GOVERNMENT SERVICES ESTIMATES

COMMITTEE

May 6, 1991

DEPARTMENT OF FINANCE

(UNEDITED)

Pursuant to Standing Order 87, Mr. Norman Doyle, MHA

(Harbour Main) substitutes for Mr. Robert Aylward, MHA (Kilbride) as

Vice-Chairman for this meeting.

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

Assembly.

MR. CHAIRMAN: Order, please!

This is our third meeting of the Government Services

Estimates Committee. Tonight we will be reviewing the estimates of the

Department of Finance. My name is Melvin Penney, I am the MHA for the District

of Lewisporte. Sitting in as my Vice-Chairman tonight is Mr. Norman Doyle, the

MHA for the district of Harbour Maine.

The Committee Members are: Mr. Percy Barrett, MHA for

Bellevue; Mr. Sam Winsor, MHA for Fogo; Mr. Neil Windsor, MHA for Mount Pearl;

Mr. Oliver Langdon, MHA for Fortune-Hermitage; and Mr. Larry Short, MHA for St.

George's, who will be along shortly.

Our Clerk of the Committee tonight, who will be

sitting with us for the duration of the Committee hearings, Elizabeth Murphy.

The Minister responsible for the Department of Finance is the hon. Dr. Hubert

Kitchen. Dr. Kitchen will introduce his officials shortly.

The format we will be using is one that is a pretty

established format. The Minister will be given fifteen minutes to make his

introductory comments. A spokesman for the official Opposition will be then

given fifteen to reply. In this particular case tonight the reply will be coming

from Mr. Windsor, who I understand is the official finance critic. Once we have

gone past the official reply we will then throw it open to the Committee Members

for questions. I would like for all Members to cooperate in asking concise

questions and I would like the Minister and his officials to cooperate by giving

concise answers so that we do not end up with a ten minute speech with twelve or

fifteen questions hidden in it.

We will use the system very similar to what we use in

Question Period in the House of Assembly. The only thing I will say is that I

will not allow any Member to monopolize questioning for a period exceeding ten

minutes.

I would remind the officials of the Department that

they are not permitted to reply to a question because the Members of the

Committee are not permitted to ask questions of them. They can reply only if

requested to do so by the Minister. Even then their answers must be pertaining

to fact and not policy.

The role of the Chair tonight is very similar to that

of the Speaker. It will be my job to maintain order and to establish an

acceptable level of decorum. I would remind all hon. Members and officials that

it is a much more relaxed atmosphere here though. You will be permitted to

remove your jacket if you so desire. If you want to bring a coffee or a cup of

tea into the Chamber you are permitted to do that as well. Also you are not

required to address Members by title, you may address them by name, which is

something that would not be permitted in the regular sitting of the Legislature.

For the sake of Hansard I would ask everybody,

particularly the Minister's officials, if before you speak you would identify

yourself because this has to be recorded and Hansard would have great difficulty

in doing that without proper identification. I see we do not have any members of

the media here tonight but I anticipate that will change in due course as we go

along.

Having said that, Mr. Minister, I will now ask if you

would introduce your officials, and once you have introduced your officials for

the record you could begin with your opening statement, sir.

DR. KITCHEN: Thank you, Mr. Chairman and Members.

On my right is seated the Comptroller-General, Mr. Bernard Carew.

The Department of Finance, as you know, is divided

into two sections. One is the Comptroller General's office, the Comptroller

General is the Deputy Minister, and on the other side is the Deputy Minister of

Finance. To his right is Mr. Bob Clarke, Assistant Comptroller General, and on

my left is Mr. Phil Wall who is the Assistant Deputy Minister in charge of debt

management and pensions. The Deputy Minister, Mr. Gill, is away at the moment

and so are the others. Behind me on my far right is Mr. Bruce Hollett who is in

charge of fiscal policy. His job is to monitor the negotiations between Ottawa

and the provinces under the Assistant Deputy Minister who is not here tonight.

He is very good at answering questions having to do with transfers. Next to him

is Fred Lyall who is an accountant with the administrative section. The person

who would normally be here tonight would be Mary Mansfield, but she is sick in

Montreal. Next to him is Max Baldwin who is Mary Mansfield's left arm. So,

between us all we should be able to answer a question or two, hopefully. If we

cannot we will dig up the answers.

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

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

MR. BARRETT: I would like to point out some errors

in the minutes of the last meeting -

MR. CHAIRMAN: The minutes of the last meeting have

been circulated. Are their been any errors or omissions?

MR. BARRETT: Mr. Chairman, it says Oliver Langdon,

MHA in place of Percy Barrett. That should be Oliver Langdon, MHA in place of

John Crane. It says also present is Walter Noel, but I think the hon. the Member

for Burin - Placentia West was also sitting on the Committee for a brief period.

MR. CHAIRMAN: The error as I understand it is

where it reads Oliver Langdon MHA in place of Percy Barrett, it should read in

place of John Crane. It should also show that Percy Barrett was in attendance,

and also present was Walter Noel MHA and Mr. Glen Tobin. Are there any further

errors or omissions?

On motion, Minutes as amended, carried.

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

DR. KITCHEN: What I will do briefly here is to

walk through the estimates very, very briefly and indicate that the Department

of Finance is responsible for two sets of estimates here. One is the

consolidated fund services, which I understand is to be debated in the main

House, but if there are questions about it we will do our best to answer them

here as well. Then the estimates of the Department of Finance which are

contained starting on page 27 of the estimates and running right through to page

36. What I would like to do is just take you through the Department of Finance

briefly to indicate the sort of things we do and tie that in with the estimates

document.

The Minister's office, that is us here: me, my two

secretaries and my executive assistant, and the general administration that

applies to the Deputy Minister of Finance and his two Assistant Deputies and

their secretaries. And then the general administration which looks after the

administration of both sides of the department, generally speaking, the

accounting forum and so on, and that is where Max Baldwin and Fred Lyall come

in. Then on the Deputy Minister's side of the Department we have the financial

policy which deals with debt management in investments, all the borrowing that

the Government does and these are the expenses that we incur in running that

part of the Department, the salaries and the things that go along with that

research, the investments and so on, and Mr. Wall runs that part of it, that is

under his bailiwick.

Then on the next page, page 30, we get into the

investments and the industrial assistance and in IVC and pensions. The

Department of Finance looks after pretty well all Government pensions, it used

to be under the Department of Education for teachers but that now has been

transferred to the Department of Finance, so that we look after pretty well all

Government pensions, including the Money Service Pension Plan, although the

actual fund itself is being administered by a private organization on that

particular part.

Then pension policy: pension policy deals with the

pension policies for the whole Province, not just for the Government, but for

all the pension schemes in the Province. They come under the jurisdiction of the

Department of Finance and we have people who are monitoring these pensions and

then, the pension policy of the Government, the pension administration in

Government -

MR. CHAIRMAN: Order, please!

Mr. Minister, I wonder if I could get some indication

from Hansard, where we are recording at a relatively high level, whether we are

getting it; is everything okay up there? Some of our Members seem to have some

trouble hearing.

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

MR. CHAIRMAN: Yes, could you pull the microphone

probably -

MR. DOYLE: Yes, Wince has one there, Neil; Wince

has a pretty good one there that he uses all the time.

MR. WINDSOR: They are cutting back in the night

time.

DR. KITCHEN: Okay, away we go again. On page 31,

we are looking at Pension Administration, the administration cost of

administering the pensions, we have quite a number of people working in the

pensions division and then we come down to Fiscal and Tax policy.

Tax policy has been a very busy division, it is only a

small division but it is a very busy one, not only in preparing budget but in

all the tax reform on which we have embarked in devising payroll taxes and

devising the changes we are embarking on with respect to the retail sales tax

broadening and all that area, so anything that has to do with the tax policy of

the Government comes under that group.

Then Fiscal policy, basically that deals with

Federal-Provincial relations in matters of finance and Bruce Hollett and his

group spend a fair amount of time dealing with the Federal Department of Finance

and right this year, we are into the five-year fiscal arrangements with Ottawa,

in trying to increase our benefits if you like from Confederation, and these

negotiations between the Federal Government and the Province are taking up quite

a fair amount of time right now, but we are hoping that good things will come

out of that, but that is what Fiscal policy does.

On the Mail Services on page 32, we are quite proud of

our Mail Department. We have been able to achieve some very substantial savings

in conjunction with Canada Post, some of which have been made public and some of

which have not been made public but this has been happening over the past

several years and perhaps beyond that and as you see, the mail budget is not up

very much even though the volume is up. I will be glad to answer your questions

on that one.

The next

section there, Government Personnel Costs:

over half our expenditures are in that area and that is the employee benefits

for the whole public service. They are paid through the Department of Finance,

things like unemployment insurance, Canada pension, and things of that nature.

