Thursday 24 June 1993

1993 Ontario budget

Ministry of Finance

Hon Floyd Laughren, Minister

Peter Warrian, assistant deputy minister, office of economic policy


*Chair / Président: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/

Prince Edward-Lennox-Hastings-Sud ND)

Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)

Caplan, Elinor (Oriole L)

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

*Cousens, W. Donald (Markham PC)

Lessard, Wayne (Windsor-Walkerville ND)

*Jamison, Norm (Norfolk ND)

*Kwinter, Monte (Wilson Heights L)

*Mathyssen, Irene (Middlesex ND)

*North, Peter (Elgin ND)

*Phillips, Gerry (Scarborough-Agincourt L)

Sutherland, Kimble (Oxford ND)

*In attendance / présents

Substitutions present / Membres remplaçants présents:

Frankford, Robert (Scarborough East/-Est ND) for Mr Wiseman

Wood, Len (Cochrane North/-Nord ND) for Mr Sutherland

Clerk / Greffière: Grannum, Tonia

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

The committee met at 1606 in committee room 1.


Consideration of the 1993 Ontario budget.

The Chair (Mr Paul Johnson): The standing committee on finance and economic affairs will come to order.


The Chair: I welcome the Minister of Finance, Floyd Laughren. I was wondering if your assistants with you today could identify themselves for Hansard before we begin.

Hon Floyd Laughren (Minister of Finance): Thank you, Mr Chairman. I am pleased to be here. On my immediate right is David Trick from the Ministry of Finance, on my left is Jay Kaufman, who's secretary of treasury board and deputy minister, and next to Jay is Simon Rosenblum, who's senior policy adviser in the Ministry of Finance.

The Chair: This afternoon, before we proceed, I would like to just deal with a couple of things with the members of the committee. I understand that there will possibly be the occasion for votes while we are undertaking this presentation. It's my suggestion that if it's required that we leave for a vote, we recess till the vote is completed and then return as quickly as possible so that the committee can come to order and continue. We are expecting of course a vote at 5:45, as we all know.

Mr Gary Carr (Oakville South): Bradley's got the floor; he'll be speaking for two hours.

The Chair: I understand that Mr Laughren has a presentation to make. I'm in the hands of the committee, but then I believe we will want to ask some questions of the Finance minister. It would seem appropriate that we divide the time up for questions equally. Is that agreeable to all the members of the committee?

Hon Mr Laughren: I was under the assumption that I was here until 6. Is that an agreement with members? Okay, I appreciate that.

Mr W. Donald Cousens (Markham): We're prepared to stay longer if it means that we can get some answers out of you.

Hon Mr Laughren: The length of time doesn't determine the quality of the answers.

There was a prepared statement which more or less covers the waterfront. If you've no objections, I'll skip that and move directly to the presentation. People can read that at their leisure, if that's appropriate, and we can get right into the presentation.

Mr Cousens: Just so we have a sense of the timing, will your presentation leave any opportunity for questions?

Hon Mr Laughren: I would hope it'll leave close to an hour. I really feel quite strongly that's important to do. How many slides are there? There are quite a few slides.

Mr Cousens: That's fine by me. I got frightened when I saw the number of slides.

Hon Mr Laughren: I'll move very quickly. I'll move as quickly as I can, unless members of the committee tell me to slow down. Okay?

This brings us from the budget up till now, this presentation. Very quickly, we set the theme in the budget as investing in jobs and people, preserving important services and also supported investments in jobs, people and services, at the same time controlling our debt as best we can. The combination of these will lay the proper foundation for us as we move forward.

While the debt itself is still going to be over $9 billion this year, which is a very substantial deficit, we're addressing it through the expenditure control plan, which was the $4-billion exercise in which we engaged; controlling the public sector compensation through what we all know as the social contract, and, finally, the relatively aggressive revenue-raising that occurred in the budget through taxes and non-taxed revenues.

That's our foundation for the budget, and we believe that gives us a solid foundation for economic growth as we move through the 1990s.

The recent economic developments show us that in the first quarter of this year -- this, of course, is the calendar quarter in this case -- Canada's real gross domestic product rose 3.8% and, in Ontario, in the fourth quarter of 1992, 3.6% growth in Ontario's GDP. In the last nine months there have been created about 85,000 jobs. It's true the labour force is growing as well.

Exports are strong. International exports from Ontario are up 18% so far this year, led by auto exports, which are up almost 30% over the same period of time. The inflation rate is at about 1.6% for April. Canada's prime lending rate is about 6% now, and the Canadian dollar of course is flirting a little under 80 cents US.

In the US, GDP rate has slowed. Growth rate has slowed to a little less than 1% in the first quarter of this year, but we feel and hope that the pace is picking up, and the unemployment rate in the US fell to 6.9%, the latest numbers in May.

The impact of the budget: I get a lot of questions about this, particularly when I travelled the province after the budget and held public meetings. There were questions on the impact of the budget on our economic recovery because there were fears that the tax increases would slow down the economic recovery and so forth. I hope that and we feel that it strikes the right balance in all of those competing priorities that are out there in a province like Ontario.

Keeping the essential services intact is an important part of the quality of life in this province and we've worked hard to maintain that. We think that the amount of money we've spent on education and training now is what's going to determine how prosperous and how well we do in a competitive way in the future, because if we don't spend on education and training now, we will not be well placed as we go through this decade.

Of course, we worked very hard at getting the deficit on a downward trajectory, obviously not eliminating it, but getting it going down. It was about $12 billion last year, and we're getting it down to a little over $9 billion this year. As I said at the beginning, that's still a high deficit but at least we've got it going down. As the recovery kicks in, I think it would be irresponsible not to have the deficit going in the opposite direction than it's been going in the last couple of years, now that the recovery has started. It means some tough decisions, but I think that simply has to be done.

On the investment side, we hope that it's going to stimulate investment in the province. We've certainly indicated our confidence with the amount of money that we're spending on education, training and, of course, on capital as well.

The last bullet point on the slide indicates the direction we think we're going. We think that in this year there'll be about 106,000 new jobs created in the province and that between 1993 and 1996 we'll average about 115,000 in job growth annually over that period of time, and that the $3.9-billion capital program -- that includes the Jobs Ontario Capital as well -- will, in itself, that whole capital program, maintain about 70,000 jobs: create new jobs and maintain existing ones to the tune of about 70,000. That's a major expression of confidence that we are putting in the province and the provincial economy.

The economic outlook for the province for 1993: You can see it's broken down into real growth, nominal growth, CPI, employment growth and unemployment rate. You can see, for 1993 and then running through 1994, our real growth is around 3.5%. It gets up a little bit higher in 1995 and 1996.

I should comment on the consensus column. That's simply a range of other people, independent forecasters and so forth, who project these things. The consensus out there is that real growth will be 3.8% over that period of time; we're saying roughly 3.7%.

Mr Cousens: Does that include debt interest?

Hon Mr Laughren: Yes. Well, it's real growth in the economy. Nominal growth includes inflation, so obviously that's higher, and you can see the CPI inflation being very low all during this period, under 2%, which is why we've tried to send a message to the federal government about not being preoccupied with inflation, because it's dead in the foreseeable future.

Our employment growth will average around 2.5%, which is close to the consensus.

The unemployment rate -- and Mr Phillips mentioned this in the House one day. He was right in one sense, although the spin he put on it was a bit strange, in which he said that the --

Mr Gerry Phillips (Scarborough-Agincourt): Sorry.

Hon Mr Laughren: I'm just kidding. Oh, you're here.

The unemployment rate for this year being 10.3%, in the budget there was a sentence that said that if you take into consideration the discouraged worker factor who have withdrawn themselves from the official files about employment, it is up around 14%, and that's absolutely correct. We don't take any satisfaction in saying that, but not to put that in there, I think, would be to ignore the reality of the situation in which we and other provinces find ourselves.

