around, I can get to the asset sales. On the fiscal stabilization, the word in Ottawa is that you've had some communication on it, but I don't know whether that's the case or not.

Hon Mr Laughren: Absolutely. Whether that provides you comfort or not, I don't know.

Mr Phillips: I don't know what the communication is.

Mrs Caplan: What we want to know is if the communication provided you comfort.

Hon Mr Laughren: Yes, well.

Mrs Caplan: I think we've got the answer.

Hon Mr Laughren: I had some interest in this whole matter as well and was checking to see what kind of factors went into the application. I have a list here. The question was, "What is the justification for the two applications for the fiscal stabilization fund?"

There's no question whatsoever on the justification; it's an agreement between the provinces and the federal government. I really tried to say it as clearly as I could. This is not a tin-cup exercise. This is something to which we are entitled and which other provinces have successfully claimed in the past. At no time that I know of -- and Alan has been much closer to it than I -- has the federal government said: "You might as well go take a hike. You're not entitled to this." I don't think that's ever been indicated, because we are entitled to it. They don't deny it, but it is complex and it does take time. We've been pursuing them and meetings do go on, and I think there was another meeting or is another meeting very shortly.

Mr Puttee: Yes, we have a meeting scheduled before the end of the month with federal officials. This is at the technical level, not with the ministers.

Hon Mr Laughren: Just so all members are sure and thinking the same way on this, when tax levels go down, tax revenues go down because of the economy going down, and provinces can put a claim in for stabilization purposes. What makes it complex is the components or the factors that make it up. It's not as complex now as it used to be because they have taken out some of the more peripheral components, but I'll give you some examples of what goes into it.

The biggies, of course, are the retail sales tax, the personal income tax and the corporate income tax. Those are the three big ones. It would be easy to compute the claim if that was all there was to it, except that the federal government, and I understand this, must take into consideration any tax changes that were brought about by the provinces themselves. In other words, you can't, for example, reduce your sales tax to zero and then put in a stabilization claim because your tax revenues are down. The previous government almost did it with the retail sales tax, but we won't get into that today.

You can't play that kind of game and run around the system. Any tax changes at all at the provincial level have to be factored in as to what would be the claim if we hadn't made that change. That includes the employer health tax; it would include the commercial concentration tax and it would include all tax changes. It doesn't include transfer payments from the feds to us, except that, because of the length between EPF and PIT, that is a factor. So with all those factors involved, we put in a claim.

The amount that we would be entitled to if there wasn't a ceiling was $940 million -- I think I've got this right -- and for 1991-92, $659 million. However, there is a maximum established, a $60 per capita max where the federal government says, "Hey, we don't care how bad your economy is, there is a maximum here." I understand that as well. So if you apply the maximum amount to which we are entitled, it is $585 million in 1991 and $605 million in 1991-92. We submitted the 1991 one on December 20 and the 1991-92 one on February 24 of this year.

Part of the problem is that the numbers do move because of the lag in the collection of the federal government of our revenues, for example. That's why the federal government can't just sit down in a weekend and respond to us, because the numbers do keep changing.

Those are the two claims that are in there, and they total roughly $1.2 billion. One reason I think there shouldn't be a problem of their paying it is that the claim, if you didn't have the cap, the ceiling in there, is so much greater than our claim that in fact they could probably -- especially in 1991; not so much in 1991-92 -- pay it and not worry that they might be overpaying us, because the claim is so much higher than the maximum that's allowed.

Mr Phillips: Just two quick questions. Do you have copies of the applications?

Hon Mr Laughren: I haven't even seen the application myself, just these components that go into it. I'm not sure. I've felt uneasy from the beginning because the numbers change. As new numbers come in, the claim changes from the federal government's view. For example, with the PIT for 1990-91, they can continue to change the numbers till next March. For the next claim, the one we put in in February for 1991-92, the numbers can keep changing till 1994. I would be uneasy releasing it when the numbers keep changing. It's all part of negotiations with the federal government. It's not because I feel anything else about it. It's no big deal other than that. That's why I've been reluctant to say we should release it, because the numbers keep changing.

Mr Phillips: The budget changes all the time too.


Hon Mr Laughren: Well, it's a little different.

Mr Phillips: Frankly, we're from Missouri. I'd like to think it's coming; I hope it comes, but I've been asking for it.

Hon Mr Laughren: I know you're on our side.

Mr Phillips: I'm on the side, but I wouldn't mind seeing the request. I'd like an answer to the question of whether you have had any communications from the federal government when they expect to deal with it and how much you should be counting on its share.

Hon Mr Laughren: I'll ask Alan if he wants to speak from the officials' end. I haven't had any communication from the minister as to when we can expect an answer, because I have talked to him about it. He said, "Well, whenever the officials get the thing resolved." That's what he said. If I were him, I'd probably say the same thing. When we sort it all out, get the numbers the way they're supposed to be, that's when you'll get it. I don't know whether the officials can say anything more than that either. I don't know.

Mr Puttee: I don't know whether there's too much to add, Treasurer. As you indicated, we submitted the first claim in December 1991 and didn't hear from the federal government for some time. As I indicated before, they have had a chance to review the claim. We thought their first comeback to us would be rather more rapid than it was. In any event, as I say, a meeting has now been scheduled for the end of this month.

Mr Phillips: Next week?

Mr Puttee: Yes.

Hon Mr Laughren: I would be uneasy about releasing them while the negotiations are going on with the feds. If I were them, I wouldn't appreciate it, I can tell you that.

Mr Phillips: In fairness, Mr Chairman, there's another question I'd like an answer on, but it may very well be that they don't get back to us. My colleagues have questions that I can get private or --

Hon Mr Laughren: Yes, we can put this stuff in a more legible form in writing, that's all.

The Chair: Okay. Mr Sterling and then our friend Mr Stockwell, who joined us today.

Mr Sterling: Mr Treasurer, I asked you yesterday, during the debate on Bill 16, what you thought about a deficit of $9.9 billion?

Hon Mr Laughren: About what?