The Liquor Licensing Board comes under the Department of Finance, and their

budget is given in the form of a grant. That will be merged, as you know, with

the Newfoundland Liquor Corporation, or at least the administration of it will

be merged. That is the Deputy Minister's side pretty well.

Now we will come to the Comptroller General's office.

This is one of the hardest areas of Government because those are the people who

look after all Government accounts and in addition collect all taxes, and get

people to pay up when they do not want to pay up, and things of that nature. It

is not a very popular job I could say, but a very important one, a very, very

important job in Government, this collection of taxes, and seeing that

everything is done fair and square and that people understand what it is all

about.

Here is the executive support, Mr. Carew and his two

deputies and their secretaries. There is a

section there for Government

accounting and we can answer questions on that. Here are the various ways the

accounts are paid, various sections having various functions, the processing of

payment, the exchequer, the central cashier's office, the pre-audit, preparing

Government accounts, and preparing and issuing the payroll. Then, also there is

the internal audit where most of the internal audit of Government functions. It

is a relatively small Department, ten or eleven auditors, and they advise

various Government Departments on appropriate financial procedures to be

followed, and run running checks on things.

Then we come to the tax administration. We have the

Compliance and Audit which is a fairly heavy expenditure by comparison to some

of our others because of the fair number of people in that section. They are the

ones that go auditing retail sales tax. They travel, and sometimes they go to

the Mainland to ferret out retail sales tax owed from people who collected sales

tax on their sales in Newfoundland. There is a fair amount of that going on and

you will note that the actual cost of that division is relatively low. It is

actually about the same as school authorities cost and we raise millions of

dollars here. The support services of the tax administration are indicated

there, and we will have some short remarks about the Newfoundland Stocks Savings

Plan, which we have had to reduce over the past few years.

Mr. Chairman, that summarizes it. Our total

Departmental expenditures are $49 million which is up a bit from last year. I

think I will conclude my remarks there and if there are any questions I will try

to answer them.

MR. CHAIRMAN: Thank you, Mr. Minister.

I now turn it over to Mr. Windsor. I guess for

Hansard's sake I should mention we have two Mr. Windsors here tonight, I should

clarify that. I now turn it over to Mr. Neil Windsor to make a fifteen minute

comment on the opening statement by the Minister.

Mr. Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

I thank the Minister for his presentation although I

have to confess he told me absolutely nothing that we did not already know. We

could have read all of that in the Annual Report of the Department of Finance as

to what everybody does. So, he is not really giving us any information other

than to tell us what the Department does.

Let me try to deal with a few specific questions as we

go through and no doubt my colleagues will have many other questions and my

colleagues from the other side of the House too, hopefully, will have some

questions of their own to ask. I am not going to get into a lot of the details

of the Department as I happen to know it pretty well. I know the people there

and I know how things work.

Let me ask the Minister a couple of questions,

starting with the payroll tax: Would the Minister like to tell us how effective

that has been? We have had a couple of debates in the House of Assembly he and I

as to the effectiveness of the payroll tax. How much money is he actually

collecting and what the impact has been on business and industry in this

Province? I happen to know a number of companies are feeling the adverse effects

of that quite heavily. One company I spoke with last week, I think is paying

$62,000 a year as a payroll year. The Minister knows my views, Mr. Chairman, on

the payroll tax and the rationale for bringing it in but I would like to have

some details on just how much is being collected by that. When the Minister

introduced it he told us that Crown Corporations and Agencies would be given

that money back, I will not say under the table, but by some other means. The

only possible means obviously is through the Estimates of the Departments and so

would the Minister confirm that the payroll tax being paid by Government

agencies is in fact given back to them but reflected in the Budget. So, you can

reduce that from the actual amount you are given.

I think we will see that many Government agencies have

in fact zero increases for this year when we look at the Estimates. I have

referred to Memorial University in the House in Question Period where they

received $1.2 million additional, I think, this year, which is about exactly

what they are paying in payroll tax. In other words, they have not received any

increase whatsoever. Perhaps, the Minister would address that and tell us

whether he is in any way considering repealing that tax in view of the negative

impact it is having in the Province on business and industry and the impact it

is having on our position from a competitive point of view in relation to other

Provinces, particularly other Maritime and Atlantic Canadian Provinces with whom

we are generally competing. But certainly, in some areas and particularly in

service areas we are competing on a national and sometimes international basis.

Maybe the Minister would also address to the degree

that he can, I can appreciate that he cannot give us all of his ideas, but I

would like to discuss with him his proposals for RST reform and what he is

proposing to do there and how he is proposing to deal with it. I recognize that

he cannot give us full details but I would be interested in whatever thoughts he

might be able to tell us. What are some of the options that he is looking at?

Perhaps he could do that. I suspect Government has not yet made a decision on

what form, if any. The Minister has told us in his Budget that before January 1,

if I recall correctly, or effective January 1, 1992 some measures would be in

place. Perhaps, we could have some of the options?

I might say that the information given on the back of

the Budget was greatly appreciated. I thought it was a good presentation of some

of the options that are available and perhaps the Minister has other information

that he can give us.

Tax compliance, as the Minister quite properly said,

is a difficult area, a difficult job and a thankless one.

MR. CHAIRMAN: Order, please!

I remind visitors to the gallery that they are not

permitted to respond verbally, by gesture, or by placard, in any way, shape or

form. I ask all Members who are visiting the galleries to now leave and take the

placards with them. They will be permitted to come back once they leave the

placards outside.

I again remind visitors to the gallery that they are

not permitted to respond in any way, either verbally or by gesture of any kind.

Failure to comply would result in them being evicted.

Mr. Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

Just to carry on with the few questions I have for the

Minister: the area of tax compliance is a very delicate area, and a very

important area. As I mentioned in the House many times, generally the feeling I

get from people is that it is not the paying of taxes that bothers them but the

fact that some people can find ways and means of not paying their fair share of

the taxes. I think everybody accepts the fact that taxes are a necessary evil in

this particular system we operate under. Can he tell us how effective his

collection efforts have been? Particularly, as I recall, there were a number of

positions declared redundant in that area, there are now fewer tax officers?

MR. DOYLE: Ten less.

MR. WINDSOR: Ten less. What has been the impact of

that, particularly what has been the impact, for example, in Port aux Basques,

where the tax compliance officer that was assigned to Port aux Basques dealing

with goods brought into the Province, was eliminated, or at least it was

announced that it would be eliminated? Was it indeed eliminated, and are we

aware of any loss of revenue as a result of that? I can add to that the proposed

closure of the Clarenville office. I was pleased to note that the Minister at

least deferred that, whether or not that proposal was eliminated completely or

simply deferred, I do not think the Minister has been totally clear on. I think

he announced that it would not close at this particular time. The Minister knows

my views that I put forward in the House that time, on the impact that would

have in the area. I am just wondering if the Minister can give us any

information on what he proposes to do there?

The Newfoundland Stock Savings Plan is a program that

I was very supportive of. I notice there is $500,000 in the Budget this year for

the Stock Savings Plan. Perhaps the Minister could tell us how much activity he

proposes to generate with $500,000? What interest has been expressed in the

Stock Savings Plan, and in fact does the Stock Savings Plan still exist, or is

this simply a token amount to deal with ongoing commitments under that

particular program?

Government Personnel Costs, 2.5.02: I see it increased

from the budgeted $18 million last year to $28 million this year, almost a 50

per cent increase. Perhaps the Minister can explain why Government personnel

costs would increase so dramatically in one year? It seems to be an unusual

amount. Perhaps the Minister would address that one? Industrial Assistance,

2.2.02: Last year we had budgeted an amount of $4.3 million and this year we

have no amount whatsoever. Is that related to industrial assistance under

Capital 2.2.02, Loans, Advances and Investments of $4.3 million? If my memory

serves me that may well be connected to the development of Bull Arm, or it may

be as a result of a Federal-Provincial agreement? Perhaps the Minister or one of

his officials could tell us what that amount is? It is clear it shows no capital

assistance for industry this year whatsoever. I assume that the Minister does

not expect there would be any activity in that area, and if not, why not?

The Liquor Licensing Control: as we all know the

Liquor Licencing Board has been eliminated, or at least the chairman of the

board has been eliminated. I understand now that the board may well still be in

place. This is a cost-saving measure that the Minister announced some time ago.

Would he like to tell us how much he has, in fact, saved by eliminating the

chairman's position? I am not sure that any other positions have been eliminated

actually, other than the chairman.