So it wasn't that we were predicting suddenly an official unemployment rate of 14%. We were saying these are the numbers, 10.3%, but staying right up there around 9% right through 1993-96, and you can see that the consensus of other forecasters is up around 10% as well. That doesn't give anybody any heart, but at the same time it's realistic, and you'll see some of the numbers as we go through that at least partially explain that as we look at productivity in the various sectors.

There is going to be fairly solid expansion. In the 1980s, Ontario grew at an average of 3.7%, which was better than any G7 country except Japan, and for 1993-96, we're going to grow faster than any of the G7 countries. You can see Ontario at 3.8%, Canada at 3.5%, so we'll outpace the rest of the country, we think -- mind you, the recession's been tougher in Ontario than in the rest of the country too, so it should be that way -- and then US, Japan and so forth.

So we do think that the worst is over and that we're going to see solid, positive growth in the next few years. But once again, I say to some of my friends who've objected and say that we're trying to get the deficit down too fast that if we don't get the deficit down as the recovery kicks in, I don't know what that says about economic policy if there's ever another recession in the next 10 years. I mean, we simply have to address it now.

The employment growth is going to be slow because, as I mentioned earlier, the discouraged workers who will return to the workforce and become part of those numbers keep the number up there. You can see there on the chart that the unemployment rate has peaked at about 10.8% in 1992 and then comes down very slowly in 1993 through 1996. That's distressing, but at the same time, we think it's a realistic forecast.


This one is interesting, because what was bothering me was the unemployment rate among youth, as it's bothered all of us. Certainly the opposition in the Legislature has raised the question of youth unemployment -- quite appropriately, in my view -- several times this session. You can compare now, 1993, with 1983, when they were coming out of the recession of 10 years ago, and it's strikingly similar, the unemployment rates in the different age groups. Look at youth 15 to 24, 21% 10 years ago, 18.1% now. I'm not saying that with any great deal of satisfaction. I mean, 18.1% is an unemployment rate among young people that's unacceptable. It is too high. This isn't meant to justify anything, merely to show that it's very similar to what happened 10 years ago as we were coming out of that recession.

This is the one I was referring to earlier which compares output and employment growth. What's interesting is that the dark-shaded bars are the output. You can see how output's going up, depending on the sector -- 2.8%, 2.9%, 4.6% and so forth right up to 8.7% -- but without exception, the employment in each of those doesn't match the output growth, for obvious reasons, largely labour productivity, I guess, and the application of more capital and machinery in the workplace. You can see that the output is growing, but it's one of the reasons that unemployment stays high. In the long run we'll benefit from that productivity growth, of course, but in the short term it doesn't pick up the unemployment as much as the output picks up, and that's a fact of life.

This is part of the same argument noticing the dramatic improvement in unit labour costs. On the left-hand side is Ontario's how manufacturing productivity is rising, through two measurements: shipments per employee, the dark line, and exports per employee. You can see from 1981 to 1993 how that's gone up quite dramatically. The right-hand column shows the unit labour costs, comparing Ontario with other jurisdictions. You'll notice, the interesting ones for me were the US dotted line and the Ontario solid line where Ontario was shooting up significantly above the US during the 1980s and now Ontario labour costs have come down and are now basically even with US unit labour costs.

I wanted to show, autos being such an incredibly important component of the Ontario economy, how Ontario autos are gaining a share in a market that is rising. On the left-hand chart you'll see the North American sales up 6%, the North American assembly up 7.6% and Ontario assembly up 8.4%. Then, if you move over to the right-hand column, the shift to larger vehicles and more options increases the value added to the vehicles, and that's the average annual output growth between 1993 and 1996 projected. You can see North American assembly, 9.6%, 10.4% in Ontario and so forth. It's pretty healthy in the auto sector. So much for that, then.

Let's move on to investing in jobs and people. I mentioned earlier the new jobs this year. We think it's going to be about 106,000 this year. Some people have criticized Jobs Ontario Training, but quite frankly, it's the one I think is the most creative. We struggled with it in the early days, because it was different, it was more complex than a lot of programs. But it drew a very direct link between people on social assistance, pre-employment training, training itself in the workplace and hopefully long-term employment to break that cycle of dependency of people on social assistance. It was not meant to be simply make-work projects, but actually training people on social assistance so that they become an important and permanent part of the Ontario economy. That's why I get quite enthusiastic about Jobs Ontario Training. We project that's going to create between 35,000 and 40,000 new jobs this year; Jobs Ontario Youth, 10,000 summer jobs; Jobs Ontario Homes, about 2,800 jobs.

Jobs Ontario Community Action, which was announced preliminarily in the budget and then expanded upon by Frances Lankin, the Minister of Economic Development and Trade, is a $300-million program over three years which will give communities more of a say in their own economic development, because we think Queen's Park can't call all the shots appropriately at the local level.

Training and adjustment: We're spending an enormous amount of money on training and adjustment. There have been people who have said, "Well, there are not jobs for people to go to." I think that's the wrong attitude. I think we must train people and educate people so that in the new economy they're there, they're ready, they're trained. This is an important investment in people. It's $1.2 billion this year. That's up 77% since 1989-90. That is a major commitment to training and adjustment.

OSAP, the Ontario student assistance program, has been restructured, as you know, so that it's now loan-first. It will assist up to 177,000 students this year.

Jobs Ontario Training I already talked about.

The sectoral training agreements are with auto parts, steel and electrical and electronics industries, and I think that's already training over 37,000 workers. I think that's already in place. That's a major commitment to training by sectors. I think that's an important initiative.

We have over 53,000 active registered apprentices in the province now. The Transitions program will help about 9,000 laid-off older workers train for new employment. That's an important signal to older workers.

On the community economic development side, I mentioned Jobs Ontario Community Action. It really is aimed at promoting community economic development with more say by communities. I mentioned already the amount of money. There are three components to it: There is the economic development plan, there are the loan guarantees and equity investment and then there is the capital projects component as well. We think it's the right program and we'll see, as this year goes on, the kind of pickup there is at the community level. We really want that one to work.

On the capital side, we are continuing to put increasing emphasis on strategic investments that will help in economic restructuring, promote community development and maintain a healthy environment out there. In January, the Premier announced a $6-billion, 10-year program of major economic infrastructure. Out of the $6 billion, about $4.8 billion will be provincial money. You may have heard or seen Mr Pouliot and the Premier this morning talking about the Highway 407 project and the approval of two consortia to bid on that project. It's a massive project. And of course there is our commitment to $2.9 billion in capital investment annually. We expanded the funding for Jobs Ontario Capital by another billion and took it out another year, 1996-97.


We are creating special-purpose crown corporations that you're aware of on the transportation side: the Ontario Realty Corp, the Ontario Clean Water Agency and the Ontario Financing Authority. We believe that those are innovative mechanisms. They are not totally brand-new -- they're used in other places, other jurisdictions, other provinces, in the United States in particular -- but we think they will give us more manoeuvrability. I think it's the right way to go. It will also allow these corporations to access different sources of money, such as private sector money, whether it's a highway or whatever, whether it's sewer and water projects and so forth.

Then we have the loan-based financing for universities, colleges, school boards and hospitals. That will provide greater certainty of funding as we go out through the next few years and make those major commitments in capital. There will be no net new cost to the school boards or to the hospitals or the universities either, an important addition to note. I know Mr Phillips is taking particular note of that.

