PRE-BUDGET
CONSULTATION
MINISTER OF FINANCE
CONTENTS
Monday 5 February 1996
Pre-budget consultation
Minister of Finance
Honourable Ernie L. Eves
Ministry of Finance
Michael Gourley, Deputy Minister
Bob Christie, assistant deputy minister and controller
Steve Dorey, assistant deputy minister and chief economist
Tony Salerno, assistant deputy minister, Ontario Financing Authority
David Trick, assistant deputy minister, office of the budget and taxation
Subcommittee report
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Chudleigh, Ted (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Hudak, Tim (Niagara South / -Sud PC)
Arnott, Ted (Wellington PC)
*Brown, Jim (Scarborough West / -Ouest PC)
*Castrilli, Annamarie (Downsview L)
*Chudleigh, Ted (Halton North / -Nord PC)
*Ford, Douglas B. (Etobicoke-Humber PC)
*Hudak, Tim (Niagara South / -Sud PC)
*Kwinter, Monte (Wilson Heights L)
*Lankin, Frances (Beaches-Woodbine ND)
Martiniuk, Gerry (Cambridge PC)
*Phillips, Gerry (Scarborough-Agincourt L)
Sampson, Rob (Mississauga West / -Ouest PC)
*Silipo, Tony (Dovercourt ND)
*Spina, Joseph (Brampton North / -Nord PC)
*Wettlaufer, Wayne (Kitchener PC)
*In attendance / présents
Substitutions present / Membres remplaçants présents:
Bassett, Isabel (St Andrew-St Patrick PC) for Mr Arnott
Carr, Gary (Oakville South / -Sud PC) for Mr Sampson
Marland, Margaret (Mississauga South / -Sud PC) for Mr Martiniuk
Clerk / Greffier: Carrozza, Franco
Staff / Personnel: Drummond, Alison, research officer, Legislative Research Service
The committee met at 1106 in committee room 1.
PRE-BUDGET CONSULTATION
MINISTER OF FINANCE
The Chair (Mr Ted Chudleigh): Welcome, Minister. We look forward to your comments this morning. Would you please proceed.
Hon Ernie L. Eves (Deputy Premier, Minister of Finance and Government House Leader): I thought it might be useful if we started out by a bit of a slide presentation to outline to committee members and to the public exactly where we see ourselves being at, at this particular point in time, in the Ministry of Finance. I look forward to input this committee will receive from various Ontarians from all across the province and from different sectors and walks of life, and to receiving the comments of opposition as well as government members as we continue through the deliberations leading up to the budget this spring.
I'd like to take a few minutes first of all to put into context what we're trying to achieve as a government. For too many years, we believe, government has ignored the fundamental issue: What role should government play in the lives and businesses of Ontarians?
In the past 10 years government has increasingly believed that the answer must be more: more programs, with more taxes, more rules and regulations, more forms to fill out. The Harris government opposes this view and was elected because most hardworking, taxpaying Ontarians agree with us.
Mr Gerry Phillips (Scarborough-Agincourt): I don't mean to interrupt, but in terms of timing, I gather we have about an hour with you.
Hon Mr Eves: My understanding is that there's approximately an hour. This presentation will take approximately 30 minutes, and I understand there'll be 30 minutes of Q and A.
Mr Phillips: I appreciate that. Thank you.
Hon Mr Eves: The Harris government opposes this view, as I said, and we believe that most hardworking, taxpaying Ontarians agree. We believe our job in government is to make Ontario a province of opportunity once again. This means fostering long-term economic growth to create jobs; freeing the economy of red tape and overtaxation and rewarding hard work and initiative; balancing the budget and focusing on services people value most -- health care, education, safe communities; and changing how the public sector works so it can deliver quality services efficiently and cost-effectively.
Let me take a couple of minutes to speak of some of the actions we have already taken as we move forward towards our objective.
We have moved quickly and decisively to get Ontario back on track and to set the stage for growth and job creation. We have repealed Bill 40 and introduced Bill 7. We have repealed job quota legislation. We have put a moratorium on non-profit housing. We have dissolved the Interim Waste Authority. We have frozen WCB assessments. We have established a one-year Red-Tape Review Commission.
We acted immediately to get spending under control, cutting $4.5 billion to $5.5 billion out of the 1996-97 spending. We set targets to balance the budget by the fiscal year 2000-01. We appointed the Ontario Financial Review Commission. We ended the practice of keeping two sets of books. The actions taken in July and November cut between $4 billion and $5.5 billion, as I said, and the recommendations made by the Ontario Financial Review Commission will be pursued by this government.
We have reinvested funds in our health care system. We have restored out-of-country OHIP coverage to $400 a day. We have invested $15.5 million for paramedic training. We have expanded eligibility for the Trillium drug plan to add an additional 140,000 low-income, hardworking Ontarians. We have expanded the measles vaccination program. We have increased funding for cardiac surgery. We have announced satellite facilities for urgently needed dialysis services. We are providing extra pay to physicians in rural and northern communities working nights, weekends and holidays in appropriate emergency departments.
We are taking steps to improve our education system. In particular, we want to focus resources on classroom education so that students will have the skills they need to get good jobs. We have announced plans for a more focused five-year high school program, comprehensive student testing and the creation of a College of Teachers for the province of Ontario. As I have said before, our focus will be on classroom education.
We have ended 33 business handout programs, saving $230 million to the province.
We have cut social assistance rates to bring them more in line with what other provinces provide, yet on average our rates are still 10% higher than the average of the other nine provinces. Experience shows that the caseload is down dramatically between June and December; 114,000 fewer people are dependent on social assistance.
We have acted to bring down the cost of running government. Administration costs of the government itself will be cut by 33% over two years. We have improved our financial reporting, adopting the PSAAB system, and made the government more accountable to taxpayers. We have introduced legislation that requires salary disclosure of those earning more than $100,000 a year in the public sector. We have set a target of reducing funding for agencies, boards and commissions by $220 million, a cut of 28%, by the end of the year 1997-98.
Let me turn to the fiscal challenge we face, to give you not only the context of our actions but the plan for where we are headed. Ontario's fiscal situation has deteriorated significantly over the past decade. In the past 10 years, government spending has virtually doubled, from $28 billion in the fiscal year 1985-86 to $57 billion in the fiscal year 1995-96. Ontario's accumulated debt has almost tripled, from $33 billion in 1985-86 to over $97 billion in the fiscal year 1995-96.
And what do Ontarians have to show for it? Fewer jobs than in 1989, higher unemployment, and about two and a half times as many people on social assistance as 10 years ago, costing the taxpayers four and a half times as much as then.
It is clear that overspending, high taxation and deficit financing do not create lasting jobs. If they did, everyone in the province would have two jobs by now. Since 1990, the Ontario government has been spending far beyond its means and incurring very large annual deficits. The Ontario government is spending $1 million an hour more than it takes in in revenue, every hour of every day, 365 days of the year.
Ontario's annual deficits of about $10 billion a year on average over the first half of the 1990s have pushed Ontario's outstanding debt sky high. In 1995-96, Ontario's debt will exceed $97 billion, more than twice the level in the fiscal year 1990-91.
Clearly, the trend in debt buildup of the early 1990s could not be sustained. While we have taken some important steps to put Ontario's finances on solid footing, we are not out of the woods yet. Even when we achieve a balanced budget, it will be some time before we approach the debt-to-GDP ratios of the 1980s. Debt-to-GDP in 1989-90 stood at 14%. Today, it is over 30%. Even with our actions, our debt in the year 2000-01 will exceed $120 billion.
Ontario's 1995-96 deficit is forecast at $9.3 billion, or $839 per person, the highest among the provinces. Seven provinces are forecasting surpluses for this fiscal year. The fiscal situation in other provinces has improved partly as a result of strong resource-related growth in the case of BC, Saskatchewan and Alberta, and the continued growth in equalization payments from the federal government to recipient provinces. Ontario relies more heavily on taxes, such as personal and corporate income taxes and retail sales taxes, the revenues from which have not grown as quickly in the past several years.
Ontario's interest costs in 1995-96 are 18.8% of revenue, the second-highest among all provinces after Nova Scotia at 19.3%. Ontario's debt stands at $97.2 billion, or $8,765 per person, third-highest among the provinces. Ontario's debt and debt servicing costs will continue to increase until the deficit is eliminated. Debt and interest costs in many other provinces can be expected to fall.
While Ontario had the third-lowest per capita provincial spending in 1993-94, consolidated provincial-local spending in Ontario for 1993-94 was $6,753, the second-highest of all provinces, exceeded only by Alberta.
Per capita provincial spending comparisons can be misleading, because provinces differ greatly in size and the mix of responsibilities between provincial and local levels of government. Consolidated provincial-local spending is a more meaningful basis for interprovincial comparison. Recent newspaper articles only compared the level of provincial government spending. Ontario has a relatively large local municipal sector which is responsible for services provided directly by provincial governments in some other provinces. Combined provincial-local program spending in Ontario was higher than average per person for all provinces in 1993-94 and in each of the three preceding years prior to 1993-94.
Between 1985 and 1992 per capita provincial program spending in Ontario has increased at an average annual rate of 5.4%, higher than any other province and much higher than the provincial average of 2.7%.
As the debt continues to pile up, interest costs to support the debt load climb along with it. Each year, more and more of the province's resources must go to pay interest costs. Just five years ago, public debt interest represented slightly more than 8% of total spending. Today, PDI represents almost 16% of total spending and it continues to grow. It has almost doubled in the last five years alone. That leaves less and less of the province's resources available for programs and services.
An example: In 1996-97, public debt interest will grow by slightly more than $500 million. That is more money than it takes to run the entire provincial police force in the province of Ontario.
When we took office, we learned that we were facing a deficit of $11.2 billion. We acted immediately. On July 21, 1995, I announced $1.9 billion in spending cuts to reduce the 1995-96 deficit outlook to $9.3 billion. The province remains on track to meet the $9.3-billion deficit outlook indicated in November.
The third-quarter Ontario Finances just released shows Ontario has received a $367-million fiscal stabilization payment from the federal government. Our $9.3-billion deficit target also includes a provision for pending one-time charges of $450 million for things such as the Ontario student assistance program and Ontario Development Corp loan loss provisions and the write-off of non-profit housing cancellation costs. Once quantified later this year, these charges will be included in the 1995-96 plan and reported in the spring 1996 budget.
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A realistic plan to reduce the deficit and balance the budget is essential to slow the growth in public debt interest costs that threaten to swallow up more and more of the province's budget. A realistic plan is also an important element in creating jobs and restoring Ontario's reputation as a good place to invest and do business.
The province outlined a balanced budget plan in November consistent with the Common Sense Revolution document. It sets out declining annual deficit targets, culminating in a balanced budget by the fiscal year 2000-01. These deficit targets are based on accounting practices recommended by the independent Public Sector Accounting and Auditing Board, realistic and prudent forecasting and an annual contingency reserve to accommodate unforeseen events. I would point out that while we have set deficit targets, decisions on revenues and expenditures have not yet been made. Details on the 1996-97 fiscal plan will be released with our first budget in the spring.
The government has already taken important steps to achieve its balanced budget objective. The November fiscal statement, along with the spending cuts announced in July, will cut spending in 1996-97 by $4.5 billion to $5.5 billion.
In 1995-96 total spending will exceed $56 billion. Two thirds of all government expenditures support social programs: Health, Social Services, Education and Training. That is why, if Ontario is to get its fiscal house in order, all public institutions in the province must restructure their operations to find more efficient ways of delivering services. Of note: Public debt interest is the single largest expenditure program, having nearly doubled in the last five years to almost 16% of government spending, as we've indicated previously.
Over the 40-year period to 1995 Ontario real GDP grew at an annual rate of 4.5%. During the 1990s Ontario's real growth rate has averaged only 0.7%. The rapid growth of government spending pushed up the level of public debt and made the economy extremely vulnerable to high interest rates. The increased intrusion of government in rising taxes left the private sector ill-equipped to deal with strong international competition.
There is light at the end of the tunnel, but it will take some time to work off the hangover of high debt. Sound economic policies will strengthen the economy over the medium term. The government is restoring confidence to the economy and removing barriers and administrative burden so that business can invest and create jobs.
Cutting taxes is the best way to create good jobs. Details of personal income tax cuts will be announced in Ontario's 1996 budget. We will eliminate the first $400,000 of payroll from the employer health tax. Workfare and learnfare will provide individuals with training and self-esteem, enabling them to gain meaningful employment. This will lead to more jobs, higher levels of income and lower unemployment.
In 1995 the average level of employment in Ontario rose by 71,000. The private sector created 116,000 net new jobs, while public sector employment declined by 45,000. By eliminating unnecessary regulation, restoring balance in labour markets and cutting the tax burden we can strengthen the ability of the private sector to create jobs.
We believe that the economy can do better with the right mix of fiscal constraint and reduced taxation. Cutting the personal income tax will boost consumer confidence and investment. Current personal income tax rates are out of line. The tax-and-spend approach did not work.
You, as members of the committee, and others who come before you should understand the government is firmly committed to the mandate the people of Ontario gave it last June. We are committed to restoring hope and opportunity; a business environment that fosters job creation, investment and economic growth; protection of priority services: health care, education and law enforcement; smaller and more efficient government; meeting our deficit targets and balancing the budget by March 31, 2001.
I believe this committee has a role to play in advising the government on the 1996 Ontario budget. Individuals will be coming forward to provide this committee with advice and suggestions. I'd like to hear in particular their views on steps we could take to bolster business and consumer confidence, on ways the public sector could do its job of delivering services more efficiently and on what steps this government could take to make that happen.
The Chair: Thank you very much, Mr Minister.
Mrs Margaret Marland (Mississauga South): Mr Chairman, the clerk has just informed me that there is a decision by the subcommittee that the 30 minutes will be taken up by the two opposition critics.
The Chair: That's correct.
Mrs Marland: I need to know, if this is the first meeting of this committee, that subcommittee report hasn't been adopted yet, has it?
The Chair: I believe on your agenda it is scheduled for 4 pm this afternoon.
Mrs Marland: No, that's on auto insurance.
The Chair: I'm sorry.
Mrs Marland: The point of my question, Mr Chair, is I don't recall a three-party committee where the government members were not permitted to ask their own minister questions. I realize you're talking about half an hour once we get started, but I think the government members should not be excluded from asking the minister questions.
If the subcommittee report hasn't been adopted yet, I think that needs to be dealt with. I'm suggesting that the government members do have an opportunity to ask questions. If you want to deal with it through the subcommittee report, fine. I guess I've got you with the clerk out of the room, but I'm suggesting that there are eight government members here and I, for one, would like to ask the minister a question.
Mr Phillips: We certainly would have no trouble extending that and having the government members for 15 minutes as well. I think that's only reasonable.
Ms Frances Lankin (Beaches-Woodbine): We agree with that position. I think if we expand the time to 45 minutes, split it three ways, that would be fair.
Mr Monte Kwinter (Wilson Heights): Mr Chair, on a point of information to the minister: I just wanted to confirm that it was just a slip of the tongue and not a change in his position when he said that he was going to have a more focused five-year high-school program, notwithstanding the slide says four.
Hon Mr Eves: I meant four. If I said five, I apologize.
Mr Kwinter: I just wanted to make sure that hadn't changed.
The Chair: Being agreed then that we will have 15 minutes of questioning from each of the parties, we will begin with the official opposition.
Mr Phillips: We all appreciate your being here. The thing that strikes me in the presentation is there's virtually nothing in it about why we're here, and that is kind of looking ahead at 1996-97 and the next three years on the fiscal side. Will the staff be providing us with the fiscal and economic outlook for the future this afternoon?
Hon Mr Eves: Staff will be available, as you know, this afternoon and at other times throughout your deliberations. However, as I've indicated in response to a letter that you've sent me, and several times verbally, we have not decided totally. We could announce the 1996 budget today if we'd made all the decisions with respect to expenditures and revenues.