Would the Minister also like to tell us, now that he

has had a chance to review it - I asked him the question in the House about four

or five weeks ago - whether or not he saw any conflict of interest there with

the chairman being the chairman of both boards? The two board clearly have

different roles, one being a role of selling and distributing alcoholic

beverages with a mandate, in fact a direction from the Minister to generate

$80.5 million, I think, this year from the sale of liquor, up $500,000 from last

year. So, they had direction from the Minister to generate a certain amount of

sales to provide that revenue to the Minister. How does the Minister view the

conflict between that role and the role of the Liquor Licensing Board, which is

to enforce compliance with the Liquor Act. These are clearly two contradictory

roles, and that was the rationale for which the board was established some time

ago, as a result of a Royal Commission study into the matter, under the previous

administration. I am told that there is a great deal of concern by both boards

that there is a conflict here. Would the Minister like to address that and tell

us if he now sees that there is a conflict between the two roles of the boards,

and what savings, indeed, have we seen in the Liquor Licensing Board as a result

of that? Am I out of time?.

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

minutes.

MR. WINDSOR: (Inaudible) because I will obviously

have more opportunity to get them.

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

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

Why don't I just stop here, because we can go back and forth any number of

times. There are a lot of questions here, and if we could get those answered I

would be delighted.

MR. CHAIRMAN: Before I turn it over to the

Minister, again I would like to acknowledge Mr. Kevin Aylward, the MHA for

Stephenville district, here with us tonight. If Mr. Aylward wishes to ask

questions, he will be afforded the opportunity to do so, provided there are no

objections from the other Committee members, who would obviously be given

preference.

I would like to, as well, before I go back to the

Minister, make a comment on the fact that there was a photograph taken here a

little while ago. I wish the member of the press were here, but he will be back

shortly, I presume. That cannot be permitted, unless he has the permission of

the Committee. Does the press have leave from all members of the Committee to do

this? Is there anybody on the Committee who objects? Very well. I will not have

to ask him to surrender his role of film then.

The hon. the Minister of Finance.

DR. KITCHEN: Thank you, Mr. Chairman.

There were quite a number of questions asked there,

and I will do what I can to answer them.

The payroll tax has proven to be an effective tax, and

it is generating the amount of revenue that we had anticipated. It could be

generating more revenue this year than last year because we are in place twelve

months now, and last year it was only in place eight months, from August 1. We

have to subtract the amount of flow through just as we had to do it with the

retail sales tax, because the Provincial Government, as in some of its

institutions, pay retail sales tax as well. So, it is wrong, when you look at

the retail sales tax figure, the amount collected, to say, `Ah, this is revenue

from the public,' because some of it is being paid by the Government to itself,

and you have to subtract that amount of money. The same thing with respect to

the payroll tax, a fair chunk of it comes from the provincial coffers and the

related institutions.

I am glad the member raised the fact about the adverse

MR. WINDSOR: (Inaudible).

DR. KITCHEN: No, no, no! I am saying that the

gross RST figures that are shown in the budget, the revenue from the RST, is a

gross figure.

MR. WINDSOR: Is this reflected in the RST?

DR. KITCHEN: No, no! What I am saying is, just

like the payroll tax figure under the revenue

section is a gross figure, the net

figure is somewhat less, because the Government pays some of that tax. If you

want to get the net effect of the payroll tax you have to subtract the amount

that the Government pays to itself, similarly with the retail sales tax. That is

basically what my problem was.

Yes, we have had some complaints from companies, not

just the general complaint about taxes that most people would have, it is not

just against taxes, but I think the payroll tax does affect companies which have

a high proportion of their cost in personnel as opposed to capital. Some

companies have come to me, and I think you are right in that some people who are

basically labour contractors, that type of person, have had some adverse

affects, and particularly if this is coupled with GST as well, some companies

are. And we are looking at some of that in our overall tax analysis that we are

conducting presently. But we have no thought of eliminating the tax at the

moment.

Some provinces have health taxes in place, several

provinces have payroll taxes - Quebec, Ontario, and Manitoba have it - and their

rates are quite a bit heavier than ours, although Manitoba's exemption is higher

than ours. But in Quebec there is no exemption at all. Every company pays

payroll tax and the rates are quite high. The rationale for having it - at least

our rationale - was that when the Federal Government was cutting back on health

and post-secondary grants a payroll tax was a good supplement for it. Some

provinces actually do have health premiums. You pay an insurance premium. They

had that in Ontario up until quite recently and some of the other provinces have

it. I believe Alberta has it where you pay health premiums, and everybody pays

it as a tax. It is quite heavy, it could be - I think it is thirty-odd dollars a

month per family. I can dig out the exact figures, I am just speaking from

memory.

Also it is felt that when we compare the tax burden on

companies we should look at not only that but also health premiums and realize

that education is a good thing for companies, because that helps their profit

line if their work force is well trained and if it is healthy. So in the United

States, say, where companies would pay health premiums for employees, here the

payroll tax in a sense helps with that. So there is a rationale for it.

As far as the competitive position with the other

Atlantic provinces, no other Atlantic province has a payroll tax. Therefore you

would think that we would be in an adverse competitive position, but some of our

taxes are lower than the Atlantic provinces' taxes, particularly in the area of

property tax. Our property taxes in Newfoundland are quite low, they are the

lowest in Canada, and that is the way Newfoundlanders apparently like to run it.

Our property tax rate is quite low compared to national standards. We have to

take that into account too when we are comparing our competitive position with

those of Nova Scotia, New Brunswick and some of the other provinces. So it is

not just a matter of picking out a single tax and making comparisons. We should

look at the whole package and see who is better off.

I would like to have a word or two on the RST reform.

You asked us about that. We would like very much to lower that rate from 12 per

cent. It is the highest in Canada and it is too high in my view, it is quite

high. But the problem is, where do we get the revenue? If we lower the rate we

will obviously get - I think it is obvious that we get less revenue, although

some people may disagree with that. But we get less revenue. So the question is,

how will we keep our revenues up if we lower the rate?

One of the ways we are considering is broadening the

base to conform more towards the GST rate than it does, realizing that if we

broaden the base that means we have to tax items which are not presently taxed.

That is what broadening the base means, we have to tax goods that are not

presently taxed or services which are not presently taxed, and every time you do

that you have to look at the effect that has on whoever will be paying it who

did not pay it before. I believe one of the members of the press asked me once

about what items would be considered. I said right now the items considered are

not taxed. We do not pay RST on books, on crafts or on home heating, we had no

intention of moving into the home heating area, but these are the basic three

commodity items that we do not tax and there is a fair amount of public pressure

not to move into the books area and not to move into the crafts area. Now on the

services side we do not tax many services. We do tax some; we tax automobile

repair wages, for example when you bring your car in you pay tax on the wages,

although if you go to see a lawyer you do not pay tax on his wages. Maybe that

is not quite fair either, but the question is every time we move into a new

field to tax we have to look at the effects that tax will have on the people who

will be taxed who were not taxed before.

So we are exploring that and shortly we are going to

be distributing to the business community in the Province a package indicating

the things we are considering and asking for a reaction. I am hoping to be able

to spend most of the summer at that, and we will decide in the fall whether we

will bring in legislation to alter or to bring in some tax reforms which might

affect the retail sales tax and bring it closer in line with the goods and

service tax. Perhaps we will, after we have listened to what people are saying,

we must have the responses of people, and hopefully it will be done before

rather than after. We will also be considering the school tax because that is

something that our party has a position on; we are either going to reform or

abolish it and we have not decided on that yet, but that will be part of what we

will be considering. There may be some other minor tax changes that have to be

made to make up any difference because it is not meant to be a fund raising

measure. This tax reform thing that we have on our minds for the fall is not

meant to generate more taxes, it is just meant to spread the burden more fairly

and perhaps lower the RST rate. Am I running out of time?

MR. CHAIRMAN: Before I turn it over to Mr. Barrett

for questioning I would like to acknowledge the presence of Mr. Jim Walsh, the

MHA for Mount Scio - Bell Island. I welcome him to the Chamber.

I would also like to make a comment for the benefit of

the news media. A photograph was taken here in the House some time earlier and

no permission was given for that so in your absence I asked permission from all

Members of the Committee for you to take photographs and permission was granted,

so I do not have to ask you to forfeit your film to us, but I remind you that

photographs are not to be taken and cameras are not to be used in the House of

Assembly unless permission has been granted but for tonight you do have

permission.

Mr. Barrett.