The next section deals with maintaining services while at the same time controlling government costs, and this pie chart shows how we approach how to control the deficit. If you break it down, the expenditure control plan was $4 billion. We looked at 1993-94 and we said: "This is where we're headed with the expenditures. These are commitments for 1993-94. That is completely unacceptable. We must reduce it by $4 billion." We said: "That's not enough, because we're heading for a deficit of almost $17 billion. That's still not enough, so we must find some more." We looked at tax measures, $1.6 billion this year; asset management and sales, $900 million, almost a billion there; non-tax revenues, $200 million; and public sector compensation -- ie the social contract -- $2 billion. That was the way in which we approached the deficit reduction plan.

Now, there are people who would say, "You should have reduced the expenditures more and not done so much on the tax side." Others would say, "You should have taken more out of public sector compensation." Others would say, "You should take less." Obviously this was a balancing act to try to make it as fair as possible that everyone in the province made a contribution to this effort, because it's a major problem.

Obviously, I think it's the right balance, because to have taken more -- I read the comments by the Ontario Chamber of Commerce that we should reduce the deficit totally in 1994-95. That's next year. If you took $9 billion out of this economy next year, I know who'd be the big loser. It would be the very people the chamber of commerce represents. I think that makes no sense whatsoever, because you'd have to reduce some capital expenditures if you're going to take that much out. In one year? I can't imagine how they thought that taking $9 billion out would help the economy in one year. I just found that astounding.

Anyway, that's how we've decided to try to get the deficit to go down rather than continue to go up, which it has been doing for the last three years.

This puts in some perspective the growth in spending on operating programs in the last 10 years or so, and you can see during the 1980s -- now, to be fair, the inflation rate was not what it is now either. We're not trying to camouflage that, but you can see the growth in programs. The lowest it was during that period of time was 7.3%. It was actually 16% back in 1981-82, growth in program spending. I notice Mr Carr writing that down.

Mr Carr: What was the inflation then?

Hon Mr Laughren: I know. Inflation was tough in those days.

Anyway, in 1991-92 it was 12% and in 1992-93, if I could give a nod to my friend Jay Kaufman here, the secretary of the Treasury board, when we got Treasury board up and running and really institutionalized expenditure control, you can see how dramatically it dropped to 2.8% in 1992-93 and a reduction in program spending in 1993-94 of 4.3%.

I hasten to add that interest in public debt is not included as a program in there, but even if you include that for 1993-94, it's slightly below even anyway. It's still a reduction in overall spending, even with interest on the public debt. We've worked extremely hard on the expenditure side. We've been really preoccupied with that for the last couple of years and it's showing results. I think we're going to show you some examples -- oh no, not yet.

I mentioned before in that pie I showed that we took $4 billion out on the expenditure management side, expenditure control side, and this is where we took it. I want to emphasize that the largest single item on there is internal Ontario government savings, $720 million. Those are reductions in all the ministries, $720 million. Some examples were quite dramatic, such as spending on -- if I can remember them now -- travel, consulting, other things like that reduced by 24%. Reducing the number of ministries from 28 down to 20, I believe it was, that alone saved $40 million, $45 million this year.

We have worked extremely hard internally as well and a lot of credit goes to a lot of people in the public sector and the Ontario public service who've worked hard on that to make it happen. And you can see the municipalities, $176 million and so forth. That's how the $4 billion breaks down on the expenditure controls that we put in place this year, and those will annualize each year, so this isn't just a one-shot deal.

This is the example I was going to refer to, which you may be getting tired of having me refer to as I come before this committee, but it really is a startling example, I think. Look at the increased spending in the Ministry of Health going back to 1982-83: 17.8%, 12%, 9%, 10%, and it averaged about 11% all during the 1980s and even 1990-91. Look, it's 12% then, 10.4% in 1991-92 and then 0.9% and 0.1% this year. The battle isn't over yet, and you know as well as I do that whenever you try and control health care spending, take it to the local level -- and you know the impact it has at the community level. I always say that in Sudbury if you push a health control button, a mushroom cloud appears over my community. That's the kind of reaction there is to expenditure controls in the health care system.

It has to be done very carefully, it has to be done in a way that maintains essential services, but really, those numbers were completely unsustainable. We could not sustain those kinds of growth numbers. We have to do something to get health care costs down, and the more we can do in partnership with the medical profession and other health care players, including the hospitals and people who work in the system, the better. If we can work together on it, that's wonderful. At the same time, we're determined to get health care costs under control. I'll say it again and again that if we're going to save medicare in this country, in this province, we have to control its costs.

Social assistance, as you might imagine during a recession, has been extremely high. Look at the growth percentage change year over year: 1989-90, as the recession was hitting, 20% over the previous year; 1990-91, 37.9% on top of that; and 1991-92, 43% over that. Those are dramatic increases in social assistance expenditures. They're starting to come down as we come out of the recession, but I don't think we're out of the woods yet and that's one of the reasons that there's going to be a social assistance reform paper brought out in the next little while -- I don't think a date's been set yet -- a social assistance reform which we hope will go some way towards linking people on social assistance to the workforce and hopefully as well doing something about child poverty in this province. That's a worry.

This is just an example -- I didn't want to just use health care as an example -- under justice, the Attorney General has worked diligently to control costs in that ministry as well, both the previous Attorney General and the present one, and you can see the numbers all during the 1980s again, down now to 0.1% this year. That's taken a lot of work as well.

Let's move to the public sector compensation, the one that's on the minds of a lot of people these days as the social contract gets debated. We passed second reading -- well, actually, we vote on it today, don't we?

Mr Phillips: That was yesterday.


Hon Mr Laughren: No, we passed second reading yesterday. That's correct.

Mr Cousens: It's going to committee of the whole.

Hon Mr Laughren: It's going to committee of the whole, correct, and we'll be debating -- in case the opposition thinks it's not perfect and wants to move amendments, there'll be an opportunity next week, we hope. We might even have some of our own, but that'll be dealt with next week.

We are determined to achieve $2 billion in savings in public sector compensation, and legislation was, as you know, introduced on June 14. Components of that are a job security fund of $300 million over the three years of the contract; a redeployment, training and adjustment plan for each sector so that people can move between institutions and so forth in each sector; total compensation savings of $2 billion. We also wanted to make sure that people earning under $30,000 would be protected through a low-income cutoff, and that's what we've done; and also to protect pay equity provisions. That will be protected under the social contract as well.

The total compensation for the 900,000 and some public sector workers is about $43 billion, and we're achieving savings of about $2 billion, so that's where you get the roughly 5% savings in the social contract. The reductions in public sector transfers will start on July 1. We want to make sure that's started now, not later in the year, and we're going to do it that way. We're trying to make it as flexible as possible to allow the employees and their employers and the government to negotiate the best they can. They've all been given targets to negotiate the best way to achieve that. If, on August 1, that hasn't been achieved, then what we call the fail-safe mechanism, the legislation, will kick into place because we simply must achieve those savings.

This is the breakdown by sector. I think members have seen those numbers before. I don't think we need to dwell on them, but that's how much public sector compensation will be saved in each of the major sectors.

There are some incentives to bargain. There was a question asked in the Legislature this afternoon which surprised me, because it implied that there was no real incentive to bargain, and there is. If there are sectoral agreements reached, the targets will be lowered; the targets from the previous slide will be lowered by about 20%. There will be access to a job security fund, which is $100 million a year. That's surely important for workers who are impacted by the social contract. We think that's an important incentive to get an agreement, a voluntary agreement, so that they don't have to come under the Social Contract Act, which kicks in on August 1, for those who do not reach a voluntary agreement.

We will achieve the savings. One thing I wanted to emphasize, because there's been some noise about it out there that's been incorrect, and that is the pension question. Any savings that we realize on our contributions to the special pension fund will not touch individual pension benefits at all. We're not doing that. We are not stripping a nickel out of the pensions funds of the public sector workers or teachers. That's simply not the case.

