Government Services Committee

1999-05-04

Newfoundland and Labrador — Committees

May 4, 1999

The Committee met at 9:00 a.m. in the House of

Assembly.

Pursuant to Standing Order 87, Jim Walsh, MHA for

Conception Bay East & Bell Island substitutes for Wally Andersen, MHA for

Torngat Mountains.

CHAIR (Wiseman): Order, please!

For recording purposes my name is Ralph Wiseman.

I now call for election of the vice-chair.

MR. JOYCE: I nominate Harvey Hodder.

CHAIR: Harvey has been nominated. Do we have a

seconder?

MR. SWEENEY: I second that.

CHAIR: Seconded by George. All those in favour,

`aye.'

Carried.

I want to begin this morning by introducing the

Committee. We have Harvey Hodder, who is vice-chair; we have George Sweeney, the

Member for Carbonear-Harbour Grace; Eddie Joyce, the Member for Bay of Islands;

and Jim Walsh, the Member for Conception Bay East & Bell Island. There are a

couple of members yet to come. Fabian Manning, the Member for Placentia & St.

Mary's, has just arrived. We are expecting Sheila Osborne, the Member for St.

John's West, a little bit later. She is unavoidably detained.

I want to welcome the minister and his staff. I

know he is well prepared for today. The procedure then is that the minister will

have fifteen minutes to introduce his estimates. The vice-chair, Mr. Hodder,

will have fifteen minutes to respond. What we have done is that we will change

from one member to the other at ten minute intervals so that everybody gets an

opportunity to ask questions. The minister can begin his presentation right

after the Clerk calls the subhead.

CLERK: 1.1.01.

MR. WISEMAN: We now begin on 1.1.01. Minister,

when you are ready you may proceed with your introductions.

MR. DICKS: Thank you, Mr. Chairman, and members

of the Committee.

I would first of all like to introduce the staff

who are with me. Phil Wall, whom I expect most of you know, to my immediate

left, is the Deputy Minister. Next to him is John Bennett, who is the Assistant

Deputy Minister. John, your responsibilities include -

MR. BENNETT: Debt Management and Pensions.

MR. DICKS: Finally, Terry Paddon, our second

Assistant Deputy Minister. Terry is in charge of Fiscal Policy -

MR. PADDON: Fiscal Tax Policy and Tax

Administration.

MR. DICKS: Right. Other than that I don't have

a lot to say, except to say that over the last several years, as I said in the

Budget, we made a lot of progress. I would see that where we would be going over

the next several years, having done a pretty good job on the fiscal side, the

management of the debt reduction down to a very manageable level, is to try to

find a way to increase services in some cases, but more importantly to look to

reduce the tax burden on the Province. I think it is a general problem in

Canada. Our tax burden is so high compared with most of the rest of the

industrial world. As you know, we have made some progress in the payroll taxes

and others, but the personal income tax particularly remains much higher than it

should be.

So I really do not have a lot more to say than

that. There is no point patting ourselves on the back. I am sure there are

people who would like to pat us elsewhere as Mr. Manning and Mr. Hodder will get

to in a moment or two. I thank you for your indulgence, Mr. Chairman.

CHAIR: Thank you.

Mr. Hodder, you have an equal amount of time. No,

you can take the fifteen minutes (inaudible).

MR. H. HODDER: No. I would like to make a

suggestion if I could, Mr. Chairman. Maybe we could have the dialogue back and

forth and then after you feel there has been an appropriate amount of time, then

after fifteen minutes or whatever any other member who wishes to participate,

then we can switch to another member. I will leave that at the discretion of the

Chair. When he feels that the hon. the minister and I have had sufficient time

then we can just - rather than get into these long, lengthy orations that

probably will not achieve the purpose for which we are here.

I wanted to take the minister to the first page of

his estimates which is on page 33 of the Estimates document. We note that there

have been some changes in the salary allocation. For example, in the Minister's

Office last year there was $36,500 in the budget, in 1.1.01.01. It was revised

to $72,800 and now this year it is $164,300. I was wondering if the minister

might want to offer some commentary as to why the increase from last year's

budget of $36,500 to $164,300.

MR. DICKS: Until December I was Minister of

Treasury Board as well, as the hon. member knows. My staff were provided for in

Treasury Board Estimates. The departmental secretary was paid out of Finance but

my executive assistant and my other two secretaries were in the estimates over

in Treasury Board. When I moved over in December that is what bumped the $36,500

up to $72,800, because the expense of the other three staff had to be picked up

in Finance. For this year the full allocation is $164,300. The other thing, too,

is my ministerial salary was over in Treasury Board as well. So the ministerial

allotment of $40,000 is in that $164,300. I will round it out if you do not

mind: $40,000 for the minister's salary; special assistant, that is the

executive assistant, $48,000; departmental secretary, $34,000; and political

secretary, $32,000. Also in that as well there is a car allowance of $8,000.

That comes out to $164,300. There is a minor amount there of $1,400 for step

progression. I'm rounding. I can give you the exact figures if you want.