MR. BARRETT: Thank you, Mr. Chairman. I have a few

comments and some questions. The first one is with regards to the payroll tax,

and of course the hon. Member for Mount Pearl and myself disagree on the payroll

tax, and I think I expressed my views in the House in debate on the Budget last

year. As a former person who was involved in post-secondary education in this

Province and who looked at some of the things that have happened in the European

countries and in the Scandinavian countries, I find that, particularly in

Newfoundland and probably in Canada, we have given business trained personnel on

a silver platter. There are some companies in Newfoundland who have a great

reputation for investing a fair amount of dollars in training, particularly some

of the early paper companies, the Iron Ore Company of Canada, but on the whole I

do not think we can expect the ordinary taxpayer of the Province to foot the

bill for a trained labour force. A trained labour force is a resource that is

available to businesses, and I agree wholeheartedly. I know that businesses will

complain but businesses complain about taxes, individuals complain about taxes,

everybody complains about taxes and, of course, it is unfortunate now that the

country is in a recession and that makes it a lot more difficult to put a tax on

the business community. But I think in the long run I support and endorse the

Minister and the Department of Finance in maintaining the payroll tax, a tax

particularly to provide opportunities for Newfoundlanders and Labradorians to

become trained. God only knows we need more money. As a matter of fact, I would

almost recommend that we raise the tax from the present level so that we could

reduce some of the cutbacks that we presently have in post-secondary education,

and if we did not have that revenue right now from the payroll tax then we would

have to do more cutting back of the post-secondary system so I endorse that.

I guess one of the areas that met with some favourable

response, particularly from the business community, was the elimination of the

bonding for people who are out collecting the retail sales tax. I know there

were some people very excited about that, but I am wondering will this make it

more difficult for the Government to get its revenues if businesses go bankrupt?

If that is so, are there checks in place to make sure the Province is not left

holding the bag in not being able to collect some of the taxes? What was the

reasoning for the bonding in the first place? Why would it be eliminated now?

The Minister or one of his officials could possibly explain why the bonding was

in place? Why they think it is not necessary at this particular time? Will we be

sort of left out in left field without being able to collect the taxes without

the bonding?

MR. CHAIRMAN: Mr. Minister, be at liberty to

answer at any time, Sir.

Basically, what we have been doing at the Committee

stage is that a Member is given a maximum of ten minutes. I would prefer they

ask a single question and get a single answer. You do not need to be recognized

each time.

DR. KITCHEN: Thank you for that particular

question about the bonding.

We have not eliminated bonding completely. We have

eliminated it in general but we have the right to insist on the bond or some

other security for businesses which we have trouble collecting taxes from. So,

that is the extent of this elimination. But I think I will ask Mr. Carew if he

would like to comment on why, if he can remember, bonding was put in in the

first place. I seem to remember it may be related to a remark in the Auditor

General's Report some years ago, I am not entirely sure about that. I do not

know if you can recall it.

MR. CAREW: As far as I can remember the bonding

was increased some years ago partly as a result of comments in the Auditor

General's Report, partly arising out of recommendations made by the Public

Accounts Committee and partly because of recommendations from studies within the

department.

We went to universal bonding a few ago for all new

businesses but on second review of it we found that it was probably bonding too

many people to get at the ones who are really at fault, so we felt it was better

to be selective in it and just bond the ones who had a bad record with us and

had previously broken the rules or the laws and secondly, perhaps thirdly, the

cost of bonding has become fairly excessive and apart from the cost it has been

difficult for some, particularly new businesses, to raise the amount that was

required for a bond. The bond premiums have gone up, so really the greater

beneficiaries were the insurance companies rather than the Department, so it was

felt it was better to go back to selective bonding.

MR. BARRETT: Mr. Chairman, if a company for

example, goes bankrupt and owes the Province an amount of retail sales tax, a

high amount or any amount is important. They declare bankruptcy and then they

come back, the same share-holders, get another vendor's number and collect

taxes. Are there any safeguards to make sure that does not happen?

MR. CAREW: The question of bankruptcy where we

lose a lot of money is not a normal thing to happen, it happens quite often but

the percentage of companies to go bankrupt as compared with the total number of

vendors, we have 13,000 registered vendors approximately, and once in a while

companies go bankrupt and bankruptcies have increased recently due to the

economic times in which we live, but it is not our greatest form of loss really.

Usually, when you lose one you lose a big one, but it

does not always happen, there are other ways. But as I said, we are reasonably

selective and your second question I think, was about, if there is any way we

can stop people from coming back under another guise - there is.

Under the new bonding policy, the Minister has the

right to refuse to issue a license to a company which is controlled by

share-holders who previously owed us some money and did not pay up, so we have

that element of control there still.

DR. KITCHEN: I might add to that, that we were

finding in the bonding that a fair amount of our staff, instead of collecting

the tax and being after the slow to pay taxpayer, were attempting to get after

them to get their bonds in place, not to get their taxes paid but to get their

bonds in place, and a fair number, I do not know how many people we had at it,

but several people were at that, now they are not at that, they are auditing now

or getting the money in. What do you call that, compliance? Yes, compliance

rather than trying to put bonds in place. They were writing letters, you know,

letter after letter going out saying, `You have not got your bond in place, and

if you do not get your bond in place, we will cancel your license,' and all this

stuff. Really getting the bond was not the main issue, getting the tax was our

problem. So now we have freed up some staff and some money. We are not wasting

money now on staff to get bonds in place. We are having the same staff devoted

more fully to getting the taxes in. So that was an interesting point.

Also, I think that the amount of money we actually

collected from the bonds was miniscule, even compared to the cost of the

personnel we had collecting or seeing that the bonds were in place.

MR. CHAIRMAN: Order, please!

Your time is up, Mr. Barrett, I am going to have to

turn over the questioning to Mr. Sam Winsor.

MR. BARRETT: I will come back to it.

MR. WINSOR: The Minister, in his budget, announced

that there were, I think, somewhere in the range of 2,000 layoffs, 900, 650,

350, plus 100 others, somewhere in the range of, I think, 2,000, and an

additional 500 vacant positions would be eliminated. That was nearly a month and

a half ago. Has the Minister yet had a chance to do a final total, because we

know it was out of whack in education, that the 350 positions the Minister

announced were not the case. How many were there actually in Education, or

throughout, and the spinoff effect, as it related, for example, to school

boards, how many school board personnel? Does the Minister have a handle on the

exact number that were actually terminated from their positions as a result of

the budget announcement?

DR. KITCHEN: No, I do not have an answer to that.

That part of it is co-ordinated by the President of Treasury Board. I do not

mean to dodge your question, but he is co-ordinating that and keeping that in

mind. I cannot answer that question now. In some areas, I think, it was a bit

higher than we anticipated and in some others it may have been a bit lower. I do

not want that answer to be a definitive one. I understand that the President of

Treasury Board is compiling the figures and he will be stating these in the

House, because I believe that question is on record in the House. Somebody asked

that question and, in fact, I think they asked each Department that question. I

believe it is going to be co-ordinated back through the President of Treasury

Board. So, that answer will probably be given in the House before too long.

MR. WINSOR: In the Budget, the Minister announced

a certain amount of revenues that would be raised, retail sales tax would be up

by some $25 million, and personal income tax by $22 million or so, a whole

measure of revenue projections that the Minister had. In view of the fact that

it seems the projections in layoffs were not quite accurate, and that we have

gone into a wage freeze, can the Minister explain how he expects to get some $22

million extra in personal income tax, with the unemployment rate escalating

steadily, practically every month for the last number of months?

DR. KITCHEN: These figures were compiled after the

decision had been made to freeze the Budget. It should be noted that going into

that Budget, the people who buy things in shops are not just public servants but

other people in the economy. We have made the statement that the economy of

Newfoundland, the gross domestic product of Newfoundland, will be up this year

over last year, one of the few provinces in Canada where it will be up. The

signs at the moment are that it will be up quite a bit, or not quite a bit but

up as predicted. So, that would account for increased sales. Also, of course, as

prices go up the retail sales tax goes up as well. So with somewhat rising

incomes, that would explain the increase in the retail sales tax, I think.

MR. WINSOR: The Minister is fairly confident that

the retail sales tax in this Province will increase by $20 million or $25

million. The unemployment rate now is higher than it has been in any number of

years, and yet the Minister is projecting a $22 million increase in revenue.

DR. KITCHEN: (Inaudible).

MR. WINSOR: With that number of layoffs - we have

just taken another 3,000 plus people out of the civil service - is the Minister

expecting that the only major employer in the Province, Hibernia, will

compensate for all of that, despite the fact that Government expenditures on

water and sewer are going to be down somewhat, it appears? It is going to be

down in the road construction sector in the Province from last year. And the

number of major constructions that the Province undertook is certainly scaled

down. Is Hibernia going to account for that massive increase in personal income

tax? In view of the fact that you are looking for $22 million more?

DR. KITCHEN: Well, the actual maximum increase

predicted is $22 million over last year's figure of $446 million, about a 5 per

cent increase. I might add that this is a general rise in the economy that we

are predicting. That would be a major component of that. I think on the road

construction though, road construction this year is bigger than it has been for

a number of years, the overall, counting the Federal Government expenditure

through the Provincial Government. So our actual road construction is very high

this year compared to previous years. In fact it is one of the highest ever.