You may want to get into that in more detail during the question-and-answer session, but it's the special fund that's set up to deal with the actuarial deficiency. We make payments on that, based on certain assumptions of income that people make and of inflation rates, and since both are going to be down because of the social contract, then our contributions can accordingly be lower and we can achieve savings that way.

The other component -- the expenditure reductions was one, the social contract was two, and the third is government revenues and making the tax system fairer.

You can see that this is where we were headed. The bars are the actual revenues in 1990-91, 1991-2, 1992-93, and where we were headed in 1993-94 was lower revenues even than the previous year. That's why we brought in a very aggressive revenue package in this budget -- admittedly aggressive. We think that it puts our revenues on a footing that means we won't have to do this again. Also, if you combine it with the expenditure reductions, I believe we now have a sustainable level of expenditures with a revenue base to not only look after the expenditures but get our deficit going down in the medium term. That's our goal. That's why we did the aggressive tax package. I think to have taken the equivalent amount on the expenditure side would have created enormous job losses all across the province and a very, very substantial reduction in services, because it is wonderful to say, "Reduce government expenditures," but we have to understand that means a reduction in services out there all across the province. There's no easy way of simply saying, "Reduce government expenditures," and think that it's not going to mean a reduction in services, because it is. That's why I think this was the right balance of expenditure reductions and the social contract savings and the tax increases, which means that everybody virtually makes a contribution to the solution of our problem.

The tax moves, which were largely the income tax increase plus the surtax and of course the tax on insurance, which were the major components of the package, you can see this measures the progressivity of it, why it's fair. You can see that on the left hand the vertical axis shows the impact in dollars, depending on your horizontal access, how much money you earned, an Ontario citizen earns, and obviously you can see it goes up fairly dramatically the higher your income. Well, that's the nature of the beast with progressive taxation, and that includes the surtax. This one, by the way, includes the retail sales tax changes too. So this measures what I think is the fairness of the tax moves that we made. Nobody likes more taxes, but I think that this was the fairest way to do it.

Members here will be aware of the Ontario tax reduction program in the province, in which beyond a certain level low-income persons do not pay any Ontario income tax. They might pay federal tax but not Ontario tax. On the left-hand side you see, since we became the government, what would have been the case if we hadn't made changes. But we have made changes for low-income people and on the right-hand side you can see that there are now 220,000 people who pay less Ontario provincial income tax and 590,000 who pay none. That's a total of 800,000 people whom we've affected, and I think that's a major commitment to fairness. If you think of the previous chart, which measured how taxes go up the more you earn, this shows how people of low income pay less or none at all. I think if you combine those two, we've gone some way towards making our tax system fairer. The average amount of tax relief this year was $210. That's for low-income people, and I think that's substantial.

This compares our income tax, because every now and again, to my complete amazement, members of the Legislature sometimes make references in the question period to us being not competitive with our tax system when in fact we are. The top one shows the combined federal-provincial marginal PIT rates for people earning under $29,500, and you can see how Ontario is the third lowest of all the provinces in Canada when it comes to incomes below $29,500. The bottom graph shows the top marginal PIT rates by province, and we are second from the top. So we are very close to BC in having the highest marginal tax rate at the top. But I think that's appropriate, to be third from the lowest at low income and second from the top for high income, and I think that's fair.


This very simple chart shows the retail sales tax rate by province. You can see that the highest is Newfoundland, with 12%. Alberta, of course, has no sales tax whatsoever, BC and Manitoba with 7%, Ontario with 8%, Quebec with 8% and everybody else from 9% to 12%. So we are second lowest on retail sales tax, or third counting Alberta.

It's the corporate income tax rate that's important for people in the business community making investments, and that's not an insignificant factor. Now, I know that you can get into a bit of a mug's game comparing taxes, depending on what all you include in them, so I'm aware of that. I don't want to be simplistic about it. This compares the corporate income tax rate for the manufacturing sector. Another chart will show us some other taxes. But for the corporate income tax rate, Ontario is at 13.5%, and you can see that New Brunswick, Manitoba, Saskatchewan, BC, Nova Scotia and Alberta are all above us; Quebec, Newfoundland and PEI are below us. But the next chart I think will show the reality, that Quebec has higher payroll taxes than we do, so it levels the playing field to a degree.

This shows some comparisons with the US states, because increasingly that's who we're competing with for North American investment. This shows the corporate income tax rates for the manufacturing sector. The slightly shaded areas at the top I believe are the recommendations by President Clinton for tax changes. So they're not in place yet, but that shows that Ontario, at 35.3%, is lower than those competing jurisdictions.

On payroll taxes, which I mentioned earlier, the per cent of taxable payroll, Ontario is at 2.5%. Look at the US; much higher payroll taxes. The employer's health tax is 1.95% here for the larger companies, it's lower than that for small companies, and for the US it's 8.8%, for those who pay their employees' health care costs, the premiums. So I think that we do need to keep that in mind some time when we are comparing rates, how attractive our health care system is, because in the States there's an enormous amount of debate going on about the inability of employers to pay premiums for their employees.

Okay, let's move to looking at "Controlling the Growth in Debt." There are a lot of numbers on here, and if members want to come back to this chart afterwards, that's fine. It really is our medium-term fiscal outlook. There are a couple of important ones. One is on the revenue side, seeing what happens to revenues through 1995-96, then the programs, the public debt interest. You can see that even with getting our deficit going down, interest in the public debt goes from $5.4 billion last year to $7.2 billion this year.

Mr Philip and I have had many quiet conversations on this one, not all in the Legislature, but chats about this, and I know he's been over to the Ministry of Finance to talk about this, which is quite appropriate. But even given what we're doing with getting the deficit down, you can see that it's going up from $5.4 billion to $7.2 billion to $8 billion to $8.5 billion. That's a lot of money to be paying out on interest on the public debt. I think most members here know that two thirds of our new borrowing is done outside the country, so it doesn't even stay in here and recirculate. So that's why I'm quite determined that we're going to get that deficit coming down every year, because that number keeps going up.

You can see the operating deficit then going down from $6.1 billion this year to $2.6 billion in 1995-96. If you add on capital expenditures, you can see what the total budgetary requirements are. They still are at $4.8 billion in 1995-96, but at least we're going in the right direction. We think it's reasonable, we think it's sustainable and we're determined to get there. The total debt, you can see, is $68.6 billion now, and it will still be up around $90 billion in 1995-96, which is very substantial.

Below, the bottom half shows the fiscal indicators. A couple of the numbers I'd point out to you. One is public debt interest as a percentage of revenue, going from 12.8% last year up to 17.2% in 1995-96. That is a fairly substantial increase. But to put it in perspective, and I'm not saying this because I think this isn't high -- this is high enough -- the federal government's PDI as a percentage of revenue is something like 32% or 33% now. We're determined not to get there. You just have no flexibility when you get there on what you spend your money on, and we're determined not to let that happen.

Total tax revenue to GDP: This I find interesting because despite the very large, aggressive tax package this year, our tax revenue as a percentage of GDP is 11.5%, which is the same as it was last year, slightly more than in 1993-94 and more than in 1992-93. I don't see the number here, but I seem to recall that in 1989-90 it was right up around -- as a matter of fact, it was over 12%, almost 13%. I don't see that here, but anyway, around 23%.

The tax revenue/GDP is one way -- it's only one way -- of measuring what proportion of the economy is taken up by tax revenue. That's what that number means.

This is the debt per capita. Just to compare us to other provinces and the federal government: per capita, in dollars, we're at $7,638. The lowest is British Columbia at $3,100, and the highest among the provinces is Newfoundland at $9,200, and the federal government's debt is at $17,000. As a percentage of GDP, you can see we're somewhere in the middle, with our debt as a percentage of GDP at 27.5%.