Expenditures, as you know, are part of the estimate process, which will go on. Revenue, of course, we have to go through normal procedure that the Ministry of Finance goes through every year; this is not unusual. If we had all our revenue and estimate forecasts and projections and had made all the decisions at this point in time, I guess today, February 5, 1996, could be budget day instead of it being in late April or early May. All those decisions --
Mr Phillips: With all due respect, I don't want to spend a lot of time on this, but I've been sitting on this committee for some time and every time the Finance minister comes in and says, "Here's what we think is going to be the economic outlook. Here's what we think, if nothing changes, will be the revenue outlook. Here, if nothing changes, is the expenditure outlook. Here is the future," and we've got virtually no numbers.
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I guess I'll pursue it on the basis that the one document we have is the Common Sense Revolution. That's the one where there is some economic and fiscal outlook. Is the economic outlook, as you see it, still about in line with what you thought at the time that this was presented, which was about six or eight months ago, or is it better or is it worse?
Hon Mr Eves: If you look at the projections that were made with respect to our November statement, you will see what we expect numbers like real GDP growth and inflation and job growth to be. I think everybody in the financial community was probably a little bit too optimistic with respect to the numbers they put out in early 1995. I think that in regard to the statement that the provincial government made in July of this year and again in November, if anything we are, pardon the pun, perhaps criticized in some circles for being too small-c conservative with respect to our projections. I think you're going to have to wait, though, until we do produce our 1996 budget to look at our interim projections with respect to revenues and expenditures.
Mr Phillips: Then I assume the economy's performing about as you thought. The revenue impact in the Common Sense Revolution indicated that in the first year, 1996-97, the first budget year, the one we're dealing with, the revenue impact of the tax cuts was $2.2 billion. The following year it's $3.4 billion, $4.7 billion, $4.8 billion, going to $5 billion. Those are the numbers you've used, and incidentally, in your projections here, you've used the numbers from here for your deficit projections.
Is it fair to assume that the lost revenue as a result of implementing your tax cut and your employer health tax cut offset by the health care levy would be, when all is said and done, still in the numbers that you gave us during the campaign, around $4.5 billion to $5 billion? Is that roughly the annual lost revenue?
Hon Mr Eves: No, I don't think it's fair to assume that because, as I have indicated to you before, we have not calculated our tax design. If we had, there again we'd be announcing a budget today, February 5. There are several ways that a tax cut can be implemented. There are different dates that a tax cut can be implemented. As you know, by the federal-provincial agreement there are only two dates available to us: July 1 or January 1 in any particular year. There are several options or avenues open to the government. When we're in a position to more accurately determine not only our expenditure level but our revenue level, we'll be able to make some of those decisions and the tax cut will be part of that deliberation.
Mr Phillips: I assume one of the very first things any minister would have done would be to say to the staff: "We promised to reduce the personal income tax from 58% to 38%. Will you update our cost estimate?" I assume -- you've been minister now for seven months -- that would be almost the first thing you would do, just so you know the number. What was the number when you asked the staff to give you an estimate, fully amortized? I realize there may be a timing problem here when you want to implement it. But when it's fully amortized, what did the staff tell you a cut from 58% to 38% would represent in lost annual revenue?
Hon Mr Eves: I haven't asked the staff to give me that. There are several assumptions with respect to what form or amount any tax reduction would take. I think the most popular one is a 30% tax reduction. There are also some who say, as you've just said, the tax reduction should be from 58% to 38%. There are also some who say the commitment is for a $4-billion tax cut. So there are several opinions out there as to what the tax cut should, could or would be, but quite frankly, as I've said, those decisions have not been made yet. I don't think it would be prudent or appropriate for me or any Minister of Finance to make those decisions without knowing what our expenditure levels could reasonably be expected to be, without knowing what our revenue could reasonably be expected to be, without knowing how the economy could reasonably be expected to perform.
Mr Phillips: I understand all that. I'm just saying --
Hon Mr Eves: I think it would be inappropriate for me to make that decision ahead of time.
Mr Phillips: No, you may have misinterpreted me. The election was held. It wasn't me that said it. You ran on a platform of reducing the personal income tax from 58% to 38%. It wasn't up in the air. It was spelled out in type, in print; it told people. I'm just asking the question, and I want to be very clear on this: Are you saying you have not had the staff give you an estimate of the cost of the promise to reduce personal income tax from 58% to 38%, that you have not seen any numbers over the last seven months from any staff on the fully amortized cost of implementing that promise?
Hon Mr Eves: I have asked the staff to explore several options. I'm not about to share them with you at this point in time. I'm about to share them when we announce our final decision in the 1996 budget. You say our commitment is from 58% to 38%. There is also a commitment that you have said, and others, that it's 30%. There's also a commitment of $4 billion.
Mr Phillips: Well, what was the commitment then?
Hon Mr Eves: All those things --
Mr Phillips: You tell me the commitment. I'm trying to figure it out.
Hon Mr Eves: The commitment was, in my opinion, that there will be, on average, a 30% tax cut to Ontarians over a five-year period of time.
Mr Phillips: My question is very simple: What is the annual cost of that? That's all I'm asking for, as we're trying to be helpful here. When you had that costed --
Hon Mr Eves: Depending on how you design and the time lines it takes effect, there can be different costs in different years, and when we've made a final decision it will be costed and explained.
Mr Phillips: Let's assume you haven't made the final decision, but you said you're going to reduce the average taxpayer's personal income tax by 30%. Please be helpful here. When that's fully implemented, what is the annual lost revenue for the province?
Hon Mr Eves: Depending on how you do it, it can work out to different numbers.
Mr Phillips: Give us a hint.
Hon Mr Eves: I'm not about to share the different options with you until we've made a final decision. I don't think that would be appropriate.
Mr Phillips: But here's your biggest single commitment. You're asking us to be helpful. All we're asking is surely, and I'll ask it again, have you not had the staff give you that estimate?
Hon Mr Eves: As I said to you a few moments ago, I have asked for several options that the staff can work up. They all have different numbers. It would be very --
Mr Phillips: Will you give us those options?
Hon Mr Eves: -- inappropriate for me to share with you every suggestion that staff and I have discussed in the last seven or eight months. If that was the case, there wouldn't be any point in having a budget ever.
Mr Phillips: But the public, I think, are owed a little bit of information.
Mr Tony Silipo (Dovercourt): What is the point of this exercise?
Hon Mr Eves: Excuse me, Mr Silipo, did Mr Laughren share every option with everybody in the province of Ontario?
Mr Phillips: Don't give answers on my time here.
Ms Lankin: A lot more information than what --
Interjections.
The Chair: Order.
Hon Mr Eves: I doubt it, Ms Lankin.
Mr Phillips: Actually, Mr Laughren used to lay out all the options. He said if you reduce gas tax by one cent a litre, it would be this; if you did this, you did that.
Hon Mr Eves: Mr Laughren used to run deficits of $14 billion a year, too.
Mr Phillips: Well, we're trying to look ahead here.
Hon Mr Eves: Yes, we are.
Mr Phillips: Let's think ahead. Forget the past. I'm just saying that you've given us virtually nothing for the future here. I know you like to look in the rear-view mirror and it's convenient, but surely we need some help from you on what is the cost of your tax cut. It would be too incredible to believe from the public that you didn't say, "Here is our commitment and here is the cost." Have you not done that?
Hon Mr Eves: There are several ways of designing that tax cut, and when we've made a final decision we will obviously share it with the public.
Mr Phillips: Okay, but you presumably made a promise; we're just saying, what was the cost of your promise? I'm going to have to assume it's the $5 billion a year. I have no information other than the one you've given us. So I will assume that the $5 billion a year is what the annual cost of your tax cut is, in the absence of any other piece of information. Is that fair?
Hon Mr Eves: You can assume whatever you like.
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Mr Phillips: I'm a bit disappointed with the minister's response on what we're trying to do here. On the job front, in your document, this document here, it indicates that the number of people out of work in 1996 will be higher than 1995, and then in 1997 will be higher than 1996. If the Common Sense Revolution or whatever it is you've got is such a good plan, why would it be that there will be more people out of work in 1997 than when you came into office?
Hon Mr Eves: The Ontario economy generated, I believe, 47,000 jobs over the last four months of 1995. Everybody understands, I think, that there were problems in the economy, not just in Ontario but in Canada as a whole, in the early part of 1995 and I think all forecasters misread that economic situation a little bit.
We think, as I said, that on an average annualized basis, employment went up 71,000 in the 1995 calendar year. We have chosen an annual averaged amount. We think that is the most appropriate way of calculating job growth, as opposed to a specific date over a specific date. I might note that my predecessors in all three political parties have used exactly the same calculation of average job growth that we are using. Mr Laughren used it; Mr Nixon used it; Mr Grossman used it etc. We think that is the most accurate barometer of job growth.
We believe that 71,000 -- as we indicated, I believe it was in our July statement, we anticipated it would be 72,000 for this year. We were out a little bit but not by much. We believe that's a realistic way of approaching it.
Mr Phillips: A last question: We understand your officials have talked to the credit rating agencies and given them some unofficial projections of revenue and expenditures, not the final ones because obviously they're not ready, but unofficial ones. Are you prepared to share with the committee those unofficial revenue and expenditure projections that were given, not final, we know that, but unofficial ones? Can we have those, at least, to give us some idea of some numbers?
Hon Mr Eves: I wasn't present obviously --
Mr Phillips: Didn't say you were.
Hon Mr Eves: -- at those deliberations or meetings. I wouldn't describe those as projections. Officials may have indeed responded to inquiries from various rating agencies, as indeed has been done in every pre-budget discussion and deliberation.
Mr Phillips: Can we have that information?
Hon Mr Eves: Those deliberations, as you well know, are confidential between the Ministry of Finance and the credit rating agencies. They are done of course with a view to providing credit rating agencies with some basis upon which to formulate their opinions. However, they are not concrete decisions that have been taken by the Ministry of Finance or Ministry of Finance officials. In many cases, it's my understanding that they are hypothetical questions --
Mr Phillips: Can we have the hypothetical ones then?
Hon Mr Eves: -- that are posed by rating agencies and there are hypothetical answers given. But it would not be appropriate, I don't think, for the Ministry of Finance, any more than it has been in the past, to release that information.
The Chair: Thank you very much, Mr Minister. That concludes the official opposition's question period. We move to the third party.
Ms Lankin: Minister, we appreciate your presentation, but you just touched on the point: You said, a number of times actually in response to Mr Phillips, that it wouldn't be appropriate to share that information, that it wouldn't be appropriate to give those kind of details, as it wasn't in the past, and I do have to say to you that your presentation lacks specifics in comparison to past presentations to this committee.
I'm concerned about that because in a number of areas, if you want the public coming forward to present to this committee and this committee to be able to provide advice to you, and as you said in your opening comments you're looking for advice from all three parties as well as the public, it has to be advice as to where we go from here. What you haven't given us is the here.
We've heard a lot of sort of platitudes and a lot of the same things we've heard you say in answer to questions in the House, but for example, we don't have medium-term or long-term revenue projections, based on the status quo -- if nothing was done, this is what it looks like. We don't have medium-term and long-term expenditure projections with the expectation of what pressures are in the system built in against the fiscal plan.
Those are the sorts of things that would normally be shared with a committee like this and with the public so that we can examine, if nothing was to happen, where we would end up and the steps that need to be taken, the various options that we can look at, in your words, to correct the situation.
For example, on the tax cut, I would argue there are probably numbers of options you've referred to that you could share with us. Don't you want this committee's and the public's input on the design of the tax cut if you're committed to proceeding with it? Why would it be inappropriate to share a number of different basic assumptions about, if the design was 30%, if it was 58% to 38%, if it was $4 billion. Why can't you share those options with us and then allow us to provide you with advice? I'm not asking for your final decisions. I'm not asking for your budget document and what the end result will be. But surely you want the kind of input that is going to be informed input, and you've provided us with no basis at this point to give you informed input.
Hon Mr Eves: I think we've outlined exactly what the economic situation in the province is to date rather accurately. We've done it not only on July 21, not only on November 29, but also in the third-quarter fiscal statement in the province released last Thursday. We're not here to direct the members of the public what to tell us or committee members what to tell us. We're here to hear their input. If the exercise was merely to come here and us tell you what we're going to do, there wouldn't be any point in the exercise. We could wait till budget day.
Ms Lankin: No, Mr Minister, please. Please do not twist my words. I did not for one moment suggest you should tell us simply what you were going to do. What I suggested was you provide us with the kind of information that has been provided to this committee in the past to allow the public coming forward and the members to give you some informed advice.
For example, in previous presentations before this committee we have had projections of expected revenues. What will happen? What's the economic growth projection? What does that mean to revenues to the province? If you were to make changes on a point-by-point basis to personal income tax, what would the cost be to the revenue base, or what would the gain be? The same with retail sales tax, employer health tax.
I have the forms from previous years. You haven't provided us with anything in terms of your medium- and long-term projections on operating expenditures. What kind of pressures are in the system in terms of programs coming on stream and greater utilization projected? Those sorts of things are the kind of basic information, the tools -- your government likes to provide people with the tools they need to do their job. Those are the tools and that's the kind of toolbox this committee needs to be able to do its job.
Let me turn to some specific questions and perhaps we can find out if any of this information will be forthcoming. You've said on a number of occasions today that you have not made any decisions with respect to the tax decrease, and I believe you on that, that there are a number of options of how the Common Sense Revolution promise could be interpreted. Would you provide this committee with a range of options of how you could accomplish an average 30% decrease in personal income tax and what the lost revenue projection would be so we can provide you with some feedback on that?
Hon Mr Eves: If Finance officials are able to do that, I certainly have no problem with exploring that dialogue with the committee.
Ms Lankin: I will expect that to be forthcoming because I know Finance officials actually had that kind of thing worked up before your government was elected in June. I saw some of those figures previously, so that shouldn't be a problem.
Could you tell me, with respect to the medium- and long-term economic outlook, have you built in an assumption in your economic growth figures of any increase in economic growth as a result of your proposed tax cut?
Hon Mr Eves: Not in the immediate short term we have not. On the idea of returning money to people who pay taxes and work in Ontario, we hope, obviously, to increase consumer spending; we hope to increase consumer confidence and business confidence. I don't think you can say in the short term that if you do this on whatever day the budget happens to be -- say May 1 for lack of a better date, you're going to see the immediate impact of that in the economy by June 1 or July 1 or necessarily even September 1 of that year. But it would be our belief and hope that it has an effect on the mentality of the consumer out there, and on individuals who are investing both on an individual basis and on a business basis, that they will have some confidence restored, that they understand they will have more money in their pocket, that they can feel confident there is going to be some consistency in the government's attitude over the next four or five years.
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Ms Lankin: Mr Minister, when you said not in the short term or medium term -- I just want to get a common definition -- by short term are you talking not in the first fiscal year the tax cut takes place? Would you say medium term is not in the second fiscal year?
Hon Mr Eves: I would say short term is for sure the first and probably the second fiscal year.
Ms Lankin: So probably the third year is when we might see it?
Hon Mr Eves: Beyond that I would hope you're going to start to see some impact.
Ms Lankin: So in terms of your medium- to long-term economic growth projections, is there any additional growth stimulated by the tax cut? Is that built in to your assumptions?
Hon Mr Eves: Not at this particular point in time.
Ms Lankin: Okay. Now, in the Common Sense Revolution there was some estimation that there would be a slowing down of the economy, an economic drag factor, as a result of the projected layoff of 13,000 Ontario civil servants and cuts to public sector spending. Could you tell me, have you built in an expectation for economic drag? Is it greater than what you had projected in the Common Sense Revolution, given that we're hearing that the cuts will be deeper and the layoffs will be greater, and do you expect that to take effect in the short term, medium term or long term?
Hon Mr Eves: As you know, we haven't made all the final decisions with respect to how all reductions are going to be implemented and the targets are going to be achieved by various ministries. We did build in to the CSR document, as I understand it, and it's consistent with our belief today, that the economic drag effect of that is about 0.5%. As I said, it's difficult to say exactly what the drag effect will be until you determine, of course, exactly what the job loss is. The job loss isn't a number that is simply out there that you'd like to achieve. It is various savings that various ministries have to achieve, and how they go about achieving that is in a business plan, of course, that they will present to cabinet and will ultimately be adopted. I don't know how anybody could predict at this point in time what those job numbers in fact will end up totalling, will end up being.
Ms Lankin: Okay, could we move off that --
Hon Mr Eves: Sure.