Mr Sterling: What you thought about your deficit of $9.9 billion.

Hon Mr Laughren: That's not what you said.

Mr Sterling: That's what I asked you about.

Hon Mr Laughren: You said, "9,000 million."

Mr Sterling: No, I said, "9,900 million," which is the way I prefer to put it so that people can start to understand what we're talking about here. At any rate, thanks for the correction. Are you spot on?

Hon Mr Laughren: So far we're not off the spot. Mind you, it's early in the year. To be fair, it's very early in the year. The first quarter doesn't even end until the end of June and even then there's a lag on numbers as revenue numbers come in. Early indications were that it doesn't look that bad in terms of revenue.

Mr Sterling: Are you prepared at this time to revise any of your growth factors in your budget?

Hon Mr Laughren: The projected growth figures?

Mr Sterling: Yes. Hon Mr Laughren: No. Do we have anybody here dealing with growth projections in the budget? Kevin Costante is here.

The Chair: Would you identify yourself for the purpose of Hansard, please.

Mr Kevin Costante: Kevin Costante, Treasury and Economics.

Hon Mr Laughren: The question is, is there any reason to change any of the growth projections that are in the budget document?

Ms Phyllis Clark: Phyllis Clark. Let me address the economic questions. We haven't yet revised our forecasts on the economy. There are quarterly numbers that come out in the gross domestic product, and we're waiting for the Ontario numbers that correspond to the recent release of the national numbers. After that time, we'll do a forecast on the economics side and look at our numbers and see how realistic they are.

When we did do the budget forecast we thought we were conservative, but realistically so. When we redo our numbers we'll do it with the same kind of caution and prudence. There may be some basis for revising the economic forecast, but we just can't tell that yet until we see the Ontario economic numbers, the GDP numbers, for the first quarter.

Based on anything that happens with that, this might feed through into revenue and expenditure changes, but at this time we think it would be unlikely that there would be major changes in the economic forecast.

Mr Sterling: I'm trying to find out about housing starts this year.

Ms Clark: You'll notice that on page 13 in what we handed out to you, there's a small graph that deals with housing starts and talks about housing as leading the recovery. There have been two or three changes that have made a difference in housing affordability. One of them has been the decline in interest rates as well as house prices throughout Ontario. Also, the technical or administrative changes that have to do with the CMHC as well as the ability to withdraw money from retirement savings plans to put into housing we expect will make a difference to housing starts.

We have had some improvements in that area already. I believe the numbers were about 56,000 as compared to 53,000 last year. I would just have to go back and look at my numbers, but that's tracking fairly closely to what we expected would be happening in that area.

Mr Sterling: I just want to talk briefly, before I turn it over to my colleagues, about your attitude towards free trade. The figures are now rolling in about what's been happening. In 1990, exports to the United States were up 4.6%, and I believe that's mostly in manufactured goods. Our surplus has increased in spite of the recession, Ontario being very much a manufacturing centre, and studies by University of Toronto's Institute for Policy Analysis, the Canada West Foundation and the Royal Bank of Canada have all concluded that the free trade agreement has moderated the impact of the recession and has contributed to Canada's economic growth. Do you want to comment?

Hon Mr Laughren: I think it would be hard to extol the virtues of the free trade agreement, given what's happened to the Ontario economy in the last two years. I don't believe that the large numbers of layoffs are unrelated to the free trade agreement either. I don't for a minute think you can pretend that hasn't been a factor. Imports are up as well. It's not as though you can pick out the odd number that will justify your argument and say that free trade is therefore good for Ontario.

I look at the dislocation in the workforce. I look at what's happened in closures and layoffs in manufacturing in the last two years. It is really stark. The number that bothers me the most -- and I really don't think you can pretend this isn't partly a free trade agreement problem -- is the number of closures that have been permanent as opposed to temporary or recession-caused, such as was the case 10 years ago. I remember the number; it stays in my head. I haven't looked at it in the last couple of months, but 10 years ago the number of layoffs that were deemed to be permanent was 25% of them. The last number I saw in the last little while was that 65% of the layoffs were deemed to be permanent closures.

I do not say that this is all because of the free trade agreement. Obviously, with the global competition thing, there's a restructuring going on out there because of technology and all sorts of things. In the middle of all this, while all this is happening, the free trade agreement is a federal agreement and there's been no adjustment program put in place, which I think Ontario had a right to expect and yet that was never delivered. So I would take issue with you that the free trade agreement has somehow been good for Ontario.

Perhaps if I were sitting here in the middle 1980s and the free trade agreement were brought in, I would have had a little more difficulty putting conviction into my voice, if what had happened in the economy was the opposite of what has happened. But I have no trouble, I hope, putting conviction in my voice in saying that the free trade agreement has not been good for Ontario since it was implemented and that it's been at least partly the cause of a lot of our problems.


Mr Sterling: I don't know how many independent economists are backing you up now, Mr Treasurer. I think one of the problems we hear from you time and time again in the House is about the opposition putting out rhetoric about how bad things are etc. I firmly believe that your willingness to dump problems on the free trade agreement is rhetoric in the wrong way and that probably it's doing more harm than good, and when you have such scanty proof that it's been a major problem.

Hon Mr Laughren: Epidemiological proof.

Mr Sterling: I know it's been a problem for individual industries etc, but some of our industries have flourished under free trade and some of the high-tech industries have flourished under the free trade agreement. Our aerospace industry has flourished under it. Our industrial machine and transportation equipment and chemicals have all increased their exports to the United States dramatically over the last little while.

At any rate, I am going to turn it over to one of my colleagues rather than debate it further.

Hon Mr Laughren: If I could just interject, I do have some compassion for Mr Sterling who is making a valiant effort to make a strong case for the free trade agreement on the heels of what's happened to Ontario in the last two years. I understand the difficulties.

The Chair: I want to intervene here. Mr Treasurer, it's very hard for Hansard to pick up when you're shaking your head, no, and shaking your head, yes.