This is the final slide, I think. Is there one more? This deals with the credit ratings of the various provinces, determined by Standard and Poor's, Moody's, CBRS and DBRS. You can see Ontario has a AA, as does British Columbia, as does Alberta. Saskatchewan is either BBB-plus, from Standard and Poor's, to A with two others and BBB with DBRS. Quebec is AA-minus for Standard and Poor's, and single As from Moody's, CBRS and DBRS. That's just simply to compare the credit rating of the various agencies.

When we brought down our budget we had meetings with the credit rating agencies. They were, of course, very interested in a number of things. One was our expenditure reductions; the other was the social contract. They are watching very closely just to see if we achieve the savings in the social contract. I think they're convinced we're serious about it and are determined to do it. They certainly maintained our credit rating when they were downgrading others.

I think we're on the right track, not just for the bond rating agencies' purposes, but simply to protect Ontario's payments on interest on the public debt in the next few years, which are going to be high enough without allowing it to go higher. So I really believe we're on the right track.

That's the last of the slides. I hope there haven't been too many. If you want to recall any of them, we can sort them out and get them back up on the screen for you. Having said that, Mr Chair, I'm in your hands.


The Chair: Thank you, Mr Laughren. We have an hour left in this presentation for the finance and economics committee. I think we have agreement to divide the time equally among the caucuses, which would allow 20 minutes per caucus. We'll start with the Liberals and Mr Kwinter.

Hon Mr Laughren: There is a vote at 10 to or quarter to.

Mr Cousens: Why don't we break it into 10-minute slots or something?

The Chair: Sure. That sounds good. We'll have 10 minutes per caucus and then start over again. Mr Kwinter, did you have your hand up for a question?

Mr Monte Kwinter (Wilson Heights): If Mr Phillips wants to go, that's fine.

Mr Phillips: I appreciate the presentation and, as usual, I think we've got more questions than we'll have time for answers. I assume we can submit them to the staff.

As you know, the most disturbing chart in the budget to me was the one on the jobs future, in that I appreciate the severity of the fiscal situation -- that one I agree with, by the way, as I understand the numbers -- but in your judgement, is that the kind of future that we should see for ourselves? You know the plans that the government has, you know the economy and that we're looking at for the next four or five years, when you take into account what you call the discouraged workers, the people who have given up, unemployment rates in the 12% to 13% range for four or five or six years down the road.

Hon Mr Laughren: Unless something changes and the economy recovers faster than we think, unless the federal government -- because we could do some things, as a province. I think you would agree that we can't really solve the whole problem, and I'm hoping that the federal government will be very aggressive in its policies on interest rates, keeping the interest rates as low as it can, over which it has control.

As well, I'm hoping, and I guess there's no way of not making this a partisan comment, that the federal government will work with us on more joint programs. I can't imagine a time in the past when, with unemployment rates at this level, there wouldn't be, for example, a federal-provincial program on youth employment and to work with the provinces, the municipalities, the federal government and the private sector to really go after that problem very aggressively.

We can do some things; $180 million is what we're putting into it this year. I know that we could all put more, I suppose, but you acknowledge the tight fiscal situation we're in.

That is a realistic assessment of where we're headed if it's business as usual out there. Unless the economy rebounds faster than we think it's going to, unless the US has a major rebound as well, and if there's more aggressive policies on the part of the federal government to work with other people, then I think that's what we're facing, yes.

Mr Phillips: Just a comment and then my colleague. I'm not sure many of us have internalized what that means. I've looked back at the unemployment rate for 50 years, just because I'm interested in this, and we've never seen this long a period of time with these levels of unemployment. I think you'll find that's an accurate statement. At least for 50 years we haven't seen where we're going to see double-digit unemployment for six or seven years. I don't think we've even contemplated the impact of that.

Hon Mr Laughren: There's no question, this is the most severe recession in 50 years, absolutely no question about that. I don't disagree with you at all.

Mr Phillips: I noticed that in the budget you said 98,000 jobs have been created in Ontario in the last eight months. Then I see 85,000 jobs created in the last nine months, that it's still bouncing along without a lot of enthusiasm as far as I can see.

Mr Kwinter: I have some very fundamental concerns. The concerns I have are that each year you come to this committee, you tell us figures and invariably they are wrong.

In your first budget you stated that we were in the severest recession since the Great Depression of the 1930s. You're saying that again now. You're saying that you've got to make some dramatic changes to the way we do business. Your medium-term fiscal outlook showed that over the five-year period the deficit would reach certain levels, each year decreasing. The fact of the matter is that each year it has gone up. It's gone up rather dramatically. You weren't out by "spot on" a bit; you were out "spot on" a lot. Every year the deficit has dramatically gone up.

If you take a look at your mid-term fiscal projections on page 39, you show -- and I like the change of phrase, "budgetary requirements"; in 1990-91 you talked about a "combined deficit." You now have changed that wording; I guess it rankles every time you look at it, so you call it "budgetary requirements," but we're talking combined deficit. You talk about these figures, which are still higher than your projections were in 1990-91, including all the savings that you're going to make with the social contract. That's taking the money out of the government programs, rolling back the expanded public service, increasing taxes for Ontario taxpayers, and You're still higher than what your projections were.

My question is really this -- and this isn't a partisan thing; I would do this if I were at a board of directors' meeting and you were there explaining the finances of your company: Given your abysmal record, the fact that you have not even been close on every single projection, why should we have any faith in these numbers? When you say in this document, "We don't expect that we will have to raise taxes again," why would anyone believe you?

Hon Mr Laughren: You're partly right. Our deficits have been $11 billion and $12 billion and now $9 billion, in round numbers, this year coming up. I would point out a couple of things, though.

One is that we have been very good on the expenditure side. We've met our expenditure targets and exceeded them. We really have worked hard at that. What we have not been able to do is achieve the revenue forecasts. This gives me cold comfort, but we're not alone in that regard. The federal government will be out by about $10 billion on its deficit projections.

We had to deal with -- and I think you appreciate this; Mr Phillips said it himself -- the worst recession in 50 years. This year our economic forecast is very cautious. The revenue forecast is even more cautious. For example, if you go back to this year that just ended, we included in our revenue forecast -- because we really thought at the time we'd get it; we'd never been through this experience before -- $1.2 billion on the fiscal stabilization. We ended up getting $300 million. We're out almost $1 billion on revenues just in that one item alone. This year we've taken it right out of the numbers. If we get it, so much the better; it will be welcome. We have no reason to believe we won't get at least some of it. Nobody has closed any doors or anything like that.

We do believe we can meet this year's targets, but if you can find a jurisdiction in this country that's met its targets in the last couple of years, I'm not sure what it is. As I said at the beginning, that gives me cold comfort, but at the same time it really is a fact that we've all struggled, and in almost every case it has been the revenue side, not the expenditures, that has done us all in.

That's why, of course, we've got the emphasis on expenditures here in the province: $4 billion on expenditure control and $2 billion on the social contract. That's $6 billion in expenditures we were headed for this year on which we've put the brakes and said, "No, we will not do that." I think we will achieve that.


I conclude by saying -- and I was trying to make this point when I was talking to a group of senior managers last week -- that as we are restructuring, downsizing and reducing expenditures, demand for our services has never been higher: Social assistance -- you've seen the numbers -- is going up; educational costs -- enrolment is going up substantially in the colleges; health care -- demand for that, more expensive procedures and so forth, going up; all of those things. Here we are doing this, while demand for our product's going up as opposed to going down. Given all of those components, if you will, we've taken the problem very seriously and I do think we've got it under control.