Ms Lankin: -- because I understand that explanation, to the dollar number then? Let's look at that. Have officials in Finance provided you with any estimate of, for example, for every billion dollars of public spending, government spending, that you take out of the economy, what the economic drag factor of that is to GDP?
Hon Mr Eves: I could let the deputy answer that, but I think the answer is that it depends on the specific decision you have taken and where you take the money out, how you take it out.
Ms Lankin: Again, could I suggest then that given that I do know that in the Ministry of Finance there are economic modelling systems that provide that kind of information, perhaps you could provide the committee with a series of options about, if you take the billion dollars out in this way versus that way, what the effect is in terms of economic drag.
Hon Mr Eves: The deputy has indicated that if you'd like to discuss that this afternoon, he'd be more than happy to discuss that.
Ms Lankin: It would be useful to have a presentation on that so that you're getting the best advice with respect to this. What I'm worried about in terms of your answers is that we don't have any numbers to work off of to give you advice. We know that somehow or other your actions with respect to the cuts are going to create an economic drag probably greater than the 0.5% that you projected in the Common Sense Revolution, because your cuts are bigger, but we don't have a projection from you on what that is. That's likely to kick in in the short term. You won't give us a projection in terms of what kind of additional growth we're likely to see to counteract that as a result of your tax cut, but we do know that's likely not to kick in until the long term.
I'm wondering what picture that presents to the public of Ontario in terms of any hope for a return of consumer confidence, the sense of job creation over the short to medium term, what Ontario can expect a year or two years from now if in fact, as you've so far told us, we will see a tremendous economic drag not balanced out by any kind of stimulated economic growth until some time off into the future and you don't know when.
Hon Mr Eves: I didn't say long term; you did. I said in the short term.
Ms Lankin: You said not in the short or medium term. That only leaves long term.
Hon Mr Eves: We discussed short term. I don't think I said short or medium term; I said short term.
Ms Lankin: You can check the record, sir. You did.
Hon Mr Eves: If I did, then I apologize.
Ms Lankin: Okay.
Hon Mr Eves: I think a combination of things is needed. I think there's a combination of reduced expenditure level and the government and various other transfer partners getting their act together, really, and becoming more efficient in how they deliver services, combined with restoring some money in tax dollars, relief -- whatever way you want to put it -- to the average Ontarian. I think that will have a positive outlook and effect in the average Ontarian's mind, in the average businessperson's mind.
With respect to what information we've provided or not provided, the economic statement of November 29 is about a 20-page document, if my memory serves me correctly, which has information in it. There's a 44-page appendix attached to it that has plenty of information in it. Perhaps those 64 pages are not sufficient in your mind to provide what you think you need to assist us in our deliberations. I might point out, as of course I've pointed out on several occasions, that neither the July 21 nor November 29 statement was a budget.
Ms Lankin: If I could interrupt you. I've got one minute left and I'd like to ask questions and not have you run the clock out, Mr Minister. I've read your documents and there are a lot of certainly interesting political statements in there. There's not the kind of hard information that this committee is usually presented with. But let me come down to my last question.
In your presentation you said that Ontario's debt and debt servicing costs will in fact continue to increase until the deficit is eliminated, and you've said on a number of occasions that the biggest boost to consumer confidence would be to do away with the deficit and to start to pay down the debt. It is mind-boggling for many of us that you continue to commit yourself to a plan which means that you will have to borrow money to pay for the tax cut and to put off the day of reckoning, let's say, in terms of balancing the budget and starting to pay down the debt and reduce the debt servicing cost. I would like an opportunity for you to explain that, because in all of the information that we've received there is no clear projection of increase in consumer confidence, certainly not in the short term, as a result of the tax cut. There is no clear indication of how this will create jobs; it'll increase savings and investments but not necessarily jobs.
Many of us worry that, while all of us would like to see the tax cut, this is a fault in the plan with respect to achieving what you say is your primary goal of reducing the deficit and starting to pay down the debt and lowering the debt service cost. Could you explain what looks to us to be an apparent contradiction?
Hon Mr Eves: I don't think that there's a contradiction. I don't think there's any doubt that the province of Ontario has become uncompetitive, not only comparing ourselves to other jurisdictions in Canada, but jurisdictions in the United States and elsewhere in the world that we have to compete with. I think that the tax-and-spend policies of not only the last 10 years -- I would probably add a few more years to that, quite frankly -- has led the province of Ontario to the situation it finds itself in today.
You cannot continually add half a billion dollars to a billion dollars in interest costs alone, addition. You're taking that money out of serious programs. Your government did that consistently for five years.
Ms Lankin: Why borrow to pay for the tax cut?
Hon Mr Eves: Just a minute. You wanted an answer. Would you like to give me the opportunity to respond?
Ms Lankin: I would like an answer.
Hon Mr Eves: You want to use up 14 1/2 of the 15 minutes. I understand --
The Chair: If it's very short, Mr Minister.
Hon Mr Eves: -- that's politics. The reality is that when your government assumed office we were spending less than $3 billion a year in interest costs, and when your government left office we were spending $9 billion a year in interest costs. The reality is -- I quite agree with you -- we should have those $9 billion a year to spend on health care, education, safer communities, reducing crime in our streets, social assistance, aid for seniors, aid for people who don't have housing, that's where those $6 billion should be spent, and if we wouldn't have run up massive deficits of $14.5 billion and $10 billion a year -- we have to return the money to the hard-working Ontarians, believe or not, who go to work every morning, earn money, pay taxes at a ridiculously high rate in the province of Ontario. We have to start returning some of that money to those hard-working Ontarians. That's something your government never did understand and that's why we're in the situation we're in today.
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The Chair: Thank you very much, Mr Minister.
Ms Lankin: On a point of order, Mr Chairman: Although the minister wanted a chance to answer the question, I want to point out he didn't answer it.
The Chair: Thank you. Mrs Marland.
Mrs Marland: Minister, when we look at where we were when we started six months ago, when we look at where we started as the government six months ago and we think about the perspective that in 1985, when this province was 118 years old, we had a total provincial debt of $25 billion. In 10 years, we all understand now, that debt that took 118 years to reach $25 billion has now quadrupled to $98 billion.
I think, Minister, the scariest thing that I have heard in this room this morning is that even with our government's actions, our debt in another four to five years, in the year 2000-2001 -- it's on slide 11 of your presentation -- will still exceed $120 billion. This means that with the actions that we've taken, as difficult and as tough as those actions have been, our debt is still going to increase 20%. Now, I find that very scary and the reason I find it scary is that you would hope that with the kind of drastic cuts we've been forced to make to stop this death spiral, we might be in better shape than another 20% increase in that accumulated debt in another four to five years.
So I'm afraid that, with that information this morning, I have to come back to dealing with the most major criticism that our government is now facing, which is that we are cutting our expenditures only to fund the personal income tax cut for the people of Ontario. I'd like you to explain again why both are necessary, both these drastic cuts to our expenditures, to our government spending, and the tax cut to the people of Ontario, because in spite of all of this, the fact that we are still going to be at $120 billion in another --
Mr Kwinter: Closer to $130 billion.
Mrs Marland: -- four or five years, which makes -- Mr Kwinter makes that point -- it even worse. I find that $120 billion projection this morning by the year 2000 is very scary.
Hon Mr Eves: One thing you have to appreciate is that I think we've reached the tax wall in Ontario. I think we've reached the point where people start doing business under the table. In fact, I don't think it; I know it. The Provincial Auditor points that out. A recent survey done indicates that some 50% of people indicate that they have either paid money under the table or received money in an improper or illegal fashion, and 72% say they would do it again and would consider doing it. I think those are pretty scary numbers. And the reality is, the reason why that exists, of course, is you can only tax people so much before they respond in a very human fashion, and that's exactly what they have done.
I think you can reach a point where you tax people to where you get declining revenue as the point of your exercise. And I think that's exactly what has happened in the province of Ontario today. I'm not suggesting that it's fine for people to cheat on their taxes. In fact, the ministry and the government are stepping up efforts with respect to areas of retail sales tax and other areas to become much more efficient and effective in that area. However, I think you also have to understand that you have to release people, the average hard-working Ontarian, from some of that tax burden. I believe that will generate more revenue and still more consumer and business confidence in the province of Ontario than has been the case in recent years.
I find the figures quite amazing myself, Mrs Marland, but I don't see any other -- we have critics who say that we're moving too quickly, that we're cutting too much, that we're taking too drastic an action, and yet even with all the actions we've taken, as definitive as they've been, we will still be in the neighbourhood of a $120-billion accumulated debt, even if we are to achieve our balanced budget target of the year 2000-01. By that point in time we will be spending more and more money every year just to service the interest on that debt.
People who say the debt is not important should stop and think about where we were five years ago in terms of our annual servicing costs, where we were 10 years ago, where we are today, where we would have been if we wouldn't have taken the steps we've taken. If we wouldn't have taken the steps we've taken, by the year 2000 the annual interest servicing costs alone would have approached $20 billion a year. You take $20 billion a year out of a $56-billion budget and you don't have a whole lot left to provide health care, safety in communities, education, which I hear critics and special-interest groups complaining about all the time.
You have to understand, this isn't an exercise of cutting for the sake of cutting. It's an exercise to try and restore some economic prosperity in the province of Ontario so that there will be some hope and opportunity for young people to obtain jobs. I know that's difficult for some political philosophies to believe, but we happen to believe that is the case and we happen to believe that we have to restore some measure of economic competitiveness in the province of Ontario so young people will have an opportunity for education, so there will be a health care system in place for all Ontarians, so that seniors will be treated with the respect and dignity they deserve. I can tell you, you're not going to get it by spending $20 billion a year to service your interest costs so that my children and my children's children will be paying for our free-spending for the next 10, 20, 30, 40 or 50 years.
Mr Silipo: Maybe you should ask him again, Margaret.
Mr Phillips: I move you get five more minutes to get the answer. What's the answer?
Mrs Marland: Thank you for your answer.
Mr Tim Hudak (Niagara South): Minister, thank you very much for your presentation today. On a personal level, I'm looking forward to serving on this committee to hear what kind of solutions there are to the fiscal crisis Ontario finds itself in. I believe the government stands for fundamental change and I appreciate the direction of your presentation today. I sincerely hope that if groups disagree with your presentation, your ideas, they will offer their own positive solutions for change. But again, what I fear is a repeat of what I saw in the Bill 26 hearings, and that is basically a pitched defence of the status quo.
Ms Lankin: That's incredible. That's an insult.
Mr Silipo: It shows how much you've listened to the Bill 26 hearings.
Mr Hudak: Minister, I have a question for you about the status quo. Given international competitiveness and the lowering of trade barriers, the mobility of labour and technology and such in the Canadian economy today, how well can Ontario businesses compete, especially in terms of job creation, given the status quo?
Hon Mr Eves: I think, given the status quo, the record speaks for itself. The answer is, not very well. All you have to do is look at the numbers as we outlined at the beginning of and throughout the slide presentation and in the November statement. Ontario used to be the engine of the economy for the country of Canada. We have to get back to being part of the solution, not part of the problem. I can tell you that the finance ministers' meeting I went to in December -- I'm going to another one later this week. When you sit around that table, there are governments of all political stripes, from all different provinces in Canada, and almost every one of those governments, the only two exceptions being the province of Ontario and the province of Quebec, every other government sitting around that table has faced the economic reality that we are facing up to as a government today. They are months and in some cases years ahead of us and they recognized this fact several years ago. One of the primary reasons why we find ourselves in the situation we find ourselves in today in the province of Ontario is that the previous administration in particular failed to recognize that point, and here we are.
Mr Joseph Spina (Brampton North): Minister, as the parliamentary assistant for small business I've received a lot of concerns from the small business community across the province. I ask the question, once input is received from this committee, both on the taxation structure for businesses and the taxation restructuring for consumers at large, do you feel that the real job creators in this province -- that is, the small businesses of this province -- can have any confidence in what's coming up and why do you think that there should be some confidence?
Hon Mr Eves: Obviously, small business has not only a future but some cause for optimism in the near future.
We have, of course, eliminated several inefficiencies in the system. We have set up the Red-Tape Review Commission. We are looking into boards, agencies and commissions. We are going to reduce payroll taxes. We are trying to get a handle on small business costs, be they WCB premiums, be they direct taxes in the form of income taxes, be they regulating business community to death, especially the small business community, where every time you turn around you have to fill out 14 forms to do something.
We're trying to control hydro costs in the province of Ontario, and we're trying to do everything we can to assist the individual and small entrepreneur to be successful, to be competitive, to make them hire people, expand their businesses and go into new ventures. And it's not an easy process. However, I think we have made some very definitive statements and starts in the few short months that we've been in office and we hope to see the benefit of that for all Ontarians in the short and near term.
The Chair: Mr Carr, a one-minute question?
Mr Gary Carr (Oakville South): Yes, very quickly: Margaret talked about going to $120 billion, and it's probably even over that. We're spending about, give or take, $9 billion -- what will the interest alone be on that $120 billion, even with all these cuts? What will the amount be? Would $11 billion be in the range?
Hon Mr Eves: Well, if it continues to rise by approximately half a billion dollars a year over the next four years, if that trend continues, you're looking at about another $2 billion on top of what we have today.
The Chair: Thank you very much. It being 12:15, I would remind the committee that we will resume at 2 pm. We will sit in recess until then.
The committee recessed from 1212 to 1400.
MINISTRY OF FINANCE
The Chair: We have with us this afternoon the Deputy Minister of Finance, Mr Gourley; Mr Dorey, assistant deputy minister and chief economist; Mr Christie, assistant deputy minister and controller; Mr Trick, assistant deputy minister, office of the budget and taxation; and Mr Salerno, assistant deputy minister, Ontario Financing Authority. I suggest we might go straight to questioning if there is no opening statement.
Mr Michael Gourley: Actually, Chair, if the committee members would find it useful, I'd like to call upon Mr Christie and Mr Dorey, Mr Christie in the first instance to take us through a quick review of the third-quarter Ontario Finances report, which is the third quarter of our fiscal year; and Mr Dorey could provide us with a fairly quick review of the third quarter of the calendar year's economic performance. Both of those documents were released recently and they provide, if you like, the most recent public information on the performance of, on the one hand, our fiscal budget, and on the other hand the economy.
I would like to cover two points raised in the questioning of the minister this morning, one having to do with job creation and another issue that came up in relation to -- as soon as I find my notes here, I'll cover that; it was another question that was asked -- and we'd be happy to then move on to the committee members' questions. With your permission, I'd ask Mr Christie to --
The Chair: Would you see these as 10- or 15-minute presentations?
Mr Gourley: Yes, of about that order.
Mr Bob Christie: For those who don't have copies of the third-quarter Ontario Finances, we have brought additional copies. The third-quarter finances were released last week. They show the performance for the fiscal year ending March 31, 1996, through the first nine months; they give in effect the current outlook for this year as of experience in those months.
The highlights essentially are that the deficit remains on track at the $9.3 billion number noted in the statement of November 29. This figure includes a $450-million preliminary provision -- and it is a preliminary provision -- for the write-off of some outstanding one-time charges such as cancellation costs on non-profit housing projects and some Ontario Development Corp activities, as well as loan losses from the Ontario student assistance program. These and other possible areas of provision for loss will be determined in more detail later this fiscal year and the results will be reported in the 1996 budget.
The highlights of the report you have in front of you are, on the revenue side, revenue is up nearly $400 million -- $382 million, to be precise. The largest portion of that is a $367-million payment from the federal government under the federal fiscal stabilization program. This is a claim that was lodged several years ago, but no estimate of payment under it was included in the November statement so the entire payment goes to the credit of this year's revenue outlook.
On the expenditure side, there are some relatively modest adjustments to program spending, which are shown on the second page. The largest single item other than public debt interest is with respect to the legal aid plan. There's an additional $35 million to pay amounts owing under the legal aid plan. There is also a saving of $100 million in public interest due basically to lower interest rates than had been previously assumed.
Those and some of the other changes noted on page 2 of the report leave our expenses down $68 million from the November plan, which, together with the provision for write-offs, leaves the deficit at the $9.3-billion mark. There is a number of tables attached to the report which give more detail. For example, on the revenue table on page 3, you will note that we expect corporations tax to be up $50 million, while some of our receipts in the fines area and for sales and rentals are down by about $35 million, so there are some small offsetting changes on the revenue side.