MR. H. HODDER: Given the split-up in the

department, with the Treasury Board now being a separate entity and with the

other changes that have occurred, is it fair to say that the total expenditures

by government have not changed substantially? In other words, there have been

corresponding reductions in other areas?

MR. DICKS: For example, in the Department of

Justice, which is now part of my responsibility, there were three people up

there. There was an executive assistant, a political secretary and a

departmental secretary. I've just kept the departmental secretary. It is just a

matter of allocating which department pays the expenses. To my knowledge, for

general government purposes, there is no increase in expenditure. Each

department has a departmental secretary and each minister has a executive

assistant. I suppose I could have two if I wanted, but I think I can struggle

through with one. You can have one or more political secretaries, depending on

your need.

MR. H. HODDER: Thank you very much.

Going to page 34, subhead 1.2.02, we note there

that last year there was a budget estimate of $1 million for Information

Technology. That was really revised up by $66,700. This year there is no

allocation whatsoever. Given the fact that there is always a need to have some

support for Information Technology, how can there be that dramatic change, and

how come there would be zero dollars allocated this year? If that is the case,

where are you getting your funding for Information Technology services in this

budgetary year?

MR. DICKS: The $1 million that we had last year

was for a new system we purchased from Oracle for tax administration. We went

through a debate internally as to whether or not we should contract out the

management of our pensions, which essentially was what it was for. Maybe John

can correct me if I am wrong. We went through that and we looked at the cost. We

went to a group in Nova Scotia that does it. We looked at getting quotes as to

whether or not, if we factored it out, assuming you would keep the

confidentiality that you need for pensions administration you could do it

cheaper outside, and came to the conclusion we could not. It would have been

considerably more expensive to contract it out. The alternative to that was to

spend $1 million to upgrade our current system to do it more efficiently, which

was what we spent that money on. That was a major expenditure and that is why we

had a special allotment in last year's budget.

Above and beyond that, the normal support, if you

want, and minor computer purchases are all done through Treasury Board. There is

a budget there of about $17 million or $18 million that departments have to

compete for and to access. We do not have any outstanding or substantial IT

needs this year that I am aware of. Is that fair to comment?

WITNESS: (Inaudible).

MR. DICKS: Yes, that was our major system that

we needed to upgrade.

MR. H. HODDER: (Inaudible) Oracle system has

now been totally implemented and is now operational?

MR. DICKS: Yes, implemented, very functional.

Maybe John might want to comment. John, are you satisfied with the performance

of that system?

MR. BENNETT: Yes, minister. I guess Terry - I'm

going to pass it around here until you get - the operating head is, for tax

administration, of course Terry Paddon.

CHAIR: If I could interject for a moment. When

you speak can you identify yourself?

MR. BENNETT: I'm sorry. I'm John Bennett. The

main development of that system was done last year. This is a development as

opposed to an ongoing operational cost. Terry, you can probably -

MR. PADDON: The expenditures related to the

upgrade of the system in tax administration was substantially completed last

year. The $1 million was an expenditure for hardware that was required for that

system. There is no additional hardware required. All the expenditures are made

in that regard. There are some expenditures required in systems development work

which is funded through Treasury Board. That is expected to be in place within

the next couple of months. That is not in this allocation. This was strictly for

hardware to upgrade equipment. That is completed now.

MR. H. HODDER: That is totally implemented now.

MR. DICKS: Yes. It is all installed and

operational.

MR. H. HODDER: The Auditor General did make

some reference to that in her report. I remember reading it here but I at the

moment can't find the appropriate page. She does make note of the commitment by

the minister and the department to introducing the new system.

MR. DICKS: It is funny, because the Auditor

General is usually critical of departments spending money. My recollection was

in that case she was recommending we upgrade our system.

MR. H. HODDER: (Inaudible). Exactly.

MR. DICKS: We shared her view in that case.

MR. H. HODDER: In fact, yesterday in the Budget

debate I did make reference to that.

MR. DICKS: That is right, yes.

MR. H. HODDER: She did not find everything

wrong with the department. In certain directions you are going in, in terms of

the whole accountability process, there are some positive things she has noted

in her report and that was one of them.

MR. DICKS: Fortunately, ministers have good

staff to lead them in the right direction on occasion.

MR. H. HODDER: Sometimes the staff lead

themselves.

MR. DICKS: That is true. That as well.

MR. H. HODDER: Going to the same subhead,

1.2.02, we have a revenue there of $75,000. I was wondering what that is and how

it comes about.

MR. DICKS: Believe it or not, what we do is we

recover from the pension fund the expenses of the department in managing the

pension fund, so that $75,000 is for postage. That is what it costs us to send

out all the pension related materials to our pensioners. We recover that from

the as an operational cost of managing the pensions.

MR. H. HODDER: Yes, it is just there, and I

suspected there would be a very logical and sensible -

MR. DICKS: Explanation.

MR. H. HODDER: If we could move on the next

subhead, 1.3.01, Government Personnel Costs, we note that there have been

substantial, again, increases in salaries from $3,734,500 to $5,416,100. I am

wondering what has happened to have the personnel cost for the Department of

Finance increase by that substantial amount of money, which is about $1.7

million.