Obviously, I'm also cautious in my optimism, given the last couple of years. I'd be foolish not to be extremely cautious. It's been a long time since I've used the term "spot on." Revenues are hard to control in-year. Expenditures we can work at, but with revenues, if they're not coming in, they're not coming in, and that's really what's done us in.

Mr Cousens: Your budget has proven that you're biggest gouger in the province's history in levying taxes, but now, after we've seen your budget, you're the most inefficient tax gouger we've come across.

This kind of illustration is one that has been brought forward in the House, about the insurance cost: A company has been chasing down people in your ministry for weeks to try to find out how it will levy its tax. It's a company in Smiths Falls, with a credit insurance for car loans. They have to put on, by July 1, the new increase for insurance. We're assured by people in your ministry that they'd know what they should do to their computer programs; they've got six days left, maybe five days left to do their computer programming for 100 car dealers on this life insurance package. No answer has come back from your ministry and it's just tremendously disconcerting. It makes me ask, why didn't you have a little more lead time -- you were going to do it anyway -- a month's difference before you put in all your insurance increases, to make it effective August 1 rather than July 1? That's somewhat similar to a question I asked in the House.

Hon Mr Laughren: The longer lead time you have -- I thought we did that on -- I'm trying to think of the actual commencement date.

Mr Cousens: You did it for home brews or the small brewers, but you didn't do it for insurance.

Hon Mr Laughren: We didn't give a lead time.

Mr Cousens: No.

Hon Mr Laughren: No, because of the danger of policies being renewed as new policies, on which then there would be no taxes paid. That was the problem if you allow that kind of lead time, quite frankly. A bulletin went out from the Ministry of Finance to everyone concerned with this right after the changes were announced, almost the next day, I think.

Mr Cousens: I'll share the letter with you so that you can see there is at least one person among the thousands I have heard of who are concerned about not getting clear, concise, accurate, quick answers from --

Hon Mr Laughren: That hardly makes me a gouger, but go ahead.

Mr Cousens: Wait till people start feeling the effects in July.

Can I ask a few questions on the social contract? It's terrible to be so limited in time. How flexible is the government going to be in allowing the sectoral partners to be in negotiating their sectoral agreements? For instance, if a municipality were to defer capital spending of several hundred thousand dollars, would that be something that could be included in the equation?

Hon Mr Laughren: You're talking now about a voluntary agreement that would be achieved between a sector and employees. We want to be flexible so that in fact they don't even have to come under the legislation on August 1. But at the same time, we want to make sure they follow the guidelines or the framework of the social contract, which is public sector compensation.

Mr Cousens: If they are able to reduce their expenditures by a certain capital amount, will you be able to include that? You've got a lot of freedom for interpretation.

Hon Mr Laughren: Wait a minute now. They each have a target. We reduce accordingly. What we're saying to them is: "That's how much less you're going to get from us. Now you go out there and work it out as to how you achieve that."

Mr Cousens: My point is that if they, instead of finding it in salaries, find it in some other budget area, will you allow that?

Hon Mr Laughren: I'll call Peter Warrian up here, who's helping us with this.

Mr Peter Warrian: I'm sorry, the question is?

Hon Mr Laughren: Can the municipalities reduce their capital expenditures in order to achieve their savings? We already have reduced our transfers to them.

Mr Cousens: Instead of it turning up in salaries, it's in some other area. The minister has such freedom to interpret things within the sectoral agreement. Could that be something that can help address the cost savings?

Mr Warrian: I can comment up to a point. You appreciate that we have negotiations going on with that sector as we're sitting here.

Mr Cousens: Choose any mythical situation.

Mr Warrian: Within the proposals, the framework we have on the table, there's an allowance to gain savings in areas that are beyond just the narrow compensation base, and they can apply that against their target.

Mr Cousens: What are they? Give some examples of things other than salaries that they could find savings in. That's really what I'm asking.

Mr Warrian: There are productivity and efficiency gains, elimination of duplication, a variety of those things. It applies in that sector and a number of others.

Mr Cousens: Anything else?

Hon Mr Laughren: But not capital, I think is what he's also saying.

Mr Cousens: That's what I'm trying to find out.

Mr Warrian: Not capital. There's a variety of other kinds of efficiencies, waste gains, productivity, that they can apply.

Hon Mr Laughren: Keep in mind that this is a public sector compensation issue. That's how it's deliberately framed.

Mr Cousens: It's just so difficult to understand, because you have such latitude in the bill. That's why I would ask -- it's another question, because I think I heard your answer on this one -- when you talk about "substantial support" you can interpret within a sector for an agreement, what kind of objective measurement are you going to use to indicate whether or not there is large sectoral support? For instance, could it be 100 municipalities that are agreeing? Could it be if you talked to five teachers out of all the teachers? You've got a lot of freedom here.

Hon Mr Laughren: I don't have all that in front of me now, but I'll ask Peter to comment. Also, I would not want to recognize a sectoral agreement unless there was some substance to it, unless there was substantial sign-on by employers and employees; otherwise, it's not a true sectoral agreement. On the other hand, I don't think it should be held up because there might be one or two recalcitrant groups, whether employers or employees, who didn't want to sign. That would be denying people in that sector access, for example, to the job security fund.

Mr Cousens: You've got special circumstances that you can apply in your criteria.

Hon Mr Laughren: Yes, but we wouldn't want to use it in a foolish way. That wouldn't benefit anyone. Maybe Mr Warrian would want to comment.

Mr Warrian: In the first instance, the parties are at the table negotiating now, the government side, the employer side and the union side; that is going on. So the first test is, do we have a sector agreement where all sides have signed off? That's the first test.

The second test is, having done that centrally, what buy-in, if you like, have we got by the local parties back home, by an individual hospital or municipality etc?

The final circumstance the minister may be faced with is, where there is not a central agreement at all, what level of convergence might there be?

Hon Mr Laughren: For example, if there are a whole bunch of local agreements, if there were no central agreement, to what extent could that be deemed to be a sectoral agreement? Obviously, that's a judgement call.

Mr Cousens: What I'm trying to say is, would that be 50%? Would you look for at least 50% of all those participants before you would say you have that?

Hon Mr Laughren: I think it would partly depend on who they were that had agreed and had not agreed. I'd hate to prejudge that. I'm not trying to be evasive, but I'd sure want to take a look at that on a case-by-case basis before I moved in and said, "I deem there to be a sectoral agreement here," or "There is not."


Mr Cousens: Can you give me an example of when you would call it a special circumstance for you to make a decision on something that could influence what you're going to do?

Hon Mr Laughren: You mean, to see a sectoral agreement even though there wasn't a --

Mr Cousens: You've got that option within the special powers.

Hon Mr Laughren: Yes. I just want to make sure we're on the same wavelength here, because sometimes we're not.

Mr Cousens: You're the most powerful person in the province now.

Hon Mr Laughren: No, no. Why don't I feel that way then?

If, for example, in a sector there was a large number of workers and employers who signed on to an agreement but there was one group of workers, perhaps members of a particular union, or non-unionized, who didn't sign on, but there was substantial agreement on a voluntary arrangement, then I think it would be appropriate to say, "There's enough here to justify an agreement so that people will have access to the job security fund." Because that's an important part of what's going to be happening out there in the next three years.

There hasn't been anything come to me at this point from Mr Warrian saying, "Here's a situation; I recommend to you that you recognize a sectoral agreement here." Did you want to add anything to that?

Mr Warrian: No.

Hon Mr Laughren: A week from now perhaps he will have, I don't know.

Mr Cousens: After this bill's passed, people are just going to have nothing but great respect for your powers, but just how you use them is where you're going to keep that respect or lose it.

Hon Mr Laughren: I'm sure it would be foolish to abuse it, but there would be nothing to gain by pretending it was worth recognizing a sectoral agreement if there wasn't. That wouldn't prove very much.