We also have included at page 6 a statement of our capital market activity so far this year. If there are questions on that, I'm sure Mr Salerno would be happy to bring you up to date on those.
That's the update through the third quarter. If there are any questions, I'd be happy to address them now or as we go along.
The Chair: Perhaps we could hold those questions until we get through with the reports.
Mr Gourley: I'd like to turn it over to Steve Dorey, but I simply remind members of the committee that we are talking about a different third quarter in the case of Mr Dorey's report. He is speaking in respect of the third quarter of the calendar year and the economic performance and the update that are provided then. Without any further ado, Steve.
Mr Steve Dorey: We released the Ontario economic accounts about two weeks ago. What they show -- you have the pink copy -- is that real GDP in Ontario rose 4.7% in the third calendar quarter; that was after two negative quarters in the first half of the year. So we had a mild recession in the first half of the year and a recovery in the third quarter, with growth at 4.7%. That was led primarily by export growth, with exports up at a 10% annual rate. Consumer spending also improved in the third quarter as a result of more auto sales and somewhat higher after-tax income.
On the second page of this report, you have a picture of the composition of the growth in the third quarter. At the bottom you can see that consumer spending contributed just over $1 billion --
Ms Lankin: What are you referring to?
Mr Dorey: Sorry. The pink one, the second page. Consumer spending contributed just over $1 billion in the third quarter. Net exports were up by close to $4 billion at an annual rate. The two declines: Government spending was down at an $833 million annual rate and inventory accumulation declined by about $1.7 billion.
Very briefly, on the next page you can see that consumer spending on goods rose at a healthy 4.6% clip and that was more or less matched by personal income, which was up at a 4.5% rate.
With respect to the business sector, on the next page you can see -- this is table 3 -- residential construction was down again, down at a 2% rate in the third quarter. Machinery and equipment spending continued to grow -- 7.7% in the third quarter -- and corporate profits were up at a 40% annual rate in the third quarter. That's consistent with the increase in corporate tax revenue that we're showing in the third-quarter financial accounts.
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The blue piece simply gives you an industrial breakdown; I won't go through it, but it gives you an industrial breakdown of where the growth was in the third quarter. It was overwhelmingly concentrated in the manufacturing sector, particularly auto parts and electrical and electronic goods. I'll leave that.
That's the third calendar quarter. Since then, in terms of recent developments, it's been a mixed bag. Consumer spending, after declining in October, was flat in November. The crucial Christmas period -- we don't have a lot of information yet. We do know that department store sales were up about 2.5% from last year in December. That's not great, but it's a little better than some of the anecdotal information we had.
Exports declined in October, were flat in November. The housing market is showing a little life with resales jumping pretty significantly in January.
Those are the principal recent numbers, with the exception of the job numbers. The job numbers have in fact performed reasonably well over the past four months. We gained 47,000 jobs over the past four months.
I'll turn briefly to give you a bit of an update on what that means for our economic projections. These are the projections included on the November 29 statement. You can see that we were projecting, after 5.5% growth in 1994, 2.1% growth for 1995 and 72,000 jobs. Given what we know about the third quarter, we now think the output growth for 1995 will be a little better than the 2.1% we had projected in November, and the job growth came in at 71,000 instead of 72,000.
With respect to 1996, we had expected 2.3% output growth and 81,000 jobs, and for 1997, 3.1% real growth and 100,000 jobs.
Ms Lankin: Are these figures you're referring to on a specific page, and can we follow with you? You're rattling them off quickly. And could you go through the numbers you just gave us again, please.
Mr Dorey: Sorry; it's this handout. For 1995, at that point we were projecting 2.1% real growth and 72,000 jobs. The actual number for the year came in at 71,000 jobs, so very close to the November projection.
In terms of output, the 2.1% now looks like it will be a little low. With the 4.7% growth in the third quarter, we think the year will be a little better than the 2.1% we had projected -- slightly better, up to 2.5%. It depends on the fourth quarter.
With respect to 1996, we had projected 2.3% growth and 81,000 jobs -- I'll come back to our current views on that -- and for 1997, 3.1% growth and 100,000 jobs.
Mr Gourley: Those are the numbers portrayed here. As Steve has given you updates, the most recent numbers, they're not on this slide, but certainly with respect to 1995, the actual results we anticipate are very close to what we were projecting in November.
Mr Dorey: When we produced the outlook in November -- what you have here is that the blue lines represent private sector forecasts as of November 29. Since then, three forecasters have updated their forecasts, given developments over the past couple of months. CIBC, Scotiabank and Toronto-Dominion Bank have all updated their forecasts.
What you have for 1996 on the left-hand side -- the highest forecast at the time we presented the November statement was 3.3% growth for next year, the average was 2.6% and the lowest was 2.1%. With the three new forecasts, the forecasts are now lower. We only have three new forecasts, whereas previously we had a much larger sample, and other people will be updating their forecasts. You can see that in general people have moved down to about where we were in terms of our cautious forecast for 1996. So the average is now 2.3% among those three forecasts.
With respect to 1997, private sector forecasts are also in the process of moving down somewhat. You can see that when we did our 1997 projection in November, the private sector forecasts ranged from a low of 2.1 to a high of 4.4. The current range, again, with a much smaller group of forecasters, is from a low of 2.2 to a high of 2.9 with an average of 2.6, which is somewhat below the 3.1% we had projected in November.
As we move towards the budget we will continue to follow economic developments and follow private sector forecasts and we will rework our forecast to take account of developments as they go forward.
Mr Gourley: Steve, if I could just say that those forecasts were all produced I believe prior to the most recent interest rate adjustments that we've seen, so I fully expect there will be adjustments to those forecasts prior to the actual budget time in our updating of the forecast at that point.
Mr Dorey: One final point, the minister referred to the 71,000 jobs created in 1995 and I just wanted to show you a picture of that to clarify how we do that calculation. It's simply an annual average. You can see in fact that we did have a mild recession in the first half of this year and that did produce significant job loss until about August. Since then jobs have grown by 47,000 over the last four months. After coming out of the recession, job growth resumed and we've then seen it rise from there.
Mr Gourley: That concludes our presentation. I'd be happy to take questions.
The Chair: Did you want to comment on those two questions that were asked this morning?
Mr Gourley: The private sector forecasts and the job growth were the two items that I picked up.
The Chair: We'll go into questions. We will have 15 minutes from each party and then pick up the difference at the end. Is that acceptable?
Mr Phillips: This morning the minister mentioned that there's a certain formula you use to get to estimate the job growth. I think he indicated every government has used the same kind of formula. What is that formula?
Mr Gourley: Actually, the slide that Steve was just referring to was our effort to respond to that question. The formula was, how do you calculate the difference in jobs from one year to the next, and the answer is that Mr Grossman, Mr Nixon and Mr Laughren all used in their budgets the average annual number of jobs over --
Mr Phillips: I'm sorry, a better way to ask the question is, you've estimated job growth for 1996 and 1997; how did you do that?
Mr Gourley: Steve can answer that question, but I believe it's consistent with that methodology.
Mr Dorey: Yes, simply that the job growth we show for 1996 and 1997 will be the difference between the annual average for this year and the annual average for each of the next two years.
Mr Phillips: I understand that, but you have to estimate that the number of jobs will grow by -- you've estimated I guess 81,000 and 99,000. How did you estimate the 81,000? Did you take percentage of GDP?
Mr Dorey: When we produce our forecast, we look at a variety of factors: interest rates, incomes, spending and so on in the economy and generate, with the combination of an econometric model and judgement, those are the kinds of estimates we get.
Mr Phillips: How did you estimate the 81,000? Why didn't you say 180,000? As I say, I've been told it's a percentage of the GDP growth.
Mr Dorey: No, no. The 81,000 jobs are 1.4% growth in employment. Basically what we do is look at the amount of income growth we expect in the economy, the amount of spending, and forecast overall growth. It's not directly related to GDP growth.
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Mr Phillips: Maybe it would be helpful, Mr Chair, if we can get how that estimate's done, if I might request that, because we're looking over the next couple of years I think job growth averaging about 90,000 and we should be averaging 145,000. I'm anxious to know how we're going to get the total of the job creation over the next five years. So that would be helpful for me.
Mr Dorey: Perhaps, yes, I can come back to that specific question. The 81,000 jobs next year and the 199,000 jobs the following year are jobs that are consistent with a cautious economic forecast, a cautious economic projection that's used for fiscal planning purposes. It's certainly conceivable and likely that the economy can do better than that. We've seen, for example, over the last four months an average of 12,000 jobs created per month. At a 12,000-jobs-per-month pace you would come very close to 725,000 jobs --
Mr Phillips: I understand. I'd just like the estimate on how you got there, because all I see is that we have about the same number of jobs in December 1995 as we had in December 1994. I have to know how you did that.
You historically have used on revenue projections -- you've had it in budgets that the revenue grows at 90% of nominal GDP. Is that still the formula that Finance uses for estimating revenue growth?
Mr Gourley: I'll answer that question in a moment, but before I do that I'd just like to draw your attention and the committee members' attention, you can actually see the two Decembers there, December 1994 and December 1995, on that chart and I'd ask Don Black if he wouldn't mind pointing them out so that you can see the point that you've just made, that from one year to the next, from December 1994 to December 1995, the point you made, sir, was that that's the same number of jobs.
Mr Phillips: Yes.
Mr Gourley: But you can see obviously from the average that there is a 71,000-job difference in the average over the two years.
Mr Phillips: I understand all that. I'm just saying that December over December has not changed. That's my only point. But on your revenue estimates, which we don't have but we're going to have to make some estimate because we can't get them, historically you've told us that you estimate revenue grows at 90% of GDP. That's what was in one of the budgets. Is that still the estimate?
Mr Gourley: Actually, my experience is that it has varied from as high as 0.95 to below 0.9.
Mr Phillips: So what do you use then?
Mr Gourley: At the moment I'm not using a rule. We actually do look at the individual revenue streams and calculate the revenue. Steve, perhaps you'd give some more detail on that revenue forecast.
Mr Dorey: Yes, we do a detailed bottom-up revenue projection and you'll find the elasticity will vary depending upon the revenue source. Part of the reason why we've sometimes used a rule of thumb that's somewhat lower than one is simply because if non-tax revenues don't change -- in a lot of them there's no natural growth. But for a number of the revenue sources, like personal income tax, it tends to grow somewhat faster --
Mr Phillips: You've now given us a gross domestic product estimate. Can you provide us with those estimates as you've done in previous years of the growth in tax revenue by tax source? I realize there are decisions being made on tax cuts, but just assuming that nothing changes, can you give us the revenue estimate by major tax source over the next couple of years?
Mr Gourley: Well, the minister indicated that we would be providing that in the budget.
Mr Phillips: No, no, no. I'm speaking about providing it to us now.
Mr Gourley: Well, I believe the minister's indicated that he feels that that revenue and expenditure forecast awaits the decisions that the government has to make.
Mr Phillips: No, I'm not talking about any decision. I'm saying, just assume that nothing changes; can you give us an indication of the revenue growth over the next two years? You don't need any decisions; you just take your economic forecast and put it through your model.
Mr Gourley: Well, actually you do need the decisions in order to determine the revenue forecast. Otherwise, you can pick 0.9 or 0.5 and say that's my view of the elasticity of government revenues, but it won't reflect --
Mr Phillips: No, no. I'm sorry. I'm not trying to be difficult, but we have nothing from you right now on revenue estimates. I'm just saying you've indicated to us that you have made a judgement on economic growth --
Mr Gourley: That's correct.
Mr Phillips: You've indicated to us that you used that to estimate the major revenue sources. You don't need any decisions; you just need to give us the information. Is there a reason why we couldn't have what we've always had in the past, and that is an estimate of revenue over the next couple of years?
Mr Gourley: Actually, from my point of view at any rate, it depends on the decision the government's going to make, and I understand your comment that if you strictly start from the no-policy-change environment and move forward --
Mr Phillips: That's what we always do.
Mr Gourley: My understanding was that the minister indicated that he would be providing that in the budget by virtue of establishing the cost of the decisions that the government makes in both the revenue and expenditure side. So I believe it will be there.
Mr Phillips: Shouldn't that be information publicly available? I know there may be decisions on a tax cut, but assume the same taxes, nothing else; can the staff provide us with that estimate?
Mr Gourley: I believe the practice in the past, and I stand to be corrected, was that essentially the revenue and expenditure outlook that was provided in previous budgets was provided in the form of an update to this committee when it carried out its deliberations. So there wasn't a new forecast created at that time.
Mr Phillips: Just give us your current forecast. Don't create a new one; just give us your current. What we've always been provided with, and members across may not know this, but this showed last year, personal income tax revenue 1995-96, 1996-97; retail sales tax; corporate tax; employer health tax; all of those numbers. We've got zero now. I'm just saying, can we have those numbers?
Mr Gourley: Those were based on the government's budget. They weren't provided as --
Mr Phillips: No, no. They were updated for the current economy.
Mr Gourley: I stand to be corrected. My understanding is that those were the same numbers that appeared essentially in the ministry's budget at the time.
Mr Phillips: No, you stand to be corrected. The table represents the forecast based on third-quarter Finances and the Ontario Economic Outlook published on November 30, 1994. So it was updated completely for the information that was available, not of the budget, but completely updated.
Mr Gourley: I believe the minister indicated he would be providing that in the budget. I'm sorry that's not the answer that you would like, but I believe that's the answer the minister provided.
Mr Phillips: Isn't that information that the public is entitled to?
Mr Gourley: It is a matter of the decisions that the government has to make going forward, and part of what those forecasts will look like depends on the behaviour of the economy in response to the decisions the government has to make. I simply say that the minister said that that would be provided in the budget.
Mr Phillips: But I'm just saying, we're going to have people spending thousands of hours of time coming before us. Frankly, I understand why you can't give it to us, but I find it unacceptable the little information we've got to go on.
Mr Gourley: I was at a presentation a week ago with several economists at the University of Toronto. We had in the room every range of estimate that you could possibly imagine, and everyone who presented their case felt that they had a good reason and justifiable reason for the forecast that they presented.
Mr Phillips: So what's the point? I'm saying every year in the past we have had a revenue forecast and an expenditure forecast from the government. This year we don't. Why?
Mr Gourley: I believe the minister answered that question.
Mr Kwinter: In your document, the pink one, you state that, "Savings rates declined from 7.9% to 7.5%, one of the lowest rates since the late 1960s." Do you have any figures as to the amount of consumer debt through consumer credit and what is happening to that?
Mr Dorey: I do, but you'll have to give me a minute.
Mr Kwinter: While you're getting that information, the point I'd like to pursue is that I find it interesting that in that same paragraph you talk about, "Disposable income rising faster than nominal consumer spending," which indicates to me that notwithstanding people may be getting more income because the economy is improving, they're not spending it, and their savings have been depleted to the lowest rate since the 1960s. I'd be curious to know what is happening to their consumer debt and how that is affected, and then I'll tell you why I'm concerned.
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Mr Gourley: We had every question but that one.
Mr Kwinter: Okay. Let me tell you what my concern is. You've already admitted that disposable income is going up but people are not going out and spending it, and notwithstanding that, their savings are at the lowest level since the 1960s. Without hearing the figure -- because I know the figure; I just wanted to know whether you knew the figure -- I can tell you that consumer debt is at the highest record in recorded history in Ontario by far, and it's gone up dramatically.
What you have is that the average consumer has depleted their savings, has increased their debt on their credit cards and borrowings and bank loans and mortgages and everything else, and in that environment right now, by your own admission, they're not spending. Even though their income is going up slightly they're not spending it.
What I'm saying is that in that environment you're going to have a tax cut that is going to put some money in the hands of the consumers. What amount we don't know, but it's not going to be hundreds of thousands, it's not even going to be tens of thousands; it's going to be whatever. It's going to be a relatively small amount of money. My question is, given your modelling that you must be doing, do you fully expect that these people are going to get that money and run out and start spending it when in fact they have let their savings get depleted and they have incurred all of this debt? My submission to you, my projection, is that most of those people are going to go out and try to increase their savings, reduce their debt, and you're not going to get the kind of impetus you think you're going to get from consumer spending.