Mr Chris Stockwell (Etobicoke West): He does that at the same time sometimes. First I'd like to make a comment with respect to the teachers' pension deferral money. I guess to be uncharacteristically blunt, Mr Treasurer, this question was put to you in the House about an extra cost for the deferral of this money. With all due respect, your answer was very different than today.

Hon Mr Laughren: Do you have a copy of my response?

Mr Stockwell: Yes, as a matter of fact it was just brought to me.

Hon Mr Laughren: I was afraid you did.

Mr Stockwell: You were suggesting at that time that borrowing the money from the teachers' pension fund was much the same as borrowing it anywhere else; today we find, not really. There's a service charge involved here. We call that a mortgage broker fee or a service charge of some kind, and the teachers nipped us for $13.5 million additionally. I'd just like to go on the record that on May 12, 1992, when the question was put to you, I think, fairly, that wasn't your response, with all due respect. If you'd like to comment, go ahead, but I don't know what you could possibly say.

Hon Mr Laughren: So much for the answer I'm going to attempt. To be fair about it, and I know you're a fair-minded man from time to time, in the House that question came to me, I think, from your leader, Mr Harris, the member for Nipissing.

Mr Stockwell: Yes, it was.

Mrs Caplan: I'm surprised you remember it.

Hon Mr Laughren: Now, don't be partisan, Mrs Caplan. In the question -- maybe you have it there.

Mr Stockwell: Yes, I do.

Hon Mr Laughren: I'd better be careful. What was implied to me in the question was that the total cost of the deferment would be what would be the extra cost, as opposed to building into consideration the cost of borrowed money anyway.

Mr Stockwell: I see. That's an interesting comment because it says "premium." So move on; I think the point was well made.

Hon Mr Laughren: Thank you.

Mr Stockwell: I've got a question on your taxes. I suppose the other rather offensive part I find about this budget is the manipulation of the numbers, and clearly they are --

Hon Mr Laughren: Massaging.

Mr Stockwell: "Massaging" may be a better word -- massaging, manipulation -- but I really find page 28 of this budget offensive, to be very blunt again, Mr Treasurer.

Hon Mr Laughren: Page?

Mr Stockwell: Page 28 of your budget, where you detail revenue changes. If you read this, you put up at the top "Impact of Personal Income Tax Changes for 1993," which is really odd considering we're talking about a budget that's basically made up in 1992. The question I have is, how did you reconcile in your mind that it was a fair and reasonable budget to, in some cases, triple the decrease the federal government had given to the working poor and the poor, and basically claw back tax hikes from people who are earning $10,000 a year?

Hon Mr Laughren: First of all, there was a very small -- we're talking about like $10 a year for somebody. That's not a lot of money. We did bring in improvements in the Ontario tax reduction which protect low-income people from the Ontario tax system. When all the changes are brought in at the federal and provincial level, which don't take place until 1993, then that's not the picture you will get. The picture you will get for 1993 when all the changes are actually brought in is what's on page 28.

Mr Stockwell: So this was actually a conscious effort on your part, not necessarily on your department's or your ministry's part, to bring forward these figures in the 1993 chart.

Hon Mr Laughren: Yes.

Mr Stockwell: It never crossed your mind to maybe them put in the 1992 figures and let the people know exactly what they're going to pay in taxes? Again, the working poor and the poor are having their taxes increased. "Massaging" is the word you use; "manipulative" is the one I use.

Hon Mr Laughren: But the impact of the two budgets, the federal and the provincial, is not complete until 1993, right? That's why it was done that way.

Mr Stockwell: So you don't get the full effect of the reduction until 1993.

Hon Mr Laughren: Right.

Mr Stockwell: Okay. Do I have time for one quick question? Okay, Mr Carr.

Mr Carr: Just along the same lines, we heard during the pre-budget hearings from economists from all the banks and from various independents, and the one thing they said was, "Don't increase any taxes." Lo and behold, what we got was a massive tax hike, a percentage of the personal income tax, the surtax. Of course the people who were in the election campaign didn't think that at $53,000 they were going to be whacked with a surtax, and you know that will impact substantially. The economists said, "Don't raise any taxes," and lo and behold, you did it. What was the rationale? When the economy is down, when all the economists say, "If you take more money out, it's only going to hurt the economy more," what was the rationale for these massive tax increases in those two areas?

Hon Mr Laughren: When we approached the budget, we didn't approach each section of the budget as a sealed compartment, so I hope you would appreciate that you approach the budget as a package, and that along with what I would refer to as modest tax increases, the surtax, especially as a package, the tax on the income tax, was more substantial than some people would have liked. I understand that but the rest of the tax package in the budget was extremely modest.

We did reduce taxes. The business community was also concerned about the level of business taxes on the business community, and which taxes did we lower? We lowered taxes on the business community, recognizing the fact that we're in a recession. That was a recession-driven decision to reduce the taxes for manufacturing, processing, mining and farming, so we reduced those taxes.

As well, we increased the current cost allowance, or the depreciation allowance, and reduced the tax on the small business community. You can't have it all your way out there. At the same time the people were telling us in the pre-budget consultation -- we did our own pre-budget consultation as well as what the committee did -- "For heaven's sake, show some vote of confidence in the economy by doing something on job creation." They said: "Don't let this recession spook you too much. Reserve the essential services of this province, especially in health and education." That was a very strong message we got. Nobody likes to have a deficit of $10 billion. Who would like that?


Mr Stockwell: Or $14 billion.

Hon Mr Laughren: Or $14 billion or whatever. I don't like it any more than Brian Mulroney likes it, but I'm not going to go to Hong Kong and denounce Brian Mulroney because his budget's over a billion --

Mr Carr: Just on that trip, you came back from the trip and now that you are able to help businesses with this fine tax that you didn't raise and I guess that --

Hon Mr Laughren: No, reduced.

Mr Carr: Okay, reduced, whatever you'd like to call it. Of course, you take it out of consumers' hands and that hurts businesses too.

Hon Mr Laughren: But we put that back into the economy. We didn't take it out and put it in our pockets.