Mr Norm Jamison (Norfolk): We're looking at the figures, and we see that certain things have to be done. When you talked about the changes that have taken place out there, the restructuring of an economy, I've sat on the finance and economic affairs committee and I've listened to renowned economists be as wrong as anyone in this room, probably more so, about where the recovery might take place and what type of recovery it might be.

The fact of the matter is that a goodly number of well-paid manufacturing jobs, through the free trade environment and the recession and the globalization effects -- many of those companies that used to rely on branch plants have consolidated and those high-paying jobs are not in as great numbers as they were.

Along with that, the plants that are around, for example, the plants we've normally known, like the Stelcos and the resource-based plants, have had an ongoing downsizing in workforce through technology and through flexibility in combination of skills, and older workers, along with all the effects of that -- and this is my impression: People who are fortunate enough to be finding work out there are finding work at a lower level of pay.

I guess my question is, with the projections we see here, there are so many possibilities that would impact the economy of this province even further, and one of them that comes to light is in fact the whole NAFTA situation that's coming down the pipe to us, and our federal government seems to be speeding along the highway with its blinders on at this point.

I just want to really ask you the question, Mr Treasurer, about the importance of making sure that our workforce is well positioned to take advantage of, as we would call it, the value added type of industries that would come this way and really have some understanding of the numbers of industrial value-added-type jobs that would need to come to replace the ones that have left for those various reasons pointed out.

Hon Mr Laughren: There are a couple of comments I'd make. One is obviously that the pace of change is much faster as well. It's not just that change is occurring; it's changing at an increasingly rapid rate. And it's changing not just for people who are yet to come into the workforce, but people already there are going to have their jobs changed from under them several times in their worklife.

There was a slide up there at one point that made reference to some training arrangements. One was the steel sector, another was plastics, another was electronics and another was auto parts. What's important about that is that it's recognizing the need for training in existing operations for existing employees. And I think that number was something like 37,000 who have been involved in that so far.

The other part is the $1.2 billion that we're spending on apprenticeship and training this year. That's another component of it. Also, you look at the sectoral partnership agreement that the Minister of Economic Development and Trade is working on to get sectors to work together, firms within a sector to work together, and on which we are willing to put up some money to help make that happen, because I think that if we're going to be competitive not just among ourselves in Ontario but on a global basis, in some cases industries within sectors are going to have to work together. Any one may not be big enough on its own to get out there and really muscle in on world markets, but if they work together and if Ontario as a province works with them, then I think there's a better chance they'll accomplish that and create jobs here and experience growth.

We have the centres of excellence which we continue to fund in this province. Look at the growth on the auto parts and auto assembly on those early charts that I showed you. That's a high value added sector and we've got to make sure we maintain that. You've seen some very, very exciting announcements by the Big Three in this province. They have put an enormous vote of confidence in this province, they really have, with their investments here. That, to us, is enormously satisfying. We've helped out, we've been there on training dollars and so forth, but I think that sector is really critical. It is high value added and it's going to continue to be.

I hope we're on the right track. I know that cutbacks are the order of the day or restraint's the order of the day, but one reason for reining in our expenditures is not simply to rein them in but to change our spending priorities into areas that are critical, such as training and education, such as sectoral partnership funds, such as Jobs Ontario Community Action programs. So it's not just spending money the same way. It's saving so that we can spend it in some other way, not deficit reduction for deficit reduction's sake, but to be more strategic, especially in our capital expenditures. That's sort of a rambling answer, but that's what I believe is important that we do, even in tough times.

Mr Jamison: What kind of impact do you see, quickly, of the latest news on the type of sanctions that are coming down on the resource-based type of industries?

Hon Mr Laughren: The steel industry?

Mr Jamison: Yes. What kind of situation does that present to you at this point?

Hon Mr Laughren: We are very unhappy about that, and you even saw Mr Wilson, the federal Minister for International Trade, express his dismay at that whole thing. I thought something might happen, but I was struck by how severe the ruling was. But Mr Warrian has spent a good part of his life in the steel industry and I'd ask him to make a couple of comments.

Mr Warrian: The dangers are other than the obvious fairness argument of the inequities between US trade law and Canadian trade law. We can all make the fairness argument, but then we get into the practical economic impacts. This is a major threat of blockage from the US market. If we lose access of a million or a million and a half tons of steel, this has potentially devastating impacts on jobs that certainly start to run in the order of 5,000 to 10,000.

Secondly, the nature of the inequities between the rulings handed down from Ottawa versus the rulings handed down from Washington means we are wide open for increased dumping from foreign producers into Canada that can have further impacts on us. Also, you set off a war of position among the Canadian producers. The steel industry's had more than enough problems in recent years, but you set up a further downward spiral for the Canadian producers that is very, very threatening across the country.


The Chair: Mr Phillips or Mr Kwinter. I think we'll do five minutes per caucus now, just to divide the time up fairly.

Mr Phillips: I think you'd agree that the tax increases are a risk. In your budget you had a statement, "The recession has ended and the Ontario economy has turned the corner," so I gather the budget was built on the assumption that, as I say, the economy has turned the corner, the recession's over. I'm trying to be completely non-partisan here. I'm just trying to get an assessment from you, Minister, of what the risk is that we will stall the economic recovery with the tax increases.

I remember, I think in your first budget, you did a big job estimate of what would have happened had you taken the taxes up. That's lacking, of course, in this budget. But I wonder if you could comment on what risk we are running with the tax increases -- and I appreciate that you've determined that's a risk worth running -- and whether the economy is as robust now as you thought it would be when you prepared the budget.

Hon Mr Laughren: First of all, yes, when you're preparing a budget you have to really be thinking of that. You have to think of the fairness component, you have to think of the impact on the economy, and to what extent it would stall a recovery that was somewhat fragile to begin with and was going to be a bit bumpy. So you're absolutely right, those are factors you have to think about, and that, quite frankly, was one of the reasons we selected the tax increases we did.

You'd have to start, or at least I had to start it, from the premise that we needed those tax increases. That was the first conclusion I came to, that we have to have a substantial tax increase package. Otherwise you've got it all on the expenditure reductions, and that much extra on expenditure reductions would have caused substantial job losses out there, if you put the equivalent amount into expenditure reductions; I don't know exactly how many, but 20,000 to 30,000 job losses. That, I think, would have been a negative impact on the economy, and we didn't want the deficit to go up by an equivalent amount, so we had to do something to that degree.

So we started from the premise that we needed to have some tax increases and I said what are the tax increases that would be least likely to put a damper on the economic recovery. I think the one that would have been the most difficult to argue would have been a general increase in the retail sales tax. I think that would have put more of a damper on consumption and recovery in the retail sector and so forth. So I think that putting the taxes on income and on the surtax were probably the best options we had, if you accept the assumption that we had to have some tax increases.

If you think we didn't need any, then the whole argument becomes different. So the tax increases we did bring in were almost all on the personal side, either income tax or tax on insurance, group insurance and property insurance and auto insurance, where we don't think it will have a major impact on the purchase of those services. If you combine that with the fact that with a deficit of $9 billion we're putting in a lot more in deficit financing than we are taking out in the form of taxes, I think we have gone some way to do that.

You asked about the recovery.

Mr Phillips: The risk of these taxes.

Hon Mr Laughren: Yes. I think that we minimize the risk. I'm not saying that taxes don't have a dampening influence. Of course, it's taking money out. But I remind you that the recovery is, at this point, largely export-driven. That's what's keeping us going at this point; it is that our exports are high and they continue to be strong.