So I then ask the question, why are you doing it? Why are you going out and borrowing money, putting the province further in debt without any benefit other than possibly getting some of those things better adjusted?
Mr Gourley: If I could just open with a comment and then ask Steve to give you the detail on that debt issue. In fact, it depends on who gets the money, as to whether they spend it or not. I think there is evidence to show that low-income individuals receiving a tax reduction would tend actually to spend it, in spite of all the comments you made, which I accept and obviously am aware of. It's not so clear that that would be the case with higher-income individuals. They may have alternate choices. They may choose to invest it; they may choose to do something else with it. So that difference in behaviour is there.
I'm not sure that answers your question about why, but I'd ask Steve to talk about the issue of the debt levels and any other comments he wants to make on behavioural response to a tax reduction.
Mr Dorey: Just in terms of the debt levels, I don't have the Ontario numbers in front of me, but Canadian debt is now 87% of personal disposable income which, as you note, is well above levels it's historically been.
With respect to the savings rate, yes, it's very low. The point though that people aren't spending is simply not true. Consumers have spent what they had and then some, and that's in part why savings rates have declined and debt levels have risen. I think, with pages 15 and 16 here, you can see that consumer spending has grown well in excess of the pace of growth in disposable income. In large measure, the problem is disposable income --
Mr Kwinter: Read your own material.
Interjection.
Mr Kwinter: One second. I just have to correct the record. On page 3, in the paragraph where it talks about personal disposable income, you say -- not me, "with disposable income rising faster than nominal consumer spending." That's your statement, not mine, and now you've just said it's the other way around.
The Chair: I think you will have a chance to redirect that in the next round. Perhaps we could move to the third party. Ms Lankin.
Ms Lankin: Michael, you said, in answer to a number of Gerry's questions, that you think the minister had answered that he'll provide that information in the budget, and I understand the difficulty you might be under. I'll check the Hansard, but I thought that I got some commitments from the minister this morning in terms of information to be shared. I thought that when I asked for medium- and long-term GDP growth expectations, he said yes, and we do have medium-term here, not long-term -- not revised, but okay, at least there's something we can talk about.
When I had asked around revenue expectations and expenditure expectations, pressures in the system, absent any decisions -- and you're quite right; you can take a look back at the last tabled budget and/or the last economic statements and as they've been updated by the current Treasurer, without things changing, what would it look like? -- I thought I got a commitment that we would get that. We're not getting that from you. Are you not able to give us that information here today?
Mr Gourley: I would be happy to check with the minister on his understanding of what his commitment was and get back to the committee and indicate that.
Ms Lankin: Your understanding is that you're not able to give us that information?
Mr Gourley: That's my understanding, that those data would be provided in the budget.
Ms Lankin: Presumably in the budget.
Mr Gourley: Right.
Ms Lankin: I don't want you to feel that I'm being rude, but I am going to interrupt you because I want to get a lot of questions out here and I want to try and keep the exchange short on both sides. Your minister took a very long time in answering questions and I'm good at doing that too, so I know the trick.
Presumably the budget, however, is going to show us the revised revenue projections as a result of decisions that the government has taken. We're here to advise the government on those decisions that they're going to take, if they haven't already made up their mind. So that's the information we want, you know: pre-decisions.
I also thought I got a commitment this morning, and boy, everybody else thought I did too, that you were going to present us with a number of different potential models of achieving the average 30% reduction in personal income tax and the projected costs of that. I didn't see that presented in the information and I am interested. Without going to that presentation right now, are you here with that information and prepared to --
Mr Gourley: No. I only had a brief moment to speak with the minister about what he had intended, and in fact he was off to another meeting, so he and I didn't have a chance to discuss it at all. I'll have to get back to the committee on that one.
Ms Lankin: Mr Chair, we're going to have a bit of a problem and I think you're going to have to start turning your mind to how we deal with this. That is crucial information. When you take a look at the government's projections and the fiscal challenge, which is all described in how we go about balancing the budget, ridding ourselves of the deficit and starting to pay down the debt, we know short term what the government's plans are on expenditure reductions and some of the information, not all around that. The big piece that's out there is how that tax cut could be implemented.
This is not, like the minister said to the press in the scrum, a question that would affect the stock markets and all the speculation around if there's going to be a tax cut or not. We know there is. The commitment's out there. It's a question of how many different models there are that could affect a 30% tax cut on average across the board, and we know what some of the models -- not that many of them.
I heard him this morning commit that that information would be shared. You're saying that you're not empowered to do that today?
Mr Gourley: I don't have that information with me. I'll be happy to come back to the committee and talk about that once I've had an opportunity to discuss it with the minister. I didn't have that. He and I were in separate meetings between the sessions this morning --
Ms Lankin: Yes, but there was an hour and a half. With all due respect, there was an hour and a half between this morning when that commitment was made and coming back this afternoon.
I am just wanting to put on the record my level of disappointment and unhappiness with the level of information that's being shared, the manner of presentation with things -- most of this is already in the public record -- nothing that sets out in a usable fashion for the committee. I don't blame you but I do note my objections to it.
Steve, let me turn to you and some of the charts that you spoke to. In terms of private sector forecasts, we heard the minister this morning say that you had taken a small-c conservative approach and many have been critical of that. As I look at the 1996 forecast and at 2.3% -- it was slightly below the average of the private sector's forecasts in November -- is that not in the last couple of years generally where the Ontario government has come in, somewhere between the mid-range and the low end? This is not extraordinarily conservative, is it?
Mr Dorey: Yes, that's right. I think in general we've tried to be quite close to the consensus. We may be a little more this time than in previous years.
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Ms Lankin: In fact, at this point, as the consensus has shifted down, we're right in the middle now, so it's no longer a small-c conservative assessment in that sense.
I'm interested in your numbers for 1997, in which you have a projection of 3.1% growth producing 100,000 jobs. Given that the private sector forecasts have dramatically decreased, and in fact you're higher than the high one now, presumably in terms of the short term to medium term, looking at 1997, you have revised your assessment and would have, as a result of that revision, different job figures than the 100,000 attached to the 3.1% growth. Could you share those with us?
Mr Dorey: In general, slower growth is likely to mean fewer jobs. As the deputy noted, these forecasts were generally done before the last round of interest rate cuts, and I think we'll just take account of all the information that comes our way, including private sector forecasts and external developments over the next couple of months, and build that into the budget forecast. We haven't revised since our November forecast, but certainly the private sector has tended to move downward and we would do the same.
Ms Lankin: Are you actually suggesting that in the various discussions you're having with your minister and with cabinet and P and P in those dreadful sessions where you show every two weeks that the numbers are getting worse, you haven't given them any kind of an indication of a revision in your thinking of growth in the economy, medium term?
Mr Dorey: Yes, that's right. We have signalled the direction, that the numbers we've seen over the past couple of months have been somewhat weaker than we expected. But no, we haven't produced a new forecast.
Ms Lankin: Okay. So essentially slower growth and fewer jobs, probably, as a result of that.
Could I ask whether either the revised private sector consensus of 2.3% and your own projection of 2.3% for 1996 and the 3.1% projection for 1997, which is likely to be revised down, takes into account at this point in time the economic drag as a result of the cuts in government spending and the projections of higher cuts than we had seen in the government's CSR and higher layoffs than we had seen projected in the government's CSR, so presumably higher economic drag than the one half of 1%? Has that been taken into account in these numbers yet that we have in front of us today?
Mr Dorey: We took into account, in our November projection, all the information we had in November, including the measures that were announced in November, so that's taken into account. It's not taken into account in the fashion of creating a baseline forecast and then knocking some percentage off for spending cuts. It's taking account of the effect that spending cuts would have on a whole variety of variables in the economy, including employment.
Ms Lankin: For every $1 billion you take out of government spending, what's the rule of thumb in terms of the impact on economic growth?
Mr Dorey: At this point we're reluctant to rely too heavily on rules of thumb, given the magnitude of the kinds of changes that are being made. It depends to a large degree on what kind of reaction there is in terms of confidence, in terms of investment, and $1 billion is roughly one third of 1% of GDP.
Ms Lankin: Is that the rule of thumb that you used a few months ago when I asked you that very question in a briefing? That sounds like a different number to me.
Mr Dorey: Yes, but what I'm saying is, that's simply arithmetic. A billion dollars is one third of 1% of a $300-billion economy. The question then becomes, what kind of a multiplier would you then get in terms of the net overall impact, and I guess what I'm saying is, that would depend upon the reaction in terms of interest rates, in terms of confidence and so on.
Ms Lankin: If I'd asked you this question in April 1995, what would your answer have been? I'm sorry to put you on the spot. This is stuff that was always available. Maybe you can understand my frustration. Sir, don't shake your head.
Mr Spina: Don't tell me what to do.
Ms Lankin: This was information that was always available in terms of projections.
Mr Spina: Stick to the agenda. Don't talk to me.
Ms Lankin: Excuse me? Perhaps we could have a very interesting dialogue if you would like to engage in it. The information that your government is refusing to provide to this committee, to you as a member -- I don't know if you care -- to us as opposition -- we do care -- to the public who are going to come forward falls way short of the nature of the information that has been provided over the last number of years for pre-budget consultation.
I don't know why that is something you think is of no concern. I think it's of great concern, and it's something that should be put on the record and something the minister should respond to. How can we be expected, as a committee, to give proper advice and proper counsel from all the different perspectives -- it's not just my perspective or Mr Phillips's or yours; from all the different perspectives -- if we're not provided with the baseline information that is usually available to a committee such as this. I think it is an issue.
Mr Gourley: Could I comment on this issue? In part, we've been asked several times what are the rules of thumb, if you like, on these changes. I believe the answer to your question about whether the answer would have been the same in April as it is today is that it depends on your assumptions about what we're going to be facing going into the future. Let me illustrate if I might, by saying, for example, if your assumption is not a lot of change, but, "I'm looking for a billion dollars; that's all I'm planning on doing" -- I'll use you as an example; you're the Minister of Finance and you say to a staff member, "What's a billion dollars going to mean if I take that out of the economy?" I presume we would say to you: "Where do you plan to take it out? What do you assume the federal government or the Bank of Canada is going to do, and is that all you're planning on doing?"
The Chair: One minute.
Ms Lankin: Perhaps that is something, when you check with the minister, you could find out; if you could share with us some of those different scenarios and what the economic drag would be.
I also ask, with respect to medium- and long-term revenue projections, expenditure projections, the modelling of the various options on tax cut and the information we were just talking about in terms of economic drag, if it is possible for you to have that conversation with him and provide the committee with your intentions tomorrow morning. It would be helpful to us as we head into the presentations.
The last question I have is with respect to the recent change in interest rates; we're seeing a reduction in interest rates. We know that has a positive impact in terms of the public debt interest and cost to government. Do you have any revisions either for this year or next year with respect to cost of public debt interest projections? What kind of magnitude of change does it take at the interest rate level to have an impact on those numbers?
Mr Gourley: Perhaps I could ask Mr Salerno to talk about the impact of interest rate changes on public debt interest costs, but I can say that we are looking at --
The Chair: Excuse me. Could that be a very short answer?
Mr Tony Salerno: The interest rate cuts will have an impact on the new borrowing the province would be undertaking. Depending on the level of borrowing next year and the timing of that borrowing, that interest rate cut will have a direct effect on the total PDI.
The Chair: Should we move on?
Mrs Marland: Mr Chair, could I respectfully suggest that we don't cut off the staff's answers? It's fine to cut us off, but in fairness to the staff, they should be given time to answer.
The Chair: It was my impression that he was almost finished. Had you completed, Mr Salerno?
Mr Salerno: Yes, I was.
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Mr Carr: It's good to see many of the faces. I've been on this committee for three or four years now. Gerry and I have been through it, and Monte.
Mr Phillips: I'm still over on this side.
Mr Carr: Yes. I've moved to the other side.
Mrs Marland: You're complaining; it's the first time in 10 years I've sat on this side.
Mr Phillips: I'll trade.
Mr Carr: I'm sure a number of you had a good chance to read my minority reports that came through over the last few years.
I had some questions on the numbers. On the quarterly update, the front page, you've got the total expenses at $56 billion; that's capital and program spending. We've announced $4.5 billion to $5.5 billion in reductions. That would be for 1996-97, so in 1996-97 I take it we're looking at expenditures of $51.5 billion to $50.5 billion. Is that approximately correct?
Mr Christie: The specific expenditure number for next year is one we're going to look at through estimates. The caveat I would put in that calculation is that, first of all, of that $4.5 billion to $5.5 billion, I believe some were already imbedded in this number from July; the $4.5 billion to $5.5 billion contains some of that. But as important, I think, is that items like public debt interest and some other elements of our expenditure base will have some growth associated with them. The expenditure reductions you're talking about are with respect to a specific set of programs. Other programs, like public debt interest, will have some offsetting increases. The way that comes about arithmetically to give us an expenditure number for next year is through the estimates process, which we're beginning to go through now. So there is a number of steps still to be taken to determine a specific number for next year.
Mr Carr: That's where it got a little bit confusing. I know some numbers for July were in there, some of the cut numbers, and some weren't. Is there any particular reason it's so confusing? It seems more so this year. Notwithstanding the fact that there has been a lot of cuts, more in six months than in six years, is there any particular reason the numbers seem to be a little confusing? All I'm looking for is some idea of -- again, notwithstanding some of the changes that can happen -- what we're looking at for the 1996-97 number if nothing changed. Is there any particular reason it seems to be so confusing this year as opposed to some of the other years?
Mr Christie: I think you've identified the primary reason, that there has been a number of changes made, a number of decisions taken already, in July and November, and those have effects both this year and next year. It's also the case that some of the decisions taken in November have a range associated with them for next year, and that's why we talk about $4.5 billion to $5.5. billion, or $2.5 billion to $3.5 billion. That range depends on the speed with which certain reductions announced in November are achieved. There is a number of things changing, probably more -- as you noted -- things changing this year than have changed in a normal year in terms of the structure of the finances, and I think that is a large part of why it's a little bit more difficult this year to keep track.
However, I think it's true that in any year the capacity to take last year's spending number and announce changes to it to come up with the next year's spending number has never been something that could really be done because of these other things that are changing -- public debt interest, pensions, other aspects of the expenditure envelope that are changing. The specifics of those have to be dealt with in estimates to get to an actual number, which is then brought forth in the budget.
Mr Gourley: Could I add a small comment but I think a significant one in terms of the behaviour of the expenditures? It relates to programs of entitlement, if you like, such as social assistance and other transfers to individuals. I'm thinking here of payments to physicians, where the level of expenditure is dependent on the level of service provided. As those change, those kinds of programs are not within the control of the government in a direct way, as are transfers, say, to hospitals. Once you've announced the transfer to hospitals -- the negotiations are under way, so it depends on where that's going to end up.
But the whole issue of government control over the spending envelope -- obviously, as Bob mentioned, public debt interest is automatically driven by the borrowing and interest rate. However, these other programs do vary, so the government can't pick a point and say, "That's what it will be," for every program it administers.
Mr Carr: On page 55 we've outlined what we used to refer to as the goalposts of what the deficit will be. I think that's the page we've outlined; we've seen the graphs. The government has outlined the goalposts and that's what the deficit will be in each of the next -- that's how we get it to zero. Now what we need to do is decide what the revenue will be, and it can change because of growth numbers, because of tax cuts, and then we have to fit the spending cuts in.
There may be minority reports where the other side may say, "To get to that, we're going to increase taxes," and our side may say, "No, it's more expenditure cuts." Would it be fair to say -- I should have asked the minister -- that that is really what you're looking for from this committee, some of the options it will take to get to those deficit numbers? They're the goalposts that have been set, they're in stone, and now how it's done -- whether our side calls for a 30% tax cut and the corresponding reductions, whether the Liberals say a little bit of both and the NDP tax increases -- is that what you in the ministry would be looking for from this committee as we move forward?
Mr Gourley: I think that was the invitation from the minister, that here's the clear direction. I would simply point out that there are other elements of the equation that influence the economy and which obviously drive both revenue and expenditures, and the committee, although it may choose not to, may have some views on monetary policy and on other matters affecting the national economy that they may wish to comment on. It would be useful advice to the minister.