But that is not the main component anyway but it is

part of it. The general improvement in the economy and the increase in the

inflation factor would account for that in personal income tax. There is an

inflation factor of about 5 per cent this year and the increase in personal

income that we are predicting is 5 per cent. I do not know if there are any

other components to that. I do not know if Mr. Hollett wants to elaborate on

some of that.

MR. BRUCE HOLLETT: No, I do not have much to add

to that. Incomes in the Province are expected to be up slightly this year and

that will contribute to the increase in personal income tax.

DR. KITCHEN: (Inaudible) reminded me that a number

of the people who are laid off will be getting severance pay and pensions and so

on - not all of them, but some. So that this year at least, it may not be as bad

as, I am not saying it is good for those who got laid off, but it is not

nothing. They still have some for a while, anyway. But not everybody is in that

category.

MR. WINSOR: Certainly the income that was

generated is not going to be nearly equal to what would accrue from working,

because I would assume that most people would roll over severance into a tax

shelter as opposed to taking it for this year anyway.

AN HON. MEMBER: Sure.

MR. WINSOR: The gasoline tax increases by some $12

million. How much of that is going to be attributed to increase in sales, or is

the bulk of it going to be now attributed to the fact that the ad valorem system

was changed and you are taxing now at a higher rate than was taxed last year?

You have $12 million thereabouts, $12.7 million.

DR. KITCHEN: Yes. I would think a fair amount of

that is due to the increase in the fixed amount.

MR. WINSOR: I could not hear the Minister. You say

most of it is due to -?

DR. KITCHEN: Yes, I cannot answer in detail the

break down of the actual $11 million increase here but we did increase the

average level of, if you take it month by month, the gasoline tax we have in

place now is higher than that average.

So, some of it at least is attributed to the rise and

the rest, I suppose, I do not know what the other amount would be. I could dig

that into it but our tax people are not here at the moment.

MR. LANGDON: It would appear that Newfoundland's

debt has been growing steadily since 1950-1951 and the Province has not managed

to do anything but run a budget deficit. I think it would also be fair to say

that the fiscal capacity of the Province is presently virtually identical to

that of the 1970s apart from Hibernia coming on stream.

In the 1987-1988 Budget the Newfoundland Government

received 46 cents from the Federal Government, 45 cents from the Province, and

the remainder would be borrowed. That, approximately on a budget of $2.5 billion

would be probably $225 million for current and capital account expenditure. I

guess it points to the vulnerability of the Province's dependency on financing

from Ottawa.

I was wondering how do these figures stack up for the

1991-1992 Budget, 46 cents from the Feds and 45 cents from own capacity, taxes

and so on, and the 9 per cent of borrowing.

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

Our provincial taxation is $1.345 billion this year,

our general revenues from Liquor Corporation, vehicle licenses and lotteries is

$164 million, and then there is other revenue recoveries, interest income for

$166 million, for a total provincial revenue of $1,675,000,000; and from the

Utilities, $10 million; Term 29 award $8 million and other statutory subsidies

get $1.164 million. Then there are certain cost-shared programmes that the

Federal Government helps us out with so that the total we get from the

figures just presented to me that $44.2 comes from the Federal Government and

$54.1 from the Province and $1.7 million is in additional borrowings.

MR. DOYLE: Borrowings would then be down.

DR. KITCHEN: Pardon? Yes but our total

expenditures are up too.

MR. LANGDON: So, it does show then that the amount

of money received front the Federal Government has been reduced substantially

over a number of years.

AN HON. MEMBER: Not the amount the percentage.

MR. LANGDON: Okay, the percentage has been reduced

which puts extra pressure on the Newfoundland Government.

The other thing I want to zero in on is the fact that

in the Province property taxes, apart from St. John's, Grand Falls and Corner

Brook, are partly non-existent and many of the smaller communities have poll

taxes that range anywhere from $45.00 to $100 per year, and with that type of

tax structure in place in the municipalities in the Province it adds an extra

burden as well on the Provincial Government. I was wondering in my own mind here

as I was going through how much per year does the Provincial Government carry in

guaranteed annual loans for water and sewer, and infrastructure in general for

the municipalities in the Province?

DR. KITCHEN: We will look up that one. $600

million would be the total outstanding and not in any one year. You asked me for

a particular year?

MR. LANGDON: For this particular year.

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

it up.

MR. CHAIRMAN: You can take the question under

advisement and give the answer later, or you can bring the answer to the House

of Assembly if you so desire.

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

minutes.

MR. LANGDON: What affect does it have on the

Government's current fiscal situation, the fact that these property taxes are so

low?

How does it affect the Government's fiscal situation?

Let me phrase it another way. Supposing we had a system of property tax in place

where the norm was $300 per household per year, how would that affect the

Government in its borrowing capacity, its need to borrow and so on? What would

it mean to revenues?

DR. KITCHEN: That is a hard question because if

the municipalities could just raise their revenues it would certainly help the

Province, but the question is, what money is out there to raise? - and if it

goes to property tax perhaps it will not come in as much in retail sales tax

because if they give it to the Municipal Council they will not spend it. Even

with the reduction in retail sales tax it would help the Provinces fiscal

position but I do not know at the moment by how much, but it would certainly

help, as one of our problems is the low rate of municipal taxation across the

Province. Then you have also to look at the ability to pay.

MR. CHAIRMAN: Mr. Aylward already stated earlier

that he was prepared to allow the other Members of the Committee to ask the

questions before him, but if Mr. Aylward wants to go next that is fine with the

Chair.

I am terribly sorry. Mr. Doyle.

MR. DOYLE: I have just one question. I believe the

Member for Mount Pearl asked it. Maybe you answered it when I was out but in any

event I did not hear any answer. The question concerns the fourteen gasoline tax

inspectors. You had ten laid off, I believe, ten Inspector 1's were laid off

leaving just four, which is quite a large cut. I am wondering if four people can

now do the job of fourteen? Has something happened to reduce that need to audit

the companies responsible for compliance under the Gasoline Tax Act?

DR. KITCHEN: Let me answer that one. The Member

for Mount Pearl asked a number of questions. I was only able to answer three and

then we sort of ran out of time. If you like I will roll his answer and then I

will answer your

part if that is alright?

MR. DOYLE: Okay.

DR. KITCHEN: He was raising the question with

respect to Port aux Basques. We had somebody in Port aux Basques who was

checking trucks as they came in to see what the level of gasoline was and we

found that to be rather unsatisfactory, because we did not have somebody on

there all the time. It was a one person shift. In order to cover the whole thing

we would probably have to have four or five people there.

Now we have a different system that we are about to

embark on with respect to that which will be the same as other provinces have.

Where every inter-provincial carrier will be registered and will make regular

reports to this and other Governments as to the mileage that was travelled in

Newfoundland and elsewhere, and the amount of gas that was purchased. If they

purchased more gas in the Province than their mileage in the Province warrants,

then they get a refund. If they purchased less in the Province than their

mileage warrants then they will have to pay up some more taxes. I think that is

basically the system.

Now on the elimination of the ten people. Because what

we did, in each of our divisions we had several people who go around checking to

see that the right colour gas was in the car or whatever. That people were not

using coloured gas where they should not have and so on. We have ceased that

except we do have one person who makes sure that the companies which sell gas do

have the colour in their gas. I think I would like to ask Mr. Carew or Mr.

Clarke to comment on: have we lost much tax by eliminating those ten positions?

MR. CAREW: Carew, Comptroller-General. No. Our

statistics indicate no significant losses. Actually they do not indicate any

losses at all. The first preliminary statistics, the figures for (Inaudible)

well anyway, the proportion of diesel versus marked fuel and so on, an analysis

of that indicated that no, the sales of marked went down and clear went up.

Which indicates that there was less tax leakage. But I think somebody said: who

is doing the work of the people you laid off? The work is being spread over the

other people, like tax auditors, tax compliance officers, and so on. But we

still have a senior gas tax inspector stationed in each one of the regional

taxation offices. Now that person can handle, as the Minister noted, the

injectors which inject the coloured fuel at (Inaudible) plants and so on. That

stuff can be well handled by one person in each region. The actual field

enforcement has been spread over our seventy-odd auditors and (Inaudible). So it

is being done but it is being done by different people.

MR. DOYLE: Yes, so people who probably never had

that responsibility before will now pick up some of the slack that might be left

with the layoff of those ten people. And there will be no significant revenue

loss because of it, do you think?

MR. CAREW: No. As I said our statistics indicate

that there are no significant losses, if any.

MR. DOYLE: Interesting.

MR. CHAIRMAN: Thank you, Mr. Doyle.

Mr. Short.