Mr Carr: Let's look at the investment, since you mentioned Hong Kong. You made your whirlwind trip. We didn't have any announcements, out of all these trips, of any investment and what we're hearing from the international investment community is that people are saying that through a number of initiatives here in Ontario, right through the tax to the regulations, everything, the international people are not going to invest in Ontario. What concrete investment can you bring back and show us today of industries, companies rushing to come to Ontario, because there haven't been any announcements to date of international companies making substantial investments in Ontario.

Hon Mr Laughren: I wonder if you'd allow me to separate my trip from some announcements that have already been made. The trip I went on, and if you know me you know I don't even like travelling, so I don't see it as much of a perk, was what we call investor relations travel, visiting with the people who sell our bonds and the people who buy them. So I wasn't going to talk to the Industrial Bank of Japan about moving to Ontario. It was to talk about the virtues of investing in Ontario.

Mr Carr: What is the community saying about us?

Hon Mr Laughren: I won't give you a boosterism speech here, but I also spoke to the business community, the chamber of commerce in London, and to the investing community in Frankfurt as well. The questions I got, because it was a question and answer session every time, completely open, were, one, what about our Constitution? several questions on that, how we're coming on that; two, NAFTA, the North American free trade agreement, is that going to proceed or is it not? and three, the deficits we have, not just last year and this year, but in the next couple of years too, are we going to be able to get that deficit down the way we're saying we intend to? I mentioned the constitutional thing. Those were basically the questions. I'm trying to think if there was any other question.

By the way, and I'm not saying this to be partisan, I don't think I got a single question on the labour relations reform. Nobody is here who was with me, but I don't think there was a single question on that. At the time I was over there, we did an issue on Ontario Hydro which was $2 billion that sold very fast. Mind you, at the same time, to put it in perspective, that was when the Danes had voted against the Maastricht community and so there was some nervousness around investment in Europe at that time too, right or wrong. So it did make it a very attractive issue I think. So I did what I could in Denmark. That was the response.


Hon Mr Laughren: Yes. I spent enough time in opposition to know what the job is there, but if you get outside Ontario and you were looking at a map of the world and you were looking for a secure political and, dare I say it, economic environment, where would you put your money rather than in Ontario?

Mr Carr: British Columbia or Alberta.

Hon Mr Laughren: All right, that's another province, but this is a good place to invest. Canada is a good place to invest and Ontario is the big province that's doing the issues out there for selling bonds. It is not the kind of problem we sometimes focus on here -- I'm not saying illegitimately. The opposition keeps governments on their toes.

If you talk to a company like Ford, which has announced about $2 billion of investment in this province, that is a massive commitment to Ontario and a vote of confidence. I'm not taking credit for that, Monte, I'm just saying what they're doing.

Mr Monte Kwinter (Wilson Heights): If I get a chance, I want to talk to you about that because you're talking but you're not listening when you say you're talking to them. I was with Ken Harrigan five days ago. You should hear what he has to say.

Mr Carr: As was I.

Mr Kwinter: Yes, we were there together.

You keep trotting out this great investment by Ford. You got it by about that much. It was nearly gone after we had negotiated it.

Hon Mr Laughren: I'd rather look at what Ford does. What it's done is make a major commitment to this province.

Mr Carr: The plant was already on.

Mr Kwinter: The point is they're doing it in spite of you, not because of you.

Hon Mr Laughren: That's nonsense. You tell me then where there's a better place to invest than Ontario. Monte, there is no better place to invest than Ontario; you know that.

Mr Carr: You're using them. That plant was operational, the $500 million.


The Chair: Wait a minute, Hansard is having a problem picking up all the voices at once.

Hon Mr Laughren: I'm not using Mr Harrigan; I'm not using Ford.

Mr Carr: Yes, you are using them.

Hon Mr Laughren: The fact is that there is no better place to invest in than Ontario. I wish you'd point to a jurisdiction that's a better place than Ontario to invest in. I don't know of one, and I'm talking as an objective observer too.

The Chair: Treasurer, we have to move on.

Mr Jim Wiseman (Durham West): I'd just like to comment that in the last three weeks I've had one particular investor who has decided to put $28 million into Ontario. I think that's not inconsiderable money.

I'd like to go back to the whole discussion around the actuarial deficiencies and the unfunded liabilities in the pensions.

Interjection: Is this a conflict?

Mr Wiseman: I don't think it is.

There is a huge debate about and around the unfunded liabilities and what the actuarial deficiencies actually were. Different actuaries put out different numbers and then those numbers are used, if I'm understanding this correctly, to project what the unfunded liability will be in the long run. These different numbers, when you multiply them out and then extrapolate and compound them over years, can amount to huge amounts of money. Just to begin this discussion, I would like perhaps some discussion back about how they're arrived at and why you have confidence in them, and then I'll ask my next question.

Hon Mr Laughren: Alan, can you help me on this one? If I understand you correctly, it's the projected contributions, our matching contributions to the teachers.

Mr Wiseman: The teachers; the unfunded liabilities.

Hon Mr Laughren: I will ask either Alan or David Ezer, who is an actuarial, to help us out here.

Mr Puttee: If I understood the question, it had to do with the estimated size of the initial unfunded liability. The province required that an initial evaluation be done dated January 1, 1990. The estimate at that time -- I didn't know we were going to get questions on this, so I'm going by memory -- was I believe about $4 billion. That was the estimate that was made shortly after January 1, 1990.

The legislation that had been passed in 1989 called for the initial unfunded liability to be written off over 40 years. It was recognized, though, at the time that, since all the data were not in, there would be a need to re-estimate to get the final value of the initial unfunded liability associated with the teachers' plan as at January 1, 1990. Therefore, in September 1991 I believe, the final estimate conducted by the board for the teachers, using their actuarial consultants, was filed with the Pension Commission of Ontario.