Mr Carr: One more question. We've got $7.6 billion coming from the federal government. They outlined the two years, so we don't anticipate over the next little while any changes in the federal transfer. What has been the rumour or the scuttlebutt coming out about the next federal budget? Do we anticipate any changes or will the federal numbers be fairly consistent over the next couple of years?
Mr Gourley: I'll make an initial comment and ask Mr Trick to continue the explanation. Mr Martin clearly said that his preference was to get announcements out early so that people could deal with them. He is talking about making reductions. There's been all sorts of speculation about where it's going from here, but I haven't heard any speculation about changing the announced levels of funding for this year or for next year, both of which have been announced. There is some discussion ongoing on, what should the distribution be of the reduced amount next year that would be fair? The current distribution of those moneys on the Canada health and social transfers, for example, are not proportional to the population, which they could be; they aren't that way now and that's the sort of item that might be under discussion. In respect of further announcements or further comments, perhaps some of the other programs, I'd ask Mr Trick to comment.
Mr David Trick: That's exactly right. Mr Martin has had a practice of giving everybody 12 months' notice before there were further reductions in major federal transfers, so obviously we're watching for the federal budget to see if there is any news, but I haven't heard speculation beyond what's already well known. As you see in the Ontario finances that came out last week, the two biggest federal transfer programs, EPF and Canada assistance plan, add up to about $6.4 billion this year. As Mr Eves said in his November statement, we're expecting those numbers to drop by $2.2 billion over the next two years and be in sort of two steps, about half each year. That's the best indication we have on the major programs. Some of the smaller ones, they change from year to year, but we really don't have any better information on that yet.
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Mr Carr: So that 7.6 will drop by about two and a bit over the next two years?
Mr Trick: Well, the two big programs which account for 6.4 of the 7.6, the best estimate we have at this point is that those would drop by 2.2. As Michael points out, if the feds change the distribution among provinces that would affect that, but for the moment that's the number we have.
The Chair: Do you have a short one, Mr Spina?
Mr Spina: Yes, thank you, Mr Chairman. I just wanted to compliment the staff on what I think is sufficient information for the basis of discussion. I think the opposition member's attack on my personal body language is indicative of her political focus.
In any case, if disposable income is increasing and savings are low, credit is high, where is the money going? This is my question. Is it going into consumer spending? Is there a trend there, is there a relationship in that regard?
Mr Dorey: Let me come back to that issue. Consumer spending has been growing more quickly than disposable income over the past several years and in part that's because growth in disposable income has been very, very low. It's been low both because there's been relatively few jobs created and it's been low because taxes have been increasing. With respect to the latest quarter, the growth in consumer spending and the growth in personal disposable income are very close, so there's relatively little difference in the savings rate because the two are quite close.
In general, though, over the past few years consumers have been in fact spending -- or, their spending has been growing more quickly than their incomes have and as a result the savings rate has been going down and the money has, in part, been going to government coffers but that's --
Mr Spina: Thank you, that's what I wanted to hear.
The Chair: That completes our time on that first round. Should we move to an 18-minute round which would use up the time remaining, with your permission?
Mr Phillips: I'll make a comment. My background is business and I don't think I can get a $10,000 loan with the information you've provided us here, with all due respect to you. I like the analogy Gary uses of the sports but this is the fog bowl. We're trying to kick a field goal and you haven't given us any indication of where the revenue and expenses are. Historically this committee has said -- the Minister of Finance has come in and said: "We've got to hit a certain deficit. Give us your advice on the balance between revenue and expenditure and where should we balance off." But we've got one goal post and that's the deficit number, and nothing else.
I feel badly for you for us going on like this but surely if there are any business people on the other side, or any of experience, you'd want to have some idea -- well, give me a hint here. What is our revenue forecast and what is our expense forecast? Because we have to hit this deficit number, but we really are flying in the dark, and I hardly know where to go.
I guess the one question I'll ask you and then turn it over to my colleague is one that Mr Carr asked and that is that you've indicated that there's been $4.5 billion to $5.5 billion worth of cuts made over this fiscal year and next fiscal year. How does that split? How much was in this fiscal year and how much is in next fiscal year of that $4.5 billion to $5.5 billion?
Mr Gourley: The range was intended in part to reflect the fact that the targets announced in the reductions were over a two-year period and it depended on how much of those were achieved in a particular year. But I believe the split in that $4.5-billion to $5.5-billion range is that in the July announcement -- and I stand to be corrected here -- there was an announcement of about $1.9 billion in cuts, and the balance were therefore in the November statement, but they were in respect of the expenditures that we foresaw. Actually, Bob, if you've got the answer why don't you go ahead.
Mr Christie: The savings of $4.5 billion to $5.5 billion are for fiscal year 1996-97, next year.
Mr Phillips: You said that part is this year and part -- how much has been achieved this fiscal year and how much is still to go?
Mr Christie: Sorry, perhaps I am confused. Maybe by going over it a little bit it will clarify it, for me at least.
The figure $4.5 billion to $5.5 billion is a figure that will be achieved in 1996-97. Let me just go back and indicate that, of that amount, about $2 billion was with respect to reductions announced in July and the remainder is with respect to reductions announced in the November statement. So there have been the two statements; each has contained expenditure reductions. Those two sets of reductions taken together produce $4.5 billion to $5.5 billion in reductions in 1996-97.
The reason there is a range is that there are a number of two-year cost reduction goals that were announced in the November statement. They were announced as two-year goals, so the range basically represents a degree of flexibility in terms of how much of those two-year goals are achieved in the first year, which is 1996-97.
Mr Phillips: How much was achieved? We've got less than two months to go.
Mr Christie: No, this is fiscal 1995-96; we're talking about fiscal 1996-97. That's the first year of the two-year cost reduction period that I'm referring to.
Mr Phillips: Okay, so you've cut $1.9 billion already and this is a saving of $4.5 billion to $5.5 billion in 1996-97 --
Mr Christie: That's correct. That's next year.
Mr Phillips: Yes -- but not the following year.
Mr Christie: No, the following year will be somewhat more than that. First of all, you move to the high end of the range because you achieve the two years in the cost reduction targets. In addition, some of the reductions in major transfers were multi-year reductions, so by the time you get to 1997-98, you're both at the $5.5 billion end of that $4.5-billion to $5.5-billion range, plus you have some of the second year of the multi-year transfer reductions being felt.
Ms Annamarie Castrilli (Downsview): My question deals with the Ontario employment picture. I note that in a document you gave us today it shows that the annual average employment in 1994-95 will be roughly about the same, 71,000 jobs. That, the minister told us earlier, is based on 116,000 jobs created by the private sector, taking away a decline of about 45,000 jobs which left the public sector.
Materials you've also given us today indicate where the gains are, industry by industry. I wonder if you have some information with respect to the regional breakdown of the gains and the age groups. Let me tell you why I ask the question. You may remember that the Golden task force released a report which looked at the employment picture in the GTA. That report doesn't really match what I see here in terms of figures.
That report indicates that in fact the employment picture for adults in the GTA has steadily declined since 1990. There have been a few blips but overall it has declined, and they estimate that some 300,000 jobs have been lost in the GTA since 1990. This is taken directly from their report. They draw the conclusion that the link between economic growth and employment has been broken in the GTA and may very well be in other cities. Therefore, I'm really interested in knowing what the regional breakdown is with the figures that you have cited to us today.
Mr Dorey: I think the Golden task force to some extent -- the picture is a little bit dated in the sense that there's no question the recession went on longer and was more severe in the greater Toronto area than it was in the rest of the province, but last year there were 71,000 jobs created province-wide. That was made up of a gain of about 85,000 in the GTA and a small decline in the rest of the province, so the GTA certainly has outperformed the rest of the province over the past year. There's no question that in the entire period 1990 to 1994 the GTA underperformed, but it's done much better over the past year.
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Ms Castrilli: Do you have some figures with respect to that? Could you provide us with a regional breakdown of the 71,000 that you have here?
Mr Dorey: Sure. Very, very briefly, it's an 80,000 increase in Toronto, an 8,000 decline in Ottawa-Hull -- I'll just touch on the larger ones; those are the larger ones -- and most of the other major centres were 5,000 plus or minus. So it really was a story of Toronto growing and the rest of the province basically flat with Ottawa seeing some decline.
Ms Castrilli: But still, the number of people who are unemployed or looking for work is double what it used to be in 1990 in the GTA. You're not disputing that finding of the Golden task force, are you?
Mr Dorey: No, not at all.
Mr Phillips: If we wanted to see job growth of 180,000 in a year, what sort of economic growth do we need to see?
Mr Dorey: One hundred and eighty thousand is, off the top of my head, about 3.5% job growth. One would think, with reasonable productivity growth, you would be looking, over a reasonable period of time -- something like 5% economic growth is probably consistent with 3.5% job growth.
Mr Phillips: Have we ever had a job growth of 180,000 a year for, let's say, three years or so?
Mr Dorey: We approached that in the late 1980s.
Mr Phillips: What was the GDP growing then?
Mr Dorey: The GDP was growing about that pace, by 5.5%. This would be 1985 to 1988.
Mr Phillips: So it's reasonable to expect -- if you get economic growth in excess of 5% real growth, you can see --
Mr Dorey: Yes. We in fact did have economic growth in 1994 of 5.5%. Job growth was less than that.
Mr Phillips: Are we figuring we may see like three years of GDP growth of that magnitude in the next little while?
Mr Dorey: If you're coming back to our economic projections, and whether you can add three years on to the end of the projections we've done to 1997, I think that's possible. I think it's also quite possible that for 1996-97 the results will turn out to be somewhat better than we have projected.
We consciously use cautious projections because we know the grief that overestimating growth and underestimating revenue produces for us. So I wouldn't treat those as forecasts that are --
Mr Phillips: That's good because I think the plan is job growth of 725,000 over the next five years and that means, with your numbers, the last three years have got to be 180,000 a year and so you're looking at maybe 5% real growth to get there, I gather, is what you're saying?
Mr Dorey: That's conceivable, yes.
Mr Gourley: I just wanted to add -- actually it was a question that you asked earlier, Mr Phillips, about the expenditure reductions and we will provide you and members of the committee with a table that shows the fiscal years 1995-96, 1996-97 and 1997-98 of the announcements so that you can see where we're getting the $4.5 billion to $5.5 billion.
I took from your comment -- actually it wasn't a comment. It was just turning away from our answer that you didn't find it helpful, so we'll try in a table to enumerate where those expenditure reductions are taking place and why they actually grow in the outyears from the $4.5 billion to $5.5 billion, which it is in 1996-97, but it actually grows in the years beyond that.
Mr Phillips: Could we get the revenue forecast at the same time?
Mr Gourley: No.
The Chair: If you give that information to the clerk, we'll have it distributed it to the committee.
Mr Gourley: Yes.
The Chair: Thank you. Mr Kwinter.
Mr Kwinter: I just want to follow up on your modelling for the job projections based on the growth in the economy. Your comment to the effect that the economy is growing faster than the job creation indicates what everybody had known, that we are really going through a period of what is known as a jobless recovery. I assume that calculation takes into effect that you just can't take growth in the GDP and use a formula and say, "This is the number of jobs that are going to be created."
Mr Dorey: Certainly we don't do that direct one-to-one mapping. There is a strong cyclical component to productivity growth, and therefore the relationship between jobs and output does vary over the cycle. Early in a recovery you tend to get more productivity and fewer jobs, and later on it reverses.
Mr Phillips: Just a quick question. I didn't have a chance to ask the minister this. The Ontario Financial Review Commission: Is it the expectation by the staff that you will be following the recommendations in this?
Mr Gourley: Our expectation is that we will report on the government's response to all the recommendations in the report. We adopted the primary one, that is to say of the Public Service Accounting and Auditing Board recommendations in respect of accounting for our budget as well as the public accounts.
Mr Phillips: So do you think we'll get the budget tabled before year-end?
Mr Gourley: Pardon me?
Mr Phillips: Do you think we'll get the budget tabled before the start of the fiscal year? I'm kidding.
Mr Gourley: That's a really interesting question.
Mr Silipo: Which fiscal year?
Mr Phillips: I actually am quite interested in the recommendations and I would hope the government would adopt many of them. In addition to the accounting ones, there were I thought some good ones around business plans and laying out a three-year revenue and expenditure forecast and stuff like that. I would hope they do that. I hope maybe this committee might follow up on that, Mr Chair.
I want to, at the risk of beating a whatever --
Mr Gourley: A staff person.
Laughter.
Mr Phillips: I'm sorry.
Mr Gourley: It comes with the territory.
Mr Phillips: In days gone by, we used to get from the ministry officials an estimate of revenue yields by various taxes, in a previous document. This showed that every time you reduced the personal income tax by one point, you lost $275 million dollars. Is that still roughly the number?
Mr Gourley: At the risk of giving an answer --
Mr Phillips: I'll close my ears.
Mr Gourley: -- that I've given before --
Mr Phillips: I'll close my ears.
Interjection: Where?
Mr Phillips: Somewhere.
Mr Gourley: I think the answer is --
Interjection.
Mr Gourley: Sorry. The answer is, it depends. I can assure you that the range is a wide one, and to suggest that we know, and I'll illustrate this, with any precision what the revenue yield or cost of a change in either direction -- when we're talking about a move of one percentage point on either side of the current tax rate, I think we can be fairly confident that we can come up with a number within, I'll say, plus or minus -- I'll dare say it -- $20 million on personal income tax. It might be that kind of range.
Mr Phillips: That would be useful, even that, because we never had that as a proviso from the ministry officials before. It was just that at one point it was $275 million. So can I assume that if you update that, we're talking about between $265 million and $285 million?
Mr Gourley: The point I was going to make was that when you make a small change, you can then say, "This is what we think the estimate is." When you make a very large change, I can say without fear of contradiction that I don't think anybody knows. I think we can make a best guess, but when you make a dramatic change either on the expenditure side or on the revenue side, you will get things happening in the economy, responses, that you're not able to be precise about.
A classic example is the yield from a one-cent increase in the price of gasoline. When I was working for Mr Grossman and Mr Nixon, I believe the number we used to use was about $150 million. It's now in the area of $130 million, that sort of thing, if you change one cent. But if you change 10 cents, you're going to get a whole different response. If you change, as is proposed by the government, a major revenue component such as the personal income tax, or the expenditure side, as dramatically as proposed, there's going to be a substantial difference and we're going to be in a bit of unknown territory.
Mr Phillips: I understand that.
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Mr Gourley: So I'd express caution advising this committee or advising the minister about what the response is going to be.
Mr Phillips: But we have to make some assumptions.
The Chair: Excuse me. We'll move on to Mr Silipo.
Mr Silipo: I fear that the answer to my question may be more of "We're not sure," or, "We don't know," or, "It depends," but let me try. I'm looking at one of the charts we were given this morning, the projected debt chart, which shows, as we noted this morning in some of the exchanges, that the debt will grow by about $23 billion over the next five years. Can you tell us what the difference in that growth of the debt would be if we were to take out of the equation the 30% tax cut?
Mr Gourley: Well, to be frank, I feel that's the same question as to what is the cost of the tax cut, and the minister indicated he would be indicating his decision on the tax cut in the budget.
Ms Lankin: But he was providing us with options to look at.
Mr Gourley: This is predicated on the government achieving its planned deficit reduction.
Mr Silipo: Including the tax cut.
Mr Gourley: Yes. So all the government's plans, expenditure and tax changes --
Mr Silipo: I understand that.
Mr Gourley: -- are all in there, and that's what's going to happen to the debt.
Mr Silipo: Right. The government is saying, "We're going to do the 30% tax cut however we're going to do it, we're going to reduce spending by however much we need to reduce it, and we will have, by 2000-01, a debt of $120 billion."
Mr Gourley: That's correct.
Mr Silipo: Right. So let me ask it this way. Surely, in arriving at that figure, you must have made some assumptions about, if not -- I would argue you've made some assumptions on a year-to-year basis in terms of how much you would attribute to the tax cut versus how much you would attribute in other areas. Again, I sat around the treasury board. I remember the way those numbers get put -- not put together. I don't know how they get put together; I'll confess that. But I've seen some of those numbers. If it's something that you're not allowed to tell us, that's one thing, but if it's something that you're saying you don't know, I find that harder to accept.