MR. SHORT: Thank you, Mr. Chairman. One of the

questions Mr. Neil Windsor asked related to

section 2502 on page 32 and had to

do with the Employee Benefits or Government Personnel Costs. You did not get a

chance to answer it and it was a question I had as well, so maybe you would like

to tackle it now, that $10 million difference between-

DR. KITCHEN: Yes, I think that is a pretty key

question because if you look at the total expenditures of the Department of

Finance in the coming year as opposed to last year's, you will find that we are

spending almost $6 million more, but we are spending more than $10 million in

Employee Benefits, Government Personnel Costs, we call it, and I would like to

give you the details on that because I have them here.

Workmen's Compensation: last year we budgeted $2.2

million, this year we are budgeting $2.6 million because the rates have

increased, I think that is what has happened. Unemployment Insurance Premiums:

last year we budgeted $6.6 million, the premiums went up a bit during the year

to $8.0 millions and now they are going to be bumped up again, I think it is in

July, to 10.5 million, so with Unemployment Insurance, the Budget amount

increase is $4 million over last year, this the employer will have to pay out,

because as you know, the Federal Government is not putting any in and the

employers and the employees costs have gone up, particularly the employers.

Also, the Canada Pension Premiums have increased by

about $800,000 over last year and Group Insurance has gone up by about another

$600,000, the balance is the payroll tax which is not a fair figure, because the

Government pays its own payroll tax and so we have to take off- there was none

in last year's budget because you remember last year we brought in the payroll

tax at the last minute and we had to put in a special amount in the budget but

it was not under Employee Benefits, but this year we are going to spend $4.8

million on that but it is not really an expenditure, so the net there is about

$6 million.

That basically is what accounts for it, the increases

in Unemployment Insurance are the main reasons for that and to some extent

Workmen's Compensation, Canada Pension and Group Insurance; apart from that, the

expenditures in the Department of Finance have not really increased.

MR. SHORT: Another question. I believe after

Ontario introduced its budget, I do not know if the figure was $9.7 billion or

something deficit, I think Ontario was put on a credit watch and I was just

wondering what the re-action has been to our budget in the financial market in

terms of some of the things we have tried to do to I guess, keep our borrowing

down and layoffs and all the things we have tried to do, what has been the

re-action by the credit rating agencies, if you like, to our budget?

DR. KITCHEN: The discussions we have had with the

credit ratings have been quite positive, we did not have the luxury that Ontario

had, they had an AAA rating and I suppose it does not matter a great deal

whether their rating goes down a little bit or not; if it goes from AAA to AA to

A, they are still A rated, it will cost them more to borrow, but they will still

be able to borrow; they will still have a better credit rating than ours.

We were in the position where we were being B rated by

three agencies and we had an A- from one, and had we lost that A-, we would have

been in pretty bad shape, not only with respect to the rate of borrowing but

whether or not we could borrow at all all the amounts we wanted, when we wanted

it. We may have had to go with little dribs and drabs and get it where we could

and pay high prices and maybe some times not be able to do it.

We would have been in a very, very serious situation

and that really is why we had to do what we had to do in the Budget, in order to

maintain our ability to borrow because this year we are going to be borrowing

something like over $600 million I think, counting the repayment of other debts

and counting Hydro borrowings and the whole works, it is a tremendous amount of

money to borrow.

MR. CHAIRMAN: Could you lean into the mike a

little.

DR. KITCHEN: Oh, I am sorry.

MR. CHAIRMAN: Normally during debate here in the

House, we speak from a standing position, so when you are seated there is a

tendency to lean back in the chair; so either you lean into the microphone or

you speak up.

DR. KITCHEN: Okay, I will do both. So, to answer

your question, our credit rating is not in peril at the moment and we are not on

credit watch, which is good over the long term because it looks like we are

going to have to borrow for a long time yet.

In other words, we are going to have to go in debt

more ever year for a while yet, and all we have done by this is to preserve the

ability to go further into debt; it is not a very good thing to have to do,

because, what I would like to do, personally, and I guess we all would like to

do with our own personal finances, is, not to go into debt at all, and I would

like very much for the Government to be able to balance its budget, like once in

a while a Canadian province does, but we are not in that position of coming

close to balancing our budget, that is taking capital and current account all

together. We are not even close. This year we will be down close to $300 million

and that is an awful lot to have to go in the hole this year and next year we

will have to pay another $30 million interest and we have more than we have to

pay this year even with reduced interest rates. So it is a pretty horrendous

thing to be proud of - being able to go in the hole further - and that is really

what we have done. But that ability to go in the hole further has not been

imperiled by our Budget. I do not know, Mr. Wall, if you have had any late - Mr.

Wall looks after dealing with the investment community, that is his main job and

he has a group of people working for him who do that. I do not know if you have

any late word on that.

MR. WALL: Yes, we have had several conversations

with the rating agencies prior to the Budget and we have also discussed the

Budget with the rating agencies since it was brought down, and they have

indicated that they are not considering changing the rating. The reaction was, I

might say, mildly positive to the Budget. There was certainly no adverse

reaction like they had to the Ontario Budget or even the pre-reaction that they

had to the Ontario Budget and some comments that had been made publicly by the

rating agencies as well about the Quebec Budget and the expected deficit there.

But having said that, they will be visiting us in the next couple of months to

discuss a number of things, including the Budget and Hibernia and Hydro and

things like that. So the answer is there has been a positive reaction from them.

MR. CHAIRMAN: It being -

MR. WINSOR: (Inaudible) borrowing if I could do it

before we have a coffee break.

MR. CHAIRMAN: No problem. Mr. Winsor, we will when

you are finished your questioning take a ten minute coffee break and we will

meet in the Government common room, but I will permit you to ask your question

first.

MR. WINSOR: It will not take long. The subject of

borrowing and financing intrigues me. I do not know if it has anything to do

with my own that I do or not, but in 1990-91 the revised estimates showed that

we needed $488 million.

AN HON. MEMBER: What page?

MR. WINSOR: We are looking at thirteen in the

roman numerals (xiii). Okay, there is the pie and it shows that we needed $488

million for revised estimates. The Budget itself on page one at the back shows

that we actually borrowed $614 million. In the same token, for this year our

Budget at the estimates show that we will have $527 million and we are actually

going to borrow $574 million, which means that each year we are gradually

sinking into debt a little bit further.

Now in debate in the House it always appears as if the

debt of this Province is some kind of a monster that was created by former

administrations, but from looking at what we see happening this is just a

continuation of an ongoing trend, that each year the Province has to borrow more

money, which really means that it never pays on its principal, it just borrows

to pay on loans it had a number of years before. I did some preliminary research

that shows that this has always been the case for this Province. I did not go

through every Budget, but for a number of years it shows that the borrowing that

we have had has always been greater than the amount of debt charges that we had.

So we are not making any grounds, and in this Budget we do not make any grounds.

Last year, because of extended borrowing, we had to do it because of difficult

fiscal times, it exacerbated an already bad situation and I am just wondering,

in terms of the overall deficit we have, I think $5.4 billion or something like

that, have we ever, in the history of this Province, paid anything on the debt

that we had? Are we just paying off the debt that we had twenty years ago, where

we retired a principal on that one only to assume another new principal, and if

so, has there ever been a calculation done of the total amount of interest that

has built up over the years because of the inability of the Province to make

payments, have we just made interest payments?

DR. KITCHEN: There is no doubt that what you are

saying is absolutely right that we are sinking further in the hole every year,

and it is something that we should all, I think, be very concerned about.

Some economists say that this is not something to be

concerned about; they look at the ratio of debt to gross domestic product and

they say that as long as your debt to gross domestic product ratio is not

increasing, then you should feel fairly good about it; I dispute that

personally, because I think that the calculation of gross domestic product is in

error and I will tell you why.

The gross domestic product as used by economists has

to do with cash income and there has been a major change in productivity over

the years; nowadays, almost all income is in the form of cash income and

productivity is almost all that you do in the marketplace,

whereas in this

Province, some years ago, and in other places as well, a large amount of the

productivity never entered the marketplace.

For instance, the work of women who used to spend

their time in the home years ago, they worked, they cooked, they reared their

children, they did all sorts of productive work, physically productive work and

now, people go and get jobs, women get jobs and they are in the marketplace,

that is great, but, their labour now is counted in the gross domestic product,

but it was not before, but they worked hard before.

They probably worked just as hard before as they do

now and were just as productive but now it is in the marketplace and before it

was not, so that the figures for gross domestic product, while they are

increasing, there is something phoney about it all and that is, this part that

is no longer counted, so I do not take any comfort from the fact that our debt

to gross domestic product ratio is not increasing, because that other factor

bothers me very much and I cannot get a handle on it.