A number of things had changed in the interim, which had the net effect of significantly increasing the size of the initial unfunded liability. The value that was in the valuation filed on September 30 was $7.8 billion. Since again the legislation required those to be written off over 40 years starting in January 1990, that required a new higher schedule of payments over the 40-year period, and as well we had to go back to catch up the payments from January 1, 1990, to September 30 to reflect the higher estimate. When the Treasurer was speaking earlier, he made reference to catch-up payments and that is what they were. There are comparable numbers or companion numbers on the public service that I can also give you.

The Chair: Okay. Mr Sutherland.

Mr Kimble Sutherland (Oxford): Thank you. Mr Treasurer --

Mr Wiseman: I wasn't finished.

The Chair: We'll come back to you.

Mr Sutherland: One of the aspects you underlined when you presented the budget was significant capital investment. In the last couple of days we've had some announcements about strategic capital. Given that in spite of what Mr Sterling has said about the free trade agreement there's still high unemployment and a lot of these people were working in jobs that have been affected -- trade may be picking up as a result of it or maybe not as a result of it, but there's still a lot of unemployment out there -- I was wondering if you could give us some sense of when capital announcements will be made, and from the time that they are made how soon you see some of the projects getting under way to help alleviate some of the unemployment and certainly to help the construction industry.

Hon Mr Laughren: The budget has divided capital into two sections. One was the base capital in all the ministries for the regular building of schools, highways, hospitals and so forth. That was $3.4 billion. On top of that we had -- I don't want to inflame Gerry Phillips here --

Mr Phillips: I'm listening.

Hon Mr Laughren: I know, but I know how he gets going on this one.

On top of the $3.4 billion that's in the base is another $500 million of what we call strategic capital fund, and we divided it into different categories. That was the special capital fund. It was $500 million for this year, but over five years it's $2.3 billion. We want to treat this capital fund differently than capital has been treated in the past.

I think this is true of all government. This isn't directed at any one government. We would have done it the same way as well, and we did last year, the same way as has been done historically. But we think that because of the restructuring that's going on out there in the economy there's going to be a need for governments to be much more strategic as to where they put taxpayers' money in capital, that simply we have to make a distinction between the normal maintenance of the system and more strategically placed capital, and that's what this fund is for.

We've made a major commitment in a number of areas this year. You already heard some announcements by Richard Allen and by Ruth Grier, and there may have been another one. Marion Boyd as well made announcements on the utilization of this strategic capital. We want that to get out there as quickly as possible and we think we can do it. It's going to put emphasis, for example, on green industries or green projects, whether it's industry or not, and if it's in the manufacturing sector, it's going to make sure it goes into areas where there's a lot of high value added, where knowledge is a major component, in things like telecommunications and so forth.

That was the reason for dividing capital into two sections. We said in the budget that this fall we're going to have a capital report to the Legislature on an annual basis and we want to do that. I can't remember what month we're doing that, November or December.

Ms Clark: Yes, around that time.

Hon Mr Laughren: Around November or December. We're working towards that now so that there's proper capital reporting to the Legislature, quite frankly, more the way other jurisdictions do it than we traditionally have done it. We think there really is a qualitative difference between capital and operating, so we're going to do that for the first time this fall. We've started churning away at it in the Ministry of Treasury and Economics, and I think the clarity of it will satisfy our severest critics, which is why Gerry Phillips is smiling.

Mrs Caplan: I wouldn't count on it.

The Chair: Mr Wiseman again. Mr Sutherland has another question after you.

Mr Wiseman: I have to get back to the pensions. This is something that's bugged me for a long time, and don't cut me off after this question, because it's a short answer, okay?

The Chair: You have one question.

Mr Wiseman: My question will be multipart; it'll have A, B and C.

The Chair: I've got this hammer here too.

Mr Wiseman: I want to get back to the unfunded liability. I want to understand how we can have an unfunded liability, especially in the teachers' superannuation fund, which has been around since 1912, and how it could have grown to $7.8 billion when in the past the provincial government has been the sole borrower of the money from the teachers' funds and from the pension funds. What was going on? Surely the science of actuarial projections is not new in the last four years. I'd like to understand the history of this and how we got to this debt.

Hon Mr Laughren: I'm going to defer to Alan.

Mr Puttee: I think there are two parts to the answer. The first is that a large part of the initial unfunded liability is associated with the decision to retroactively index the benefits of teachers. That decision was taken -- I'm not sure of the date -- in 1975 with the creation of the --

Mrs Caplan: It was announced in 1974 for 1975.

Mr Wiseman: Okay, thank you.

Mrs Caplan: It was unfunded when it was announced and it was retroactive. I just remember the briefing.

Mr Wiseman: How much of the provincial debt --

The Chair: That's another question.

Mr Wiseman: No, that was part of the question I asked. That was part B.

The Chair: You know, we came here to ask some questions of the Treasurer.

Hon Mr Laughren: It was subliminal.

The Chair: Okay, a short answer?

Mr Puttee: I think the second part of the answer would relate to why the initial unfunded liability was originally estimated at $4 billion and how it got to $7.8 billion. I think the quick answer to that is that there were significant changes in the demographic assumptions and that there were also benefit increases that had occurred in the interim, mainly associated I believe, with an early retirement window that had been offered to teachers and taken up by many of them. So the situation changed and the cost of that had to be reflected.


Mr Wiseman: How much of the current provincial debt is owed to the teachers' pensions?

Mr Puttee: I'm just not sure. You mean, what is the amount of the debentures with the province's name on them that are held by the teachers' pension fund? The teachers' pension fund has assets of $24 billion -- about; these are round numbers -- and as of January 1, 1992, the value of the Ontario debentures was about $18 billion. That will go down, since we're not issuing them any more.

The Chair: Mr Kwinter, I know you've got a question there.

Mr Kwinter: I just had one.

The Chair: Just go right ahead. I'll cut you off if you're too long.

Mr Kwinter: Thanks, I can hardly wait.

I'd like to just address this to the Treasurer and to his staff. The concern I have about what is going on is that we are getting two messages out there. Is this document an economic document or a political document?

Hon Mr Laughren: If you knew its genesis, you would agree that it's an economic document.