Mr Gourley: No, I think the minister gave the answer, that in the budget he will explain the cost of the tax reduction and the tax reduction in itself. So it's that I am not permitted by virtue of my minister's statement that the budget is the proper place in which to reveal that.
Ms Lankin: I just want to follow up on that, Michael, because I don't want you backtracking on the minister's commitment. I know you're going to talk to him. I specifically heard him give me a commitment that you will share with us a number of potential options, formulas, for arriving at the average 30% reduction in income tax and the costs attached to that so that we can provide some advice on what the best way we think is, given all the other issues, to achieve the government's stated goal of a 30% income tax reduction. While I understand that you want to have that discussion, I don't want you to sort of back off the commitment the minister made.
Mr Gourley: It's not up to me to back off the minister's commitment. I would certainly have that discussion with him.
Ms Lankin: As long as you don't do it for him. If he does it himself, then we'll deal with that.
Mr Silipo: I guess the problem that I'm having is that as I look at the next couple of weeks in terms of the exercise we're going to be involved in, it seems to me that this question of the tax cut is going to be one of the areas of discussion. I find it a little bit difficult to understand how we could be engaging with people in a serious discussion without knowing in effect what the range is. We could guess; we can make up our own numbers as best we can in terms of taking the numbers that you've got in the Common Sense Revolution. But it would just seem to me that it would make for the whole process to be much more useful and helpful to the government, let alone to the process, for us to have those kinds of options.
Let me put it another way. If we were to ask you, "What would happen if you did the 30% cut this way, by just doing a straight percentage cut across the board?" surely you could give us some numbers back about what that would mean.
Mr Gourley: Actually, there would be a variety of estimates that one could propose in response to that question just as you posed it. So I think I have to follow up with the minister, as Ms Lankin has said, and get back to the committee on that commitment.
Ms Lankin: There are a couple of points that I would like to raise. I think the first question probably goes to you, Steve, and it's related to some of the numbers in the economic accounts that indicate that the gains in GDP that we have seen have primarily been export-led. I think you've suggested that in the numbers?
Mr Dorey: Yes.
Ms Lankin: And yet there actually hasn't been a very big change in levels of unemployment. I think one of the things that we've seen over the past few years in terms of the restructuring that's taking place in industry, and particularly in the manufacturing sector, which has been heavily involved in contributing to the export-led growth, is increasing productivity. The investments that did take place over a period of years when investments were up were in equipment technology processes that increased productivity. So there has been, in spite of GDP growth, little change in the unemployment numbers.
One of the things I'm concerned about and a question that I asked the minister this morning was the economic drag as a result of the depth of cuts that are being taken and the numbers of layoffs that will come, and I would from my perspective relate that to being fuelled in part at least by the tax cut and the need to find the fiscal room, but irrespective of the reason, the economic drag from that and the lag between that and any kind of stimulus effect of the tax cut, if in fact there ever is, seeing a situation where we might actually fall back into a recession.
We can see that while profits are up over the projections, business investment is actually lower than projected. There's still some growth but it's much lower than has been projected. I wonder, when you put all that together, whether or not there is any fear at this point in time of sort of being dragged back into recessionary forces.
Mr Dorey: Let me start with the question of the manufacturing sector, productivity and so on. As you know, we went through a dramatic restructuring over the 1989-92 period in the manufacturing sector and saw a loss of something in the order of 20% to 25% of manufacturing employment in the province. In fact, though, of the 71,000 jobs created in the province last year -- there were some negatives, but 70,000 were in manufacturing. So manufacturing employment was up at a good clip last year. It takes a while to make the transition, but firms are growing and that export growth is leading to jobs in the manufacturing sector.
In part, I think the weakness on the domestic side of the economy is obviously a concern. I think the housing sector is an area where we haven't seen much of a reaction even though interest rates have come down. But I think the balance there is still that the predominant strength is in the export sector, and that is beginning to create a significant number of jobs.
Is there a risk of falling back into a recession? Certainly. We had not expected to fall back into a recession in the first half of last year, and I think that caught a lot of people by surprise. At this point, the consensus among private forecasters is overwhelmingly that we won't see a recession in the next year, but that's always a risk.
Ms Lankin: I have a couple of quick questions now. First of all, Tony, you indicated in your answer about the effect of interest rates on the cost of borrowing and therefore on public debt interest that you'd have to take a look at what the borrowing requirements are for next year. Well, we know that because we know what the projected deficit is, and that's the borrowing requirement. The timing of the borrowing I understand, but we've got some projections of what will happen with interest rates. Is there any projected change in the cost of borrowing for next year as a result of the interest rate decline and projected decline?
Mr Salerno: Actually, the interest rate forecast we use is an internally generated one that Steve is responsible for. But again, just to amplify a bit, it's the new borrowing and the rollover of the --
Ms Lankin: I realize that.
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Mr Salerno: I was just amplifying a bit. It's the new borrowing, the new financing requirements, plus the rollover of the old debt; in other words, maturing debt that has to be rolled over.
Ms Lankin: What do we expect to roll over next year?
Mr Salerno: Approximately $6 billion.
Ms Lankin: Six billion?
Mr Salerno: Yes.
Ms Lankin: Okay. If there are numbers available that answer that question, because I understand we have much longer-term debt than the feds, they're on shorter-term debt, so their public debt interest is more susceptible to change in terms of the change in the interest rates; but if we have any numbers I would appreciate that.
Bob, let me ask you a question, just to share it around. In the Ontario finances, I was interested to see some of the numbers that were here in the in-year changes. Let me ask you, first of all, the deficit projection of 9.3, I can't remember, was that the July figure as well?
Mr Christie: The July figure on a cash basis was $8.7 billion.
Ms Lankin: On the --
Mr Christie: On the new Public Sector Accounting and Auditing Board basis, recommended by the financial review commission, it was 9.3, and that was the level put out in November.
Ms Lankin: Okay. This is just an observation on my part, because I remember having some interesting thoughts when I saw 400-and-some-odd million taken out of capital over commitment, knowing that there's always slippage every year. Now I see 400-and-some-odd million being written off as one-time expenditures like on the costs with housing, for example, and things that wouldn't have been predicted prior to the new government because those were decisions that had not been taken. I also remember wondering whether or not we were going to be factoring in the reconciliation payments from the feds and one-time payments that we expected, because we certainly expected them, and lo and behold I see those there now; all of those taken out of the equation when the crisis was sort of magnified very much and now put back in. I'm interested and glad to see that the number is still staying at 9.3; it's just the little pieces underneath that seem to be changing. That wasn't a question.
David, a question for you now. Your deputy was a little reluctant to answer some questions about the yield per point of various types of taxation. I have some charts that have been provided by your ministry, and I'm sure they come out of your area, that I received since the new government in briefings, and I'm wondering, should I throw those out now? That information, is none of that reliable any more?
Mr Trick: These actually come from Steve's area, so I'll have to yield to Steve.
Mr Dorey: I wouldn't use the per-point yield tables to look at very large changes, because it all depends.
Ms Lankin: Okay. Michael, in your earlier comments and presentation -- it might have been in response to an answer; I'm sorry, I don't know -- you did make some comments, I think it was in response to Gerry, about the tax cut and the spending patterns of people who would be receiving -- the spending patterns of disposable income essentially I think you were referring to. It's often talked about as consumption patterns, and you indicated that people at the lower income level are more likely to spend any disposable income they have than people at the higher income level. I think that accords with most commonsense thinking and viewing of this.
I guess one of the questions I have about how would an income tax cut produce the kind of stimulus effect, the kind of consumer confidence and the kind of job growth to take us to 700-odd thousand jobs at the end of this government's term, it comes about because at the low end of the income scale I see people in one hand getting a little bit of money back, on the other hand paying out all sorts of new user fees through municipalities and all the sorts of things that we see predicted with the new powers under Bill 26 etc; and at the higher end more, on a straight dollar basis, going to people because it's a progressive income tax system, and more of that money going into investments or perhaps luxury items offshore or vacations, but not the kind of direct spending in the economy that low-income people do with their disposable income.
Can you help me understand how that kind of a tax cut, as opposed to, for example -- let me make it very concrete -- a cut in sales tax, would produce the stimulative effect? Does one have more of a stimulative effect on the economy than the other?
Mr Gourley: Just in respect of the economic response, I'd ask Steve to comment on that. But in respect of my comments I was suggesting that there are different views as to what the response would be, and at this session I was at last week I was referring to, there was a bit of a poll of the audience and some people said, "Well, I'm going to spend it." Then I had the opportunity to remind people that there will be the fair share health levy that will offset some of that reduction that certain people will be getting, and one commenter said, "Well, that doesn't make any difference; I'm still going to spend the savings." So it was clear to the audience that our ability to predict the behaviour of individuals, even an entire population, is somewhat limited.
But the comments I made were intended to suggest, and I think there's a wide body of opinion that suggests, that certain people are more likely to spend that money and provide the stimulus than others, although I'm not certain because of the dramatic change that's going to take place. There is going to be a dramatic change, and so maybe I'll say my experience and the opinion of others which is based on small changes that we've seen in the past, small reductions and small increases -- and I'm talking relative to this one that is proposed -- maybe those opinions aren't any good any more.
Steve, I don't know if you want to talk about RST versus PIT.
Mr Dorey: Just very quickly, one of the things to keep in mind is that as we come much more integrated in terms of imports and exports with the US in particular a very large proportion of the goods we consume are imported, much more than has historically been the case, and since sales tax is principally applied to goods rather than services it's not entirely clear that a cut in sales tax has a more beneficial impact on the domestic economy.
Ms Lankin: Is that a suggestion that you're not going to merge with the GST, that there isn't going to be a harmonization take place?
Mr Dorey: Well, that wasn't a suggestion to that effect.
Mr Silipo: Mr Chair, just to pursue this question, I appreciate what the deputy is saying, that it's difficult if not impossible to come up with a finite analysis that says if you do this, this will happen. I don't think any member of this committee would expect that kind of finite answer. Certainly, even when we were looking at the projections in growth, we had a whole range there, as you yourself indicated, and as you pointed out you tended to be generally in the average between the upper and the lower ranges. But again I would just make the point that it's useful, it seems to me, for us to have even that kind of range of information because it would be useful for us to know and as we get into the discussion over the next few weeks for us to have a sense of within whatever range exists if you did cut in sales tax versus any variety of ways of doing a cut in income tax, what would likely be the differences?
Because if we don't get that and if the answer that we're not going to get that is, "Well, because the changes are so dramatic we don't know," then I guess it really makes me for one ask, "Then on what kind of a basis are we doing this other than because the government ideologically thinks that this is what they should be doing?" So I guess it really comes back to the same point that we've been getting at all morning and afternoon, which is we really do need to get more information in terms of what your sense is of what the potential impact would be, because it seems to me we can't do our work properly otherwise.
Mr Gourley: If I could respond. I take that comment and certainly I will include it in my discussion with the minister. One issue though that I am trying to be fairly precise on and I hope not unhelpfully so, and that has to do with using these point estimates or per-point yields in any situation. I used gasoline tax, but if I were to use tobacco tax, I think everyone in this room would say, "Absolutely, right on."
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We used to have a rule of thumb that used to be good. It's no longer relevant; it means nothing. When we were talking about a cent a cigarette or 10 cents a pack or whatever it was, we had pretty good confidence about what would happen, about the fact that smokers would continue to smoke etc etc. We have a totally different phenomenon going on in the economy and in fact we have a dramatic difference in the behaviour of individuals and consumers when we make changes to that particular tax. So I was just trying to share with the committee at least my view that we have to exercise caution when saying, "For every point that you change this, this is what you'll get or you won't get." These rules of thumb in the situation that we're facing today are not as valid as they once were. I make that statement based on what I see from our perspective as Finance officials looking at the economy. It's not doing exactly what we're used to seeing.
As an economy, I think Ontario's experience was that we often fell into recessionary times faster and more steeply than other parts of the Canadian economy and we had the benefit of knowing that some time, when we came out of that recession, we'd come out faster and more steeply and, as it were, recover more quickly. Here we saw a modest recovery and we saw a recession following that recovery that nobody expected. So we're into times where it's very dangerous and I think problematic for people to say, "If you do this, you're absolutely going to generate that," so I think we need to talk about ranges of responses.
Mr Silipo: I think we all understand that.
The Chair: Thank you, Mr Silipo. Time has expired and we move to the government side. Ms Marland.
Mrs Marland: I'd like to return to the point that I was pivoting on this morning of this $120 billion still in the year 2000. First of all, as I said this morning, that was very shocking to be faced with that reality and know that it might even be higher, and also, being a member of a government, which in some circles, from what I read in the papers right now, is not popular because of the cuts we are making and the decisions we have already made -- although I must admit that I don't think being government is about being popular; it's about being responsible.
I'm just wondering two things: One is how much more would we have to cut, not in dollars but maybe just in overall percentage of our provincial budget, not to be that high at the beginning of the next millennium, and secondly, how does that project for five or 10 years after that? We're not stopping the spiral, because of the amount of debt and the amount of interest. It's not a very exciting picture.
Mr Gourley: I could make a comment. In fact, as the government balances a budget, it does stop the growth in debt and in doing so, it contributes to the central bank's ability to provide interest rate policies that are more appropriate to continued economic growth. Therefore, just balancing the budget will be a very major signal for the central bank as well as the economy, so there will be a stopping of that spiral, if you like.
What happens beyond the year 2000, 2001, obviously depends on whether the government decides to maintain a balanced budget or to introduce surpluses and conceivably, possibly, actually pay down some of that debt. But again that comes back to the issue of what the judgement is as to what level of public debt can be sustained or supported by the provincial economy, which, as Steve has mentioned, is $300 billion. We're talking now in five years and the economy is obviously going to grow over that period, but the $120-billion debt at that point in time will represent a significant percentage of the total economy as a burden on the economy.
It represents a level that may be sustainable from five years forever, so that a balance budget may be -- though I doubt it very much -- a sustainable fiscal policy after that. I'm sure there'll be other factors in the economy that will cause governments to decide either to run surpluses or to at least maintain balance. There is sufficient lesson, I think, in seeing public debt interest costs as a share of spending go from 8% to 16% in a very short time, to know that once you get on that pattern, it's very difficult to get off it.
Mrs Marland: It's interesting when you talk about governments running deficits. I don't know which statute it comes under, but I was always led to believe that school boards were not allowed to budget for a deficit, and I'm aware in my region of one of our boards, a very large board, having budgeted with deficits for the last six or seven years. First of all, is it an unwritten law or is there some statute that says school boards, as a level of government, cannot budget for a deficit? If that is the case, why have they been permitted to do that and why was there no penalty for them in terms of transfer payments the following year if they ran a deficit the previous year?
Mr Gourley: I believe the restriction is in the Education Act. I am not certain of that, and I'd be happy to get back to the clerk and provide an answer to committee members; I don't have the answer in respect of where the legislative restriction is on school boards, but I believe there is one. Why there is no penalty on it, so to speak, I'm not able to speak to. I think the Minister of Education or a deputy would be much better able to speak to that issue than me.
Mrs Marland: But I see it as an overall responsibility for all of us as elected representatives at any level of government. If we have guidelines and we don't adhere to them and the result is that we get into the kind of mess in a global sense that the province is in now, if we don't have some punitive disincentive there's no risk for anyone, and the upside, of course, is that you're more popular as a politician. Today politicians are unpopular anyway, so I don't think that position should be enhanced by ignoring it.
We do, as a province, give money to the school boards. I recognize what you're saying, that it comes directly under the Minister of Education, but ultimately it's the responsibility of the Minister of Finance to make the final rulings in terms of the budget.
Mr Gourley: I understand the point you're making. I'm not able to speak to it helpfully for the committee.
Mrs Marland: It would be interesting to find out.
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Mr Wayne Wettlaufer (Kitchener): Given recent reports in the media last week on the possibility that Ontario's credit rating would have been downgraded had our government not taken some of the strong actions it did, could you speculate on what effect that would have had in interest rates in Ontario and in Canada?