I do not know what you would like, but I would

certainly like to be able to come to the position where our debt stops growing,

because paying interest on debt is non-productive usually for Government,

although not everybody believes that; they say that if you go in the hole and

you are building up the economy, by building schools and things and

infrastructure, good productive infrastructure, you can -

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Yes. Anyway that is part of the

argument. Thank you.

MR. WINSOR: One final question. It seems that we

are spending about 17 per cent of total revenues for debt repayment; I think it

was 17 per cent one year and 16.3 per cent this year. How does that stack up

against the western world? - 17 per cent of your total budgetary -

DR. KITCHEN: The Federal Government pays one

dollar in three on debt charges, one dollar in three. From our revenues, it is

one in six, but, a lot of that comes from the Federal Government; if you look at

what we raise ourselves from our own taxes, it is about one in three.

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

DR. KITCHEN: With the Federal Government. Bruce

can you answer about the other provinces?

MR. HOLLETT: Yes. The other provinces pay around

eleven cents out of ever dollar on average, some provinces are higher than

Newfoundland, but several are lower.

MR. WINSOR: So in relative terms we are still not

really badly off in terms of the percentage of our total budget that we use in

debt charges.

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

remember?

MR. WINSOR: New Brunswick I guess and PEI.

AN HON. MEMBER: What did he say?

MR. DOYLE: Who is worse than we are?

MR. WINSOR: Prince Edward Island, I seem to recall

seeing a figure somewhere.

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

We could get that answer if you want.

MR.HOLLETT: Nova Scotia and Quebec both spend more

of their revenues on interest payments than we do. Nova Scotia spends seventeen

cents on the dollar, Quebec is 16.8, so we are the third highest of the

provinces.

MR. DOYLE: So is there any magic figure as to when

this all becomes unmanageable, you are saying eleven cents now, that is

obviously manageable I suppose, and I guess it is manageable, but is there any

magic figure at which point you could say that the debt is unmanageable, we are

officially bankrupt?

DR. KITCHEN: I suppose the bottom line is when the

credit agencies say: 'you have had it brother', and you cannot borrow any more;

I suppose that is the bottom line, is it not? - that is the real bottom line.

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

gross domestic product.

DR. KITCHEN: Or when they do not want to lend you

any more money; when you find it hard to borrow in the marketplace. We are not

to that stage yet but we almost made it.

MR. CHAIRMAN: Mr. Winsor?

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

are just chatting.

MR. CHAIRMAN: We will now take a ten minute

recess, but before we do, I would like to acknowledge that we still have two

visitors in the gallery and I would like to explain that normally at Committee

stages visitors would have been invited to sit in the Speaker's Gallery, but

because of the large numbers we had come in here tonight, it was impossible so

we had to ask you to sit in the visitor's gallery, but I would like to invite

you to join us after we come back from our coffee break in the Speaker' Gallery

at the back of the Chamber, if you wish.

RECESS

MR. CHAIRMAN: Our meeting will now resume. The

Chair would like to recognize, Mr. Neil Windsor.

MR. WINDSOR: Thank you, Mr. Chairman. While I was

out I understand the Minister answered some of the questions that I had asked

earlier and I wish I had been here to hear some of those answers, but I can read

them. Is there a transcript of these proceedings kept?

MR. CHAIRMAN: There is a transcript kept but I do

not believe it will be delivered until next year.

MR. WINDSOR: It will be a historical document by

the time we get it I suppose.

MR. CHAIRMAN: Well, based on what we did last

year, we received them about eight or nine months later. You may be able to get

a copy of them though if you request, is that possible?

MR. WINDSOR: Mr. Chairman, with your concurrence

and with the Minister's concurrence, perhaps we could just have a couple of

quick questions back and forth, rather than my making a fifteen minute

presentation as we did before and then the Minister trying to answer them.

My colleague from Fogo talked about the layoffs that

the Minister announced; can the Minister give us any idea of how effective that

has been and how many layoffs have actually occurred? I do not know if he gave

you that information in answer to your question. How many actual layoffs do we

know off and are we going to realize the savings that the Minister expected when

he announced in his budget that there would be these massive layoffs? - and is

the positive impact on the budget or in the deficit actually going to take

place, could he respond to that?

DR. KITCHEN: Let me answer that one now. I

understand that the President of Treasury Board is presently compiling all those

figures, because he has been asked that in the House. I believe he is about to

make some sort of a statement on it and that is how it will be; it really comes

under his end of the financial operation and so I will be leaving it to him to

gather his data, but if he does not come forward, I will remind him about it. I

cannot do much more than that tonight because I have not been compiling it.

MR. WINDSOR: Mr. Chairman, would the Minister tell

us then at this point in time where does he see his projected deficit at the end

of the year? Are we still looking at $53.7 million?

DR. KITCHEN: We do not have much to go on yet

because the first month of the new Budget year is not - it is over, April it is

finished. But the figures on revenues are just coming in now. And we should be

able to see how our revenue projections are holding up at least for the first

month. Now the other major unknown in the equation is the Federal transfer

payments. Up until now everything is fine with those. This is the year of

renegotiation, and that cuts in next March, is it Bruce?

MR. HOLLETT: The new transfer arrangements will

take effect April 1, 1992, so they will not affect this fiscal year, but there

are several re-estimates before the end of the year of the current year

payments. That is the normal process.

DR. KITCHEN: And just let me ask Bruce the

question, to follow it up, do we know that the projections that we put in the

Budget with respect to Federal transfers, have there been any changes in those?

MR. HOLLETT: No. We have received some new

information from the Federal Government since the time of the Budget but it has

not change the numbers at all. The projections are the same. There was a

difference this year in that the problem that we had last year of the numbers

coming out after the Budget, there was an advancement of the timing of the

estimates by the Federal Government by one month. So the numbers that were

received just after Budget last year, that same scheduled re-estimate occurred

prior to our Budget this year. So that the numbers are still the same as they

were in the Budget.

DR. KITCHEN: So in

summary, and in answer to the

question on our revenue numbers, we will get our first reading on that shortly,

within a week or two. It looks like the Federal transfers are on target, at

least as far as we know. The other unknown is the actual expenditures, and we

will be getting regular reports from Treasury Board now, watching that very

carefully. So perhaps in a week or two I will be able to answer that question,

at least for the first month.

MR. WINDSOR: So you have no estimates yet of RST

receipt for example for the first quarter?

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

month, the April month, yet.

MR. WINDSOR: The Minister in responding earlier to

(Inaudible) question dealing with payroll tax talked about the overall level of

taxation of other municipalities. It was stated that we have the lowest property

tax in Canada at the municipal level. Obviously the Minister was (Inaudible). Is

the Minister aware that in other provinces of Canada largely health and

education taxes are included in the municipalities? Municipalities are

responsible. So you do indeed have to look at the overall package. So we do pay

a fairly high share. If I am not mistaken are we fifth, I think we are just

fifth in Canada, the overall incidence of taxation? I believe that was the

number. I wonder has that changed any in the last two years?

DR. KITCHEN: I will ask Bruce to comment in a

minute. My recollection is that if Canada is a hundred, the Canadian taxpayer

pays $100, we pay 101 or something like that. What is it? Or is it 102?

MR. HOLLETT: Bruce Hollett. Yes. Our tax effort

this year is around 102 per cent of the national average, and that fluctuates in

that range of ninety-nine to 102, 103. We would be around fourth or fifth of the

provinces. On the property tax we are 45 per cent of the national average.

MR. WINDSOR: As I said earlier, that is

misleading, because property tax in other parts of Canada include a lot of other

things. Certainly, it is curious to see that that has not changed any.

That is it. I am assuming all my other questions were

answered while I was gone.

MR. CHAIRMAN: Mr. Sam Winsor.

MR. WINSOR: Recently, several senior citizens have

come to me complaining about the levy of a fee for the use of provincial parks

by senior citizens. It has never before happened in this Province, at least to

their memory. The question they were asking me is: How much money does

Government expect to realize by charging senior citizens admission fees, or

whatever you call them. I think it is at the rate of seven dollars per day. What

is the expected revenue to be generated for the Province by having imposed this

fee for the first time?

DR. KITCHEN: I will dig that one out. The main

purpose of that, as I recall, was not a revenue measure. It was, I think, to

make the parks more accessible to many people. As I remember from the

discussions, some people were sort of hogging the parks, and we wanted to spread

it out more evenly by charging everybody.

Your question is: How much extra money do we

anticipate raising? I will have to dig that one out. You haven't got that

figure, have you?

AN HON. MEMBER: No, not here.

DR. KITCHEN: Do you?

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

DR. KITCHEN: You do not have it. Okay. I will have

to get back to you on that, and I will announce it in the House. We have to make

a note of that one.