Mr Kwinter: What I'm saying is that there are mixed messages throughout this document and there are mixed messages in the message the government is sending out. I'd like to spend a little bit of time talking about free trade. Just by coincidence, you happened to provide me with a set of written documentation of some of the things I was concerned about, but let's talk about free trade.

As you know, I led our government's attack against the free trade agreement -- not because we were against free trade. We were against the deal, and I think history will show that our concerns have been borne out, because the things the free trade agreement was supposed to address have not been addressed. We're still fighting the same battles.

But what we do have is a situation that I think, if you want to be fairminded and you want to talk about it, before the free trade agreement was implemented, 80% of all of the trade and goods and services between Canada and the United States was duty-free. Of the remaining 20%, the average tariff that was in place was 10% -- that's the average -- and that 10% is going to be reduced over a period of 10 years, some immediately, some over five years, some over 10 years. We're now into the third year of that agreement.

The point I'm making is that of that 20% -- and we're now into the third year and we're reducing on average some part of the 10% of the tariff -- surely that is not enough to distort the economy of Ontario or Canada. I mean, it just can't happen. The number is not big enough. So to keep blaming free trade for all of our woes -- I'm not saying you can't blame it for specific situations, but I'll tell you, every time a plant closes it's blamed on free trade, every time a plant opens it's attributed to free trade, and in most cases, free trade had nothing to do with it. That is a concern I have.

I have a concern where you talk about things in this document that are not borne out in what is happening literally in the daily press. Today there was a report of an economic forecast for Canada in which they say the growth in Ontario is going to be one of the lowest in all of the provinces of Canada, and they attribute it to the fact that we have the greatest concentration of manufacturing in Ontario, and that is in decline. The tax policies of this government -- you may not agree with it. I'm just saying that was a factor that was attributed.

Let me just talk to you about a couple of things. Let's talk about this business confidence. Let's talk about Ford Motor Co. Ford Motor Co has been here for many, many years. In 1989 -- and I'm not trying to take credit for it; I'm just stating the facts -- I negotiated with the Ford Motor Co to put that van plant into Oakville. We were competing with St Louis, Missouri, we had to come up with a package, and the package was done. It was like a fait accompli, and the first phase of it was the paint plant. Being politicians, we tried to get them to announce the van plant during the campaign, and they said no, they wouldn't announce it. They did not want to get involved in the politics.

Hon Mr Laughren: Good for them. They wouldn't let you use them.

Mr Kwinter: All right, but the point is that the decision was made in 1989 and because it's such a huge amount of money and because it takes time, it just happens that it's coming on track now, but to suggest that this is a vote of confidence in this government is absurd.

I want to talk about Glaxo, another one that you've mentioned. I want you to know that decision was made three years ago and we nearly lost it, not because of anything other than that the Ministry of the Environment -- my colleague was involved in exactly the same battle that your colleague is involved in -- designated as a potential site a site in Mississauga that was practically beside where Glaxo is putting this investment. They said, "There's no way we're going to put a pharmaceutical facility next to a garbage dump and we are not coming here." I had to fly to England to the head office and give them my personal assurance that the dump site would not go there, notwithstanding it was on the list.

The point I'm making is that to trot these things out as signs of business confidence and signs of support makes no sense. But I want to talk about this document that gives you an idea of where I have some serious concerns. You're talking about the things that are going to make growth and on page 7 you say the decline in interest rates over the past two years is a positive. You turn over to the next page, page 8, and you say the economy is going to be milder because of the high interest rates.

Hon Mr Laughren: Yes.

Mr Kwinter: Then on page 5 you say: "The US economy is gaining strength. Retail sales, employment, durable orders and consumer confidence have strengthened in recent months." You go over to talk about you're going to have a milder recovery because there is slow US and international growth and ongoing structural adjustment and high debt levels. You're saying on the one hand it's going to be a great economy because all these things are happening and on the other it's not going to be a great economy because all these things are happening, the same things that are happening. You're catching them both ways. It's going to be good or it's going to be bad, but it's exactly the same factor.

But the most important thing is, and this is the one I want to talk to you about, you talk about the things that are going to be leading the economic recovery of Ontario. I agree with you; I have enough confidence in the inherent strength of Ontario. I say this as non-partisanly as I can: No government can screw up the future of Ontario. I just think it's too strong for that; I really believe that. But let me tell you, there are some very serious problems.

Number one, in your projections you think there's going to be a much greater increase in the housing sector. Figures are showing that it's not; no question, it's better than it was, but if you tell someone, "The bad news is you're going to drown in 50 feet of water. The good news is we've corrected that and you're only going to drown in 30 feet of water," the point is, you're still going to drown. The housing sector is not rebounding the way it has been projected.

You have a situation where the automotive industry, which is supposedly the industry that's going to lead us out of this recession, has got some very serious problems on the horizon. The problem we have at the present time in Ontario, where we build most of the cars in Canada, is that we build nearly one million cars; one million is the total, but that includes Bromont, Quebec, and it includes the Volvo plant in Nova Scotia. But of those cars, close to 90% are being exported to the United States.

Mexico, which is currently building 600,000 cars a year, has announced that it will by the year 2000, which is only seven years away, be building 4 million cars. I can tell you, those cars are not going to be driven by the Mexicans, they're going to be driven by the Americans and they're going to be driven by Canadians. Somewhere along the line we are going to have to make sure -- and this is going to be critical in the NAFTA negotiations -- that we at least maintain our share, but we are going to be under incredible pressure because it isn't the assembly operations that are going to be critical, it's going to be the parts suppliers that are going to go where the major assemblies are going to take place.

The concern I have -- and I refer to this, like high blood pressure that doctors refer to, as the silent killer. If people have it, many people don't know they have it and suddenly they have a problem. We have a problem with things like the amendments to the Ontario Labour Relations Act.