Mr Gourley: I want to ask Tony to answer the question, but I'd like to make a comment in respect of the downgrading of Metro Toronto's credit rating and the fact that it actually means something, that it will cost Metro some premium as it goes to borrow, and it is a very important measure we should all be aware of. I don't think there's any point in engaging in speculation in terms of what might have been had we not seen the circumstances we've seen, but I think it is useful to talk about the importance of the credit rating itself and what that means to Ontario, particularly as it means it in part determines who we may borrow money from.
Mr Salerno: The importance of the credit rating is not only that it may certainly increase the overall cost of borrowing money to the province, but given the magnitude of the borrowing we must undertake, both to fund our current requirements and to refinance maturing debt, it's very important that we maintain access to the markets. A number of our investors would be restricted from lending to the province if our credit rating were reduced. Therefore, we would be in danger of maybe not having access to sufficient funds or having to pay exorbitant rates. A one-point drop in our credit rating may lead to 25 to 50 basis points; in other words, a quarter to a half a percentage point higher cost of money to the province.
Mr Douglas B. Ford (Etobicoke-Humber): I'd like to know something. We used to borrow money offshore, about 9% of what we needed, and then it went up to 18% and now we're at 25% or more. How high can you go? Can we get this money domestically? And why do they borrow offshore? That's another add-on.
Mr Salerno: We borrow offshore because the size of our requirements makes it necessary for us to access the markets where they're available. If we were to try to meet all our financing requirements in Canada or in Ontario specifically, the interest costs would obviously be much higher. We would crowd out the private sector to a much greater extent. Given that we have the flexibility to access other markets, it helps our domestic industry, leaves some room for it to access domestic markets.
The other thing to keep in mind, though, and I want to emphasize it, is that as we borrow externally we are not exposing the province to currency risks. In other words, when we borrow in US dollars or Japanese yen or Deutsche marks, wherever we're borrowing, we're always bringing it back in Canadian dollars so we are not taking any currency risk.
Mr Ford: Theoretically, is it helping our trade? For borrowing, say, Japanese yen or American dollars, do we have an opportunity to exchange it in trade dollars? It's gone from 9% to 25%, and sometimes when you get over that 25% figure, they end up owning us and dictating what we can do.
Mr Salerno: Ideally, you'd like to be in a situation where you're not borrowing at all.
Mr Ford: Well, we understand that.
Mr Salerno: In fact, it would be better if we were debt lenders. But given that we are in the situation we are in, it's prudent to access a broad array of markets to maintain the flexibility of our domestic industries to access the domestic markets.
Mr Ford: I realize we're borrowing here, but then we're lending there; I think the loaning aspect is to help our export industry to buy abroad. I just want to know how this mechanism works, because to me, if you borrow too much abroad they end up owning you, and I don't think you ever get out from behind it.
Mr Salerno: I think this is in part what the move to try to balance the budget is doing, to reduce our overall requirements and deal with that problem. As I said, obviously the best situation would be to eliminate external borrowing altogether.
Mr Spina: Back to my question earlier. I guess it's really a clarification, and it may have been what Mr Phillips was trying to get at. When I asked the difference between consumer spending and credit being high, savings being low, where is the money going, you indicated perhaps the government coffers. I'm wondering if there's a typo on page 3 of the third-quarter details. In that paragraph it says, "With disposable income rising faster than nominal consumer spending." I'm wondering if that should have been, "With disposable income dropping faster than nominal consumer spending." Maybe you could explain that to me. Was that just an error or am I not understanding that correlation with the chart?
Mr Dorey: Yes. You can see from the numbers in terms of the growth rates, which are in the brackets under the numbers, that disposable income is growing slightly less quickly in the latest quarter than consumer spending, so that's the relationship and that's what produces the decline in the savings.
Mr Spina: So that sentence is a typo.
Mr Dorey: That sentence is a typo.
Mr Spina: Besides analysing numbers, I'm sure you analyse trends. Do you feel we need a stimulant to restore more consumer confidence, in whatever form it may come?
Mr Dorey: Consumer confidence is driven by a variety of things. It's driven by employment. It's driven by income. Taxes have an impact. Interest rates have an impact. Yes, obviously we need a stimulus. Hopefully, interest rates will act as one. Hopefully, tax cuts will act as one. There's certainly a need for a stimulus for consumer spending.
The Chair: Thank you very much, gentlemen. It's 4 o'clock. I'd like to thank the deputy minister and his staff for appearing today.
Ms Lankin: Can I table a question for the ministry, and perhaps they can give us an answer in writing? In the minister's presentation there were some figures about per capita expenditures; it was on a consolidated provincial-local basis and it was said that was a more relevant observation. I noted, at least I think, that the per capita debt appears to be only on a provincial basis. I'm wondering if, in particular, you could do a comparison with the province of Quebec, which is the most like province. My understanding is that at the municipal level there's actually a heavier debt burden, and it would be interesting to see the comparison of per capita public debt, provincial-local combined, for Ontario and Quebec.
Mr Gourley: We could do that and provide it to the clerk.
Mr Phillips: Could I table my questions too, the ones dated January 26?
The Chair: They have been tabled to all the members, I believe.
Mr Phillips: But to see if we can get an answer to them, the ones dated January 26?
Mrs Marland: I thought there was an answer.
Mr Phillips: No. I didn't get an answer. I got something back, but I got no answers.
Mrs Marland: Oh, it wasn't the right answers.
Mr Phillips: There were no answers.
Mrs Marland: I just read them, actually.
Interjections.
The Chair: Those have been left with the deputy. Again, gentlemen, thank you very much for your attendance this afternoon, to the assistant deputies and the deputy.
1600
SUBCOMMITTEE REPORT
The Chair: Could the committee now turn its attention to the subcommittee report of February 1. Are there questions or could someone move?
Mrs Marland: I'd be happy to move the report of the subcommittee on auto insurance, with one slight amendment. On page 2 of the report, in reading this report, I think item 2(d)(i) is superfluous, because if you go down to item 6, it says the same thing about delegation to the Chair. So I'm suggesting that we delete item 2(d)(i) and just leave it as it's printed under item 6 of the report. I move the report with that amendment.
Ms Lankin: I think a proper procedure would be that the report be moved. If Ms Marland wants to move an amendment to it, that's fine, but I would point out to you that in fact the intent of those two clauses are very different, I think, from the perspective of those of us who discussed it in the subcommittee.
Item 2(d)(i) indicates that if there happen to be more presenters who request to appear before the committee than slots that are available, we will institute a process that is a fair attempt at ensuring there is a multiplicity of views that are brought forward.
At the point in time that we had this discussion, it was actually our expectation, based on our advice from Mr Sampson, that we are not likely to have more presenters' requests than spots available. That being the case, everyone who requests would get a time allotment. However, if there is an excessive number, there is a process that would involve the subcommittee.
Number 6 delegates to the Chair some of the decisions on schedules when we go out of town, for example, depending on the flights, the time in the morning that we start or the time that we break may change from day to day, depending on flights and travel arrangements, and it allows the Chair, with advice if it's requires from the subcommittee, to make that kind of decision. Also, in terms of the wording of the advertisement that's going to go out, we've delegated that to the Chair, and making travel arrangements. That's very different than if there are more presenters than slots available. The subcommittee wanted to keep hold of the ability to then discuss and go through a process to select presenters.
Mrs Marland: If I may respond, Frances, under 6(a) you mentioned schedule, advertisement and travel arrangements, but you missed the word "agenda." So in scheduling the agenda, you're scheduling the deputations, and it still says "with the advice of the subcommittee."
Ms Lankin: Margaret, let me make it very clear from the perspective of the subcommittee. It would not be the agreement of the majority of members of the subcommittee. Mr Sampson was there and he agreed with our recommendation. He had no problem with it.
It would not be our agreement, if there are more presenters than slots available, to delegate that to the Chair. There's a committee process for that. That's spelled out as an exception to the general delegation that we're making under 6(a), and there was all-party agreement to that in the subcommittee. I just want to make sure that you understand that there's a difference. You may do something different here as a committee, but the three parties all agreed to that process in the subcommittee.
Mrs Marland: Recognizing that the subcommittee report does go to the full committee for approval, I am still making that amendment. My interpretation is that the subcommittee is involved in the agenda and we are dealing with scheduling of deputations when we're dealing with the agenda. So my amendment still stands.
Ms Lankin: So much for the subcommittee process. That is not the agreement we arrived at between the three parties. My problem, Margaret, is that on a technicality you're saying it's superfluous and we would still be involved. We want it very clear, and there was an agreement between the three parties, involving Mr Sampson -- he had no hesitations about this -- that in that circumstance we would undergo a process, which is a normal process, of selecting the various presenters, and each party has a role to play in the selection of those presenters. That's why 2(d)(i) is there. It is not superfluous. It is an exceptional circumstance, if we arrive at that, what the process is.
I'm telling you that I would object greatly to that being delegated to the Chair with only the advice of the subcommittee. That's a very different scenario than a subcommittee decision around a process.
Mr Phillips: I think for the Chair's sake that the committee should proceed with the subcommittee's report as recommended. It's just that Bill 26 is fresh in my mind, and I think it would have been very difficult for a Chair to have to decide all by himself or herself, because you would have been, as they say, damned if you do and damned if you don't. I think what it does, Margaret, is to make sure that the Chair has the advice and the agreement of the three caucuses in scheduling witnesses. Otherwise, I think you put the Chair in an intolerable position because the Chair has to make the decision all on his own. Believe me, one of the three of us is not going to be happy.
Mrs Marland: May I make a suggestion, Mr Chair? First of all, I don't think there's any urgency to pass the subcommittee report now as opposed to tomorrow morning, I would assume. Is that right? It's not going to make any difference whether it's passed --
Clerk of the Committee (Mr Franco Carrozza): As long as it's done tomorrow morning.
The Chair: Tomorrow morning would be suitable.
Mrs Marland: Because Mr Sampson isn't a member of the committee, nor is he present in the room at this time -- and he was the member representing all of us on the committee at the subcommittee. Normally the subcommittee is made up of representatives of the committee, and we're in rather an unusual situation here, where the subcommittee members are not all here. I would be happy to table my motion that is currently on the floor until tomorrow morning, or maybe I should say by noon in case I can't reach Mr Sampson right away, and maybe we could do it the last thing before lunch recess tomorrow. In the meantime, I will speak with Mr Sampson to clarify what he said as a member of the subcommittee; not that I'm questioning what you're saying he said, but I would like to understand what's in his thinking.
Mr Silipo: I think that perhaps would be wise, although I think it would be wiser for Ms Marland not to pursue what I think she's pursuing and I think it had better be really clear. This is not fooling around with wording. This is a substantive change, what Mrs Marland is suggesting, from what's here before us. I'm quite frankly surprised, astounded, after the process that we went through with Bill 26, that government members would even be contemplating putting forward this kind of suggestion. You got agreement on allowing the subcommittee to sort out this particular issue if it becomes an issue, and I think for you to try to now hand to the Chair the decision to decide who's going to speak or not speak in front of the committee -- after the sham of a process that we went through with Bill 26, for you to be even contemplating this, I just can't believe it. Talk to Mr Sampson. He'll also give you the benefit of what happened during Bill 26. But I'm really surprised that this is even before us.
Mrs Marland: Mr Chair, I would like to respond briefly. Tony, this is your first experience in opposition and I have been in opposition for 10 years. I can give you all kinds of examples where the committee as a whole did not accept a subcommittee's report for different reasons. I'm being perfectly fair, I think, in saying to you I've moved the amendment. I'm happy to discuss it with Mr Sampson, who is the parliamentary assistant responsible for auto insurance, and clarify it, and I have moved tabling my amendment. As you refer to the scheduling of Bill 26, I personally had no involvement or experience with that, so your comments are going over my head because I don't know what difficulties there were in scheduling groups at hearings on Bill 26.
Mr Kwinter: I think we have a basic and fundamental difference of opinion. The essence of committee hearings is to make sure that one particular point of view is not exclusively represented. I can tell you that over the years that I have sat on this committee we have had great concerns, with all due respect to my colleagues on my left, that when we went somewhere, only those representing their particular point of view -- I can remember when we discussed at pre-budget hearings the idea of running this massive deficit we had all these people appearing, saying, "That was great, that was terrific." We had from the conference board the prestigious --
Mr Phillips: One of them is coming tomorrow.
1610
Mr Kwinter: I know. What happens is that it is absolutely critical to this type of thing that when the list of participants is selected, every party has some confidence that it isn't being stacked. It's absolutely critical to what we're doing.
With all due respect to my friend Margaret, I think we have two separate situations here. One is the essence of what this committee is about, and that is, when a list of proposed attendees is drawn up, that every party be satisfied that it is not weighted one way or the other and that each one would have some input. It's another thing to give the Chairman certain discretion to make decisions where he doesn't have to reconvene the subcommittee -- decisions based on process, decisions based on practicality -- but to suggest that the Chairman would have the sole discretion to decide who is coming to this meeting is absurd to the extreme. It goes totally contrary to what we're about.
The only reason we have this subcommittee, and why everybody was canvassed to suggest who they think they'd like to have come -- everybody put forward names and then in a spirit of collegial cooperation a list was determined that gave weight to everybody's concern. To suddenly find that when it comes to this committee that process is overturned I suggest to you is unprecedented and unreasonable.
Mrs Marland: It does say "with the advice of the subcommittee."
The Chair: Shall we table this matter until tomorrow just after 12 o'clock, when the presenter is finished, and we will revisit it? Is that acceptable?
There's just one other issue, and that is advice to the researcher in the direction in writing the report. I believe the researcher would like you to give some thought as to how that report would be constructed, whether it be constructed on a subject matter, whether it be constructed on individual speakers, and what value either of those two methods might give to the final report. If you'd give some consideration to that, we will revisit that subject Wednesday or Thursday of this week.
Ms Alison Drummond: No, actually Tuesday or Wednesday of next week. I'm hoping to distribute a possible outline for the report so that on Thursday afternoon, after witnesses have finished appearing, I can get some guidance as to what you might want the report to look like. You'll recollect that at the beginning of March, after your auto insurance hearings, there are only two days on the report, so you'll want a draft, and you'll want a draft that looks more or less like you want the finished product to look because two days is not that long to revise it.
The Chair: So that would be the final day of hearings, then, that we would give some direction and you can give some thought to that as we proceed through the hearings. Is there a further comment? Mr Spina.
Mr Spina: I just want to address the comment Mr Kwinter made. I agree wholeheartedly that it should be an opportunity to have balanced input from all of the outside parties. But if I do a quick scan of the agenda over the next three days I find that, frankly, if I had to put a personal opinion on the direction of the presentation of some of the parties on this agenda, I would suggest to you that probably 50% or more, 70% of them will be against this government and this particular party. I would suggest that's not a fair opinion, and that's mine.
The Chair: I think we've adjourned that subject until tomorrow at noon, if I might.
Mr Kwinter: Mr Chairman, in all fairness --
The Chair: I might not.
Mr Kwinter: -- I think I should have a chance to respond. I should tell you that I do not sit on that committee, I have no idea how the list was drawn up and as a result I have no -- I'm not trying to push one list over another. What I am saying is that however it was drawn up, it was drawn up by a committee and there seemed to be all-party agreement.
The Chair: No. I'm sorry, Mr Kwinter, it was not drawn up by a committee; it was at the discretion of the Chair and I think it was fairly done. As Chair, I'm trying to be impartial, and I do appreciate the cooperation we've had today.
Interjection.
Mr Phillips: No, no. Just so Mr Kwinter is clear, the instructions from the subcommittee were that each party submit a list and --
The Chair: We slotted them.
Mr Phillips: Yes, but let me finish -- that each party submit a list, then it would be mailed out to each of those people on the list, and first come, first served. It's exactly as Mr Kwinter said, that each party was asked to put their list in. You did it, we did it, the NDP did it. The clerk sent an invitation out, and as they came in it was a very simple process. I assume that somebody in your group said to you, "Who do you want on the list?" and I gather that the people you wanted on the list are some of these people. So it was a legal process.
The Chair: I'm sure there will be further discussion between now and tomorrow noon. Until tomorrow morning at 9:30. I remind you to be on time. We will start promptly. Thank you very much for your attendance today and your cooperation.
The committee adjourned at 1617.