MR. CHAIRMAN: Is the Committee ready for the

subheads?

Mr. Neil Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

Just a couple of other things that I would like to

quickly run through.

I asked the Minister, a moment ago, about the

projection of the deficit for this year. Does he have any projection for the

deficit for next year? What are we looking at for next year in the way of any

projected deficit, at this point in time?

DR. KITCHEN: I have asked the officials to work at

that one pretty quickly so that next year we can get regular reports as to how

we stack up. That is so we can update it on a monthly basis as new information

becomes available. I have yet to get the first report, but it should come soon.

Just to clarify, there are two or three things that we

are going to have to watch carefully. One is, assuming that the freeze goes off

next year, we are going to have to provide the money that we saved by putting

the freeze on, which is fifty-odd million, I think. Then, as the agreements are

reached, there will be money in for pay equity. So that whatever that comes to

we will have to provide in next year's budget. We did not have to provide it in

this year's budget.

There is another amount that you questioned me about

some time ago in the House, on the surplus from redemption of the sinking funds.

When the sinking funds are due, very often there is a surplus amount in these

sinking funds, as a bond issue is paid off. This year there is, I think,

sixty-odd million, sixty-seven or sixty-nine - I forget the figure -

whereas

last year it was about twenty-nine or thirty. Next year it is going to be

considerably less. It is going to be in the forties. So we are going to have to

find another $25 million there. So, if you add the pay equity and the freeze

money that we are going to have to provide, plus the other, we will have to

worry about a fair amount of money, perhaps. But it is a bit early yet to make

these projections, but it is certainly a concern of ours.

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

Well, we will go first to the sector, Executive and

Support Services.

MR. WINSOR: On pensions: The Government had a

study done on pensions last year and there was a report published that shows the

pension plans in this Province, generally speaking, are in a fair amount of

trouble financially. Has the Minister anything new to add to it, and is it the

intention of Government to implement the recommendations of that White Book you

published last year on pension reform?

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

MR. WINSOR: -implement the recommendations that

were there and how soon?

DR. KITCHEN: Of that pension committee? Well, we

are in the process of implementing a number of these. We have the two pension

bills now that are before the House. That will substantially take care of the

long range problem by increasing the rates so that the unfunded liability of the

Public Service pension plan should not grow; neither should the unfunded

liability of the Uniform Service pensioners grow, nor the teachers' grow. So

these three - the teachers' one is not ready for introduction to the House yet -

but it looks like these are the main problems with the pension plan. It looks

like we have them pretty well under control, assuming that the House agrees. The

one we have not come to grips with yet is the MHAs' pension plan. The amount of

money is smaller there so it is of lesser priority but it is still important to

do.

The other question is, what do we do with the - up

until now - unfunded liability? We have made a decision that we did put some

money in that one year, and there is none budgeted to go in this year. I think

that is correct. But we will have to be making payments into that from time to

time. But it looks like the major problem with respect to the pension fund is

under control. At least it will be much better than it was before.

MR. WINSOR: (Inaudible) I know the teacher

pension, I think there is some $200 million of unfunded liability that is the

responsibility of Government by having used the money for general revenues

throughout the years. In the case of the Public Service pension plan I would

assume the same thing applied to that. It just went into general revenues. How

much of that portion of the public service pension plan of the unfunded

liabilities is actually a responsibility - I know governments' admit it - but in

financial terms, how much is actually Government's share that it had not paid?

DR. KITCHEN: Okay. There is a difference between

the two pension plans, in that the teachers have been paying a pension for a

great many years. The rates were low, but they have been paying since... when?

The 1940s or something like that?

AN HON. MEMBER: 'Twenties.

DR. KITCHEN: The 1920s.

Whereas the public

servants started paying towards their pensions in 1967. So there is somewhat a

difference in circumstances. Now, the unfunded liability with respect to the

public servants, I do not have it off the top of my head, but it is considerably

less than that for the teachers, $500 million as opposed to (Inaudible).

AN HON. MEMBER: (Inaudible).

DR. KITCHEN: Alright, okay. So the teachers'

unfunded liability is considerably higher than that of the public service. But

that was not quite your question.

MR. WINSOR: I was asking how much unfunded

liability is in the -

DR. KITCHEN: It is due to Government spending what

was there.

MR. WINSOR: How much unfunded liability is due to

the Government spending what was there?

DR. KITCHEN: If we had done what we are going to

do from now on, if we had done that, Government would have been matching the

contributions, and the contributions of the employees would have been half the

cost to fund the pensions. The employers were not paying half, and Government,

in the case of the teachers, was paying nothing until - when did we start

paying, 1981?

AN HON. MEMBER: In 1980.

DR. KITCHEN: In 1980. So, for all those years,

from 1920 to 1980, the teachers were paying in something, not enough, and

Government was not paying anything until 1981. So, that is one amount. I do not

have that amount at the moment. I do not know if we could calculate it.

MR. CHAIRMAN: Would the Minister like to take the

question under advisement?

DR. KITCHEN: We could take that question under

advisement, unless Phil can answer it. I will ask Phil to answer it and shed

more light on that subject.

MR. CHAIRMAN: Mr. Wall.

MR. WALL: There have been a number of calculations

done, and I guess most of those calculations would only be estimates because we

have to estimate the amount of interest and the rates of interest that will be

earned over those years on the amounts, if they were in it. If the amounts that

had been contributed had been invested there would probably be somewhere in the

neighbourhood of $400 to $500 million more in assets there. So, instead of the

unfunded liability in excess, as the Minister said, of $2 billion - that number

was an indexed number. The number not indexed is about $1.2 billion. Instead of

having $1.2 billion you would still have $700 or $800 million of unfunded

liability. That is because the contributions, even the ones that the teachers

and the public servants were making, for instance, since 1967, were not enough

to cover the current benefits or the current service costs of the plan at the

time. So, even though we were contributing, the contributions, if they had been

matched by the Government and put into a fund, were still going to build up an

unfunded liability.

As the Minister said, starting now we are increasing

contributions such that the current service cost, as of the new legislation,

will be covered by the contributions. So there should not be a growth, at least

from that point on, in the unfunded liability. The big concern is trying to

offset or to pay back the unfunded liability that remains on the books.

MR. WINSOR: So, in addition to what we have had in

the past, the latest round of redundancies and pensions that are going to be

paid as a result of the recent layoffs are obviously going to impact

significantly on the fund because of two things it is going to do. One, it is

going to mean there are a lesser number of contributors to pay premiums, which

means Government's share is also going to be missing from it, and secondly,

there are now more people drawing pension at an earlier time. So, the study that

was done last year, which looked at the overall pensions in the Province, is not

really now an accurate reflection, because there is going to be more money

needed immediately as a result of the last round of layoffs. Would that be

correct?

DR. KITCHEN: Partly correct. You are right, that

this does build up the "unfunded liability." The actual amount we are not sure

of yet, because it depends on who gets the redundancy pensions. We are keeping

quite good track of that. There is money set aside to cover a fair amount of

that, but it is not enough to cover the total unfunded liability, but there is

money set aside in the plan to do it. I think it is this year's share of that

unfunded liability that is provided for, but not the future year's share.

So, you are right, the unfunded liability, however it

is defined, will increase as a result of these redundancy pensions. But by

comparison with the total unfunded liability the amount is not great.

MR. WINSOR: So if I understand the Minister

correctly, you are saying that for this particular year Government has taken an

amount of money over and above what it would normally contribute to the pension

fund to compensate for that particular - this year's share.

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

MR. WINSOR: So that does not come out of the

accrued pension that employees have been paying in for the last number of years.

Government actually put x number of new dollars into it for this year.

DR. KITCHEN: Yes.

MR. WINSOR: Okay.

MR. DOYLE: So to avoid calling, say, individual

subheads, maybe we could call the subheads from 1.1.01 to 3.4.03.

MR. CHAIRMAN: Will you make a motion to that

effect?

On motion, subheads 1.1.01 through 3.4.03, carried.

On motion, Department of Finance, total heads,

carried.

MR. CHAIRMAN: We have reviewed the estimates of

the Department of Finance and we have carried the subheads. I would now like to

thank my Vice-Chairman for the evening, Mr. Doyle, and the Members of the

Committee who have done an honourable job of asking questions. I must commend

them for the manner in which the questions were asked, in an honourable and

orderly fashion, and to commend the Minister and his officials for having

answered them in exactly the same fashion. I would like to thank Hansard; our

Page, Paula; the Clerk of the Committee, Elizabeth Murphy; the one member of the

media who sat with us with his camera during the evening.

I would also like to thank the two ladies who sat as

guests for the evening, first in the public gallery and then in the Speaker's

gallery. Thank you for bearing with us. I thank you all.

On motion, the Committee adjourned.