You say that when you go out to Japan or where you go -- I have to say I travel as well, far more than you do because I don't mind it -- but the concern you have is that when people look at jurisdictions they take a look at all the competing factors and they make a decision. Sure, when you say, "What better place than Ontario?" there are places that are comparable. There are tradeoffs. At one time our health care system was a tremendous asset. That is under attack. Our hydro certainly was an area in which we were very competitive and that is certainly deteriorating. So we have a situation where I can say to you -- and as I say, this can be proven -- the Ford Motor Co plant would not have come here today. St Louis, Missouri, would have got it if we'd started clean and we're dealing in the same environment, because they had to go and compete against them and they made their pitch based on a whole range of --

The Chair: Mr Kwinter, can you come to the question?

Mr Kwinter: I'm trying to set the groundwork to say to you that these are concerns I have. These are concerns that are going to impact on our economic viability. These are concerns that are going to impact on your ability to meet your targets, because collectively, we as a province have taken on some fairly substantial debt. We make projections based on certain premises. I am concerned about whether or not those targets can be reached.

If you do it on a percentage basis -- when you take a look at your first budget, and everybody yelled and screamed about this deficit, we had demonstrations out and people were taking to the streets.

The Chair: Mr Kwinter --

Mr Kwinter: Just one second. I think this is important.

The Chair: Yes, but he was going to stay till 5. I've been able to persuade him to stay here till 5:30, and we have to go to the House at a quarter to six.

Mr Kwinter: The point I'm making is that in that one year there was a $1-billion adjustment.

You've got projections going over the next three or four years, and my concern is that those numbers are going to grow because of the pressures. There are pressures every day. Yet there are also pressures going the other way, in a negative sense, on your ability to raise the revenue to service that kind of debt and to provide the kinds of services we Ontarians would like to have and what you, the government, would like to provide. So my question: I'm sorry I went so long, but I tried to portray an environment that we're working in and get your reaction as to what you think we're going to do about it.

Hon Mr Laughren: I actually enjoyed your comments and I share some of your concerns. You'd have to live in some kind of dream world not to be concerned about some of the things you've mentioned. I'll try to keep some of those. Let me go through them quickly. I don't want to use up everybody's time.

On the fair trade -- that's a good slip of words; actually fair trade might have been better -- on the free trade agreement we've never said that free or freer trade is bad in itself. What we've said is, just like you said, that we think this is not the right agreement. Because we recognize that with the globalization that's going on out there, you can't build a wall around any jurisdiction. The abandonment -- and you can say this is partisan if you like -- by the federal government of any adjustment policies was almost breathtaking. I believe that so fundamentally. Guess who picks up the entire tab on that? It's the province. You know that. I don't have to belabour it.

I think I'd like to leave some of the forecasting stuff to Phyllis. I've got a new list of companies that have come here recently. I don't pretend that Ford invested that $2 billion because it liked this budget or anything like that, but I do think that if it were really overly concerned about Ontario it could pull the plug at any point.

At any given point they could say: "We don't like what you're doing. The deal is off." I'm not taking away anything from the work you did. I know that when you were the Minister of Industry, Trade and Technology you were very aggressive in pursuing investment for the province. I have no quarrel with what you've said in that regard. In terms of Ontario remaining competitive in the health care sector, I looked at what it costs an employer in the United States. I believe it was an automobile employer.

Mr Kwinter: Lee Iacocca said it was $700.

Hon Mr Laughren: No, it was C$4,200 to pay the health care costs for an employee if that was in the contract or arrangement, right? For Ontario it was around $650 or $700. That's an enormous competitive advantage. In terms of Mexico, I really do think we're talking apples and oranges when we talk about competing with Mexico. I don't think I have it with me, but I have a list of companies and I haven't used this list, because it's a bit of a perverse satisfaction to have companies move out of Mexico back to Ontario.

Mr Kwinter: I saw that article.

Hon Mr Laughren: I'm sure you did. There is some of that going on. Largely it's because of the skills and the abilities of the labour force here It's not because they like you or me -- well, maybe you; they're not particularly fond of me.

Hydro is something we do have to keep a very close eye on. The rates have gone up and they're going to go up again. You don't stop in midstream -- it's something like turning the Queen Mary around -- with Ontario Hydro when everybody acknowledges we have to pay for what's been built. When projects like Darlington come on stream, the rules say that's when they go into the rates. We can't do anything about that at this point. Shutting down Darlington wouldn't solve the problem either; it's built.

I think we're on the right track with our conservation strategy. I'd like to see more use of the non-utility generating plants, but that's tough when you've got excess capacity in the system. It is very difficult.

Mrs Caplan: You won't have excess capacity for long.

Hon Mr Laughren: I'm telling you, they sure have it now.

Mrs Caplan: That's only because of the recession.

Hon Mr Laughren: Yes, that's right, that's the main reason but I'll tell you -- I could be out on my numbers here -- there are something like 30 or 40 non-utility generating proposals out there now to feed into the grid. I think it's a great development that's happening out there, because inevitably there's some other benefit to what they're doing as well, not just feeding into the grid.

In one sense I agree with you on Ontario's ability to compete and prosper regardless of whatever government is in place. That may sound a bit too complacent. I don't mean it that way.

Mr Kwinter: I didn't mean it that way either.

Hon Mr Laughren: No, I know you didn't. I really do believe that as long as we keep our infrastructure up to scratch -- and by that I mean our transportation system, our educational system. We've got to keep it up to scratch and we've got to keep pouring money into post-secondary. I think our moves on training are long overdue. It's the right thing and the federal government is cooperating on it. I think they'll be more responsive to community needs.

I don't expect you to agree we're doing everything right. I really do think we are starting to behave more strategically in terms of the way the economy is changing on us. I hope we are; if we're not, it'll pass us. It'll go by. I worry quite a bit about that, because I really think -- and this isn't a reference to your comment -- the days of Ontario having so many natural advantages that we don't have to worry about it are over, I suspect, to a degree.


It's a very competitive world out there. We've got to be there. We actually have a committee that deals with strategic investments and so forth, and we're trying to be really thoughtful about which sectors we support. That was one reason we put in the budget the sectoral partnership fund of $150 million. That's part of that strategy and is designed to encourage industries within a sector to work together when any one company can't do it by itself. I think that's being strategic.