I think as well that the confidence level out there by the business community, and I think certainly by the rating agencies, was an indication that we did select the best from among difficult choices to get our revenues up to a level that will sustain expenditures and get the deficit going in a downward trend -- as Mr Kwinter said, it hasn't so far -- to get the deficit going down and get our financial house in order, because I certainly came to the conclusion that we're not in for a one-year problem here or a two-year problem. We're into a new era in which revenues are going to be very tough for the next few years and pressures will continue on the expenditure side. That's obviously why I think we struck the right balance with the tax increases.

Mr Carr: I'll ask one and then throw it back to Don, if he has another one.

Regarding the social contract, originally when it came about, the Premier said we could lose up to 40,000 jobs. Knowing now that you'll probably get some sectoral agreements, what are your officials telling you the job losses will probably be? Knowing that some municipalities would be able to do it, they surely must be giving you some figures of what their estimates will be. What's the new, updated estimate of the job losses?

Hon Mr Laughren: I'll divide that question into parts, if I might. One is, if we get voluntary agreements that sort things out and take most of the savings out on temporary layoffs, unpaid holidays, the ones that Mr Warrian mentioned about efficiencies, reducing overlap, all that kind of thing, then there should not be very many job losses, if we're able to achieve that.

If, on the other hand, we're not able to achieve that -- and, by the way, the job security fund will be a cushion and so forth over three years -- and the fail-safe mechanism, the bill, the act, drops into place on August 1, there will be more job losses than there would otherwise be, because the employers will be taking actions to achieve the targets that they've been given, and it won't be, I think anyway, the best way to resolve it.

Mr Carr: Would you be able to give us a range? What would the two situations be, 10,000 versus 15,000, 5,000 versus -- a ballpark?

Hon Mr Laughren: No, nowhere near that, because regardless of whether or not there are voluntary agreements, the combination of the days off, the voluntary up to 12 days a year and so forth, combined with attrition in the system will mean -- really, I don't want to say no jobs, because there will be some, but there won't be very many. Mr Warrian could perhaps be more specific.

Mr Warrian: It's difficult to estimate if you don't have agreements, but if the job loss were in the 5,000 range, that's well within the historical attrition rates in the broader public sector. So, net, there wouldn't be any job loss. That doesn't mean there wouldn't be some temporary layoffs, but in terms of permanent layoffs it would be within the range of historical attrition, which is 1.5% to 1.8%. That translates into 15,000 to 18,000.

Hon Mr Laughren: I think the comment that the Premier made, to which you referred, of up to 40,000 was made on the assumption that if we didn't have a social contract and we simply went out there and reduced our transfers to the tune of $2 billion to all the transfer agencies in the province, and there were no agreements on days off and all those kinds of factors, then you could be talking -- I think the number's between 20,000 and 40,000, because it's really hard to measure what each organization out there would do. It would be somewhere between 20,000 and 40,000. We think with this it gets down to, I hope, a negligible level.


Mr Cousens: It won't be a difficult, long answer in the time we have, but on the status of the fiscal stabilization fund from the federal government -- it's a two-part question -- I just wondered how much you hope to receive from that fund in this fiscal year. The second part of the question is, what will you do with it? Part (b) to that second question is, is there any chance that could be used to reduce the sectoral targets in the social contract?

Hon Mr Laughren: To answer the last question first, no, it wouldn't have anything to do with the targets in the social contract, because that's public compensation we're after there.

On the fiscal stabilization, I was toying with the idea of tying it to the sale of the SkyDome, but I thought maybe I'd better find another way, because we've had equal difficulty in selling the Dome and getting our money.

The most we could get this year from the fiscal stabilization would be about half a billion dollars. Now, last year the most we could have gotten was $1.2 billion and we got $300 million. I don't know how much we'll get this year. Actually, there are three different claims in, as I recall, over three different years. It's broken down that way. I don't know how much we'll get. As I said earlier, nobody has shut any doors.

Mr Cousens: Then where will it go? What pocket are you going to put it in?

Hon Mr Laughren: It'd come into the consolidated revenue fund and we'd see where we were at. I really don't know what kind of pressures there'll be by that time of the year.

Mr Cousens: It'll help Mr Kwinter's numbers. It'll give you some flexibility where you didn't have it before.

Hon Mr Laughren: Yes. As a matter of fact, my instinct would be to get the deficit down even more. I'm so cautious about any windfall in revenues that I think it jinxes the whole process when I express optimism, because in the last couple of years the revenue picture's been awful. If we were to get the money, I'd be surprised.

The Premier phoned me one day and said: "I've got good news for you. I just heard you had a big increase in revenues." I hung up on him. He phoned me back and said, "What did you hang up for?" I said, "I knew it was a hoax call." It couldn't be true and it wasn't. All I'm saying is that I'm very cautious on that. We still believe we're entitled to it. It's still there and they're still working away. It's an incredibly complex process, the fiscal stabilization, more than I certainly thought it was at the beginning.

Mr Peter North (Elgin): Treasurer, I have four short, simple questions.

Hon Mr Laughren: Oh, yes? Those are the dangerous ones.

Mr Cousens: We tried that too.

Hon Mr Laughren: I've seen these before.

Mr North: The first one is, sales tax is worth what, about a billion dollars a percentage point?

Hon Mr Laughren: Yes, more or less.

Mr North: There are a lot of questions about tax versus investment in Jobs Ontario and things like that, so could you just tell us what the difference is? Why not cut 1% of the sales tax rather than putting $1 billion into Jobs Ontario?

My second question is, I looked at the number in the resources sector and it was substantially lower than the rest for output and employment growth. What impact do you think that will have on the north?

Hon Mr Laughren: Any particular north?

Mr North: Not this particular North; just northern Ontario, Floyd.

Hon Mr Laughren: Sorry, Peter.

Mr North: My third question relates to Mr Jamison's question about steel. I look at the numbers of the Big Three and I see Ontario assembly and Ontario parts, and the numbers are fairly substantial in terms of growth. I wonder if the problem that we're having with steel will have any substantial effect on that growth.

My fourth question has to do with Mr Phillips and his numbers of 12% and 14% and his concern about the unemployment rate staying so high. The one thing I wonder about that is that although it's placed in our lap, no one can actually attribute a percentage or anything else that would actually be "our fault," if there is fault to be taken for this.

I want to ask you a very simple question about that. Two scenarios: If we were to put an additional $5 billion into job creation, what effect would that have on the unemployment rate in this province. Or if we were to take $5 billion out of taxes, what effect would that have on unemployment in this province?

Those are my four questions.

Hon Mr Laughren: Okay, I'll try and be very brief. Reducing taxes: I'll deal with that one because it links to your first one about why not reduce the retail sales tax a point rather than put a billion dollars into something else. We actually did some numbers on this, ran out some models on this. To lower the unemployment rate 1% -- I think Mr Phillips has probably heard me mention these numbers before -- would require a tax reduction of $6 billion. Correct me if I'm wrong here, folks. To lower the unemployment rate through govern ment spending, you'd have to spend $4 billion. Just to put that in perspective, if we wanted to lower the unemployment rate 1%, we'd either have to go out and spend $4 billion directly on job creation, and that's net --

The Chair: I'm sorry, Mr Laughren. I'm going to have to interrupt you. We're being called for a vote and we've got only four and a half minutes to go.

Hon Mr Laughren: Okay.

The Chair: We are recessed. If the vote takes us beyond 6 o'clock, I want to thank you and your staff for coming.

Hon Mr Laughren: Could I say, Mr Chairman, I appreciated the tenor of the questions and I express my appreciation to the staff from the Ministry of Finance, who make my life bearable in these situations. Thank you all very much.

The Chair: With respect to the time and the vote, this committee is adjourned. I would also like to say just to the members that we will probably have a subcommittee meeting on Monday to deal with Bill 17. We'll notify you about that.

The committee adjourned at 1747.