I'm cautious as well; I'm cautious on the projections. There's only the last number of projections I saw before the one you referred to, where other forecasters had us up with greater growth projections than we did. Some of them I thought would be lovely, but I didn't think they were terribly realistic, so we'll see.

We have nothing to gain with unrealistic projections. I think they're embarrassing when you don't achieve them. You understand that. I hope our projections are not optimistic; I hope they're realistic. It would be nice to exceed them. Phyllis, did you want to deal with something?

Ms Clark: Just a few comments on the nature of the message that's in the economic report we gave you, the difference in interest rates, I think, where we talked about real interest rates being high compared to nominal interest rates being low: The impact of low nominal interest rates is the amount of moneys that frees to put into consumers' hands to buy things with their disposable income.

What we try to say here is that we expect recovery. We can see signs of that coming now, but we don't think it will be as strong as the recovery we had when we came out of the 1982-83 recessionary period. We're forecasting, on the next three or four years, growth that averages about 3.7%. When we emerged from 1982-83 we had much higher growth. We had growth that averaged in the high fives-low sixes at some points. There are several structural changes that we think have taken place in the economy, including the free trade agreement, GST and other things that have had an impact on growth. That's why we expect more moderate growth, but we do expect growth.

That's the nature of the comments and the individual items you referenced in terms of autos and housing. We did point out the cross-counter flows you've got in those areas, but autos are still very strong. Exports to the United States are up, and the share of Canadian exports and the Canadian share of the US auto market have increased. It looks as if they will continue to increase throughout 1992. We are moving very strongly in that period.

It's the same in housing. We're on base as far as our forecast is concerned. With that, we've had an increase in the first quarter of 1992 over the last quarter of 1991, so we're fairly tracking on that.

In terms of comparative growth with other provinces, there's a group of forecasters that does cross-Canada comparisons. We think we're going to be among at least the top two or three growth areas in Canada in the next three to four years.

Mr Kwinter: I just want to put something into the record, because I think it's important that it be on the record.

The Chair: Okay, but then I'll let the Treasurer close with his remarks.

Mr Kwinter: The comment on Mexico: We should know -- and this is verifiable through George Peapples, who I know was on the Premier's Council, so you can talk to him -- they have four engine plants in North America. They have one in St Catharines, two in the United States and one in Pueblo, Mexico. They are all clones of each other. They practically used the same blueprints and built them. If you speak to George Peapples, the president of General Motors, he will tell you the most productive, most cost-efficient plant they have turning out the identical product is in Pueblo, Mexico.

There's a sort of canard that people keep referring to: "Oh, well, you go to Mexico if you want to do hand work and cheap things. They don't have any technology. They don't have any skilled workers." I just want to let you know that this is a high-tech plant and that in the General Motors family of engine plants it's the best they've got.

Mr Sutherland: Just on that note, since we're getting closer to what looks like a North American free trade agreement, maybe it should be one of the future issues or near-future issues that this committee begins to look at what the implications of NAFTA may be for the province.

The Chair: You see, Mr Kwinter, being the Chair here, since I worked in St Catharines, I'd have to say St Catharines did a better job, but that's my opinion. Mr Treasurer, any final remarks?

Hon Mr Laughren: Thank you, Mr Chairman. I've enjoyed the exchanges because -- I'm not saying this to butter anybody up -- they've been thoughtful and not particularly partisan either. As you might expect, I am concerned about projections to the future and whether we're going to have the growth we think we're going to have because it makes it very tough on a lot of people if we don't. I believe we've started out of the recession and we're going to recover all right.

I really do get a lot of comments when I'm talking to people, other than people who stand back a bit, about Ontario being a great place to live and invest. I have had a lot of comments -- I could read them out but it would be seen as too self-serving for words -- made by the business community following the budget. I think this year it was a much better reception than last year. There was an appreciation of the acknowledgement to the business sector about the recession and its depth and the reduction in taxes to the business community. I think there was a real sense of that.

As well, the business community is quite complimentary about our attempts to look ahead and they talk about our commitment, for example, and strategic capital. They comment on that and say it is the right direction. They don't compliment me on the amendments to the Labour Relations Act, of course not; they don't compliment me on increases in the personal income tax, of course they don't, but I think that, on balance, the business community feels we've done some of the right things.

I don't like the barrage that occurs out there from time to time. It's a free country and a free province; people will do what they will with billboards and demonstrations. I've been part of those -- not billboards, but I've certainly been part of demonstrations for a long time and so I understand that. My only concern always has been to make a distinction between people disliking and attacking the government as opposed to the province, because I think there's an enormous risk there for the very people who themselves have a lot to lose. It's always been my pitch to the business community that you don't have to love us, but keep your faith in the province. I didn't use your words, but I think yours were quite appropriate, Monte. Anyway, I enjoyed the afternoon.

The Chair: Thank you, Mr Treasurer. I notice you're about an hour and 15 minutes over your time, and we appreciate your presence at this committee.

Mr Kwinter: Mr Chairman, I want to personally thank the Treasurer for coming in and spending the time with us. It was very helpful.

Mr Phillips: Can I get an answer? Not now, but --

The Chair: A written answer?

Mr Phillips: My number two question, maybe just meet with somebody for that?

The Chair: Two and 3. Okay.

Mr Phillips: I'll just phone your office, I guess.

Hon Mr Laughren: Okay.

Mrs Caplan: Mr Chairman, I think it's a very productive use of the committee time to have the Treasurer here to discuss the economic issues and forecasts and perhaps to not only ask questions but to have a little bit of the kind of debate that we have. I hope the Treasurer will come back because businesses are making decisions today which are going to affect the long-term projections of the province. Many of the policies -- fiscal, economic as well as social -- are having an impact on some of the decisions. If we can have that discussion in this forum, perhaps some of the comments will be helpful to those making decisions that are going to affect the province in the medium and longer term.

Hon Mr Laughren: Thank you.

The Chair: This committee is adjourned.

The committee adjourned at 1749.