MR. DICKS: It is $1.9 million of pay equity,

and it is offset by $3 million worth of general declines. All the salaries in

government are paid out of Finance, so if there are any increases or declines in

expenditures they would be reflected in our Estimates. I should not say all the

salaries are, but all pay equity. We also remit the amounts for CPP and

(inaudible) and so on. So, to an extent, some of the salary in those costs to

government are consolidated in finance. A lot of the salary expenditures are out

in the departments, but pay equity is one of those that accrues in our

department and that is why it was $1.9 million there.

MR. H. HODDER: The next subhead, 02., shows

that the budget last year for Employee Benefits was $28,319,200 and it went down

to $27,753,600 and it is now up to $30,693,600. Why would Employee Benefits jump

that much in one year?

MR. DICKS: Well, I can just run down through

them. This is not benefits that employees receive. It is amounts that we pay on

their behalf. One thing we pay, for example, is CPP, the Canada Pension Plan.

The original in 1998 was $6,246,000. This year it

will be $6,819,000.

WITNESS: The premium has gone up.

MR. DICKS: The premium has gone up, as you

know. What has happened is that the federal government and the provinces have

agreed to bring that fund, which is paid out of revenues, to make it into a fund

and to increase the contribution of both government and employees. That is our

share, and my recollection is that it went up by a quarter of a per cent, was

it?

WITNESS: Each January.

MR. DICKS: Each January.

It goes up over four years, or - is it every six

months?

WITNESS: Over about seven.

MR. DICKS: Over about seven years.

The stable state financing is about 10 per cent

premiums because we reduce benefits. The cost was about 14 per cent, and I think

nationally we were collecting 6 per cent or 7 per cent. Our final resolution was

to bring up the contributions to 10 per cent and to reduce some of the benefits,

which were fairly marginal changes. That is the reason that has gone up by

five-hundred-and-some thousand.

Group insurance actually declined. If you do not

mind, I will round it, and not give the exact figure.

MR. H. HODDER: Go ahead.

MR. DICKS: From $9,100,000 down to $8,800,000 -

WITNESS: EI, not group insurance.

MR. DICKS: I am sorry, unemployment insurance

has declined. I just jumped ahead there. That is as a result of changes there as

well. Do you remember last year, Martin was under considerable benefit to reduce

the payroll taxes. One of the things he did was, he reduced the contributions by

about 20 cents per thousand or something, wasn't it?

WITNESS: Yes.

MR. DICKS: Anyway, that is a consequence of

that. The difference there is $269,000 in our favour.

Group insurance went up from $7,100,000 to

$7,900,000. I am rounding here - it is actually $7,879,000 - so it has gone up

by $700,000 and that is as a result of increased experience in the program.

The health and post-secondary education tax - that,

of course, is the amount we pay. Of course, where we reduced it last year, last

year we had to pay $5,793,000. This year we have to pay $5,644,000 because, as a

(inaudible) of general tax application, government has to pay the payroll tax

the same as every other employer. So, because we have reduced it, we get a

benefit from that.

MR. H. HODDER: Would you give me that number

again for the health and post-secondary tax?

MR. DICKS: It is a difference of $149,100. Last

year our burden was $5,793,700. This year we will have to pay $5,644,600. In

fact, I expect our payroll will probably be about the same or slightly higher

but we received a benefit, as every other employer, with a reduction in the

general payroll tax - which we increased the threshold, as you know, by $20,000

last year.

NISL stays the same, at $5,000 - NIS; travel

insurance, $4,600, the same amount; NLC to GSL - tell me what that means, Terry

- $29,000 is down to $27,900, a difference of $1,100.

WITNESS: (Inaudible).

MR. DICKS: GSL, general service leave maybe;

NLC, Newfoundland Liquor - anyway it is some minor amount. It is under $30,000.

I am not really sure exactly what it is.

The balance of all of that really is CPP has gone

up, EI has gone down, group insurance has gone up, and health and post-secondary

tax has gone down a bit. The net effect is an increase of about $2 million and a

bit from budget last year - about $2,374,400.

MR. H. HODDER: Mr. Chairman, as the first

fifteen minutes have now expired, I do not know whether any other member wishes

to ask questions now, or will I continue?

CHAIR: You have another minute, actually.

Anyway we will switch back.

MR. DICKS: (Inaudible).

CHAIR: Okay.

MR. DICKS: Maybe I could make a comment on the

next one, which is interesting, Government Personnel Costs, 1.3.01. That is just

a minor thing, but we are reimbursed by the Workers' Compensation Commission for

our costs in the ease-back work activities.

One thing we are trying to do, just as a matter of

general interest I think - it is not a cost item in any major way. On the

employee side, when people go off on workers' compensation, it is often hard to

get them back, so we have been actually trying to find ways to get people back

to work. I do not mean that in the sense that people are malingering, but a lot

of times you have to adjust the workplace - someone gets an arm injury or

something like this, or people need special chairs, and also actively working

with people.

There is a lot of theory and a lot of work going on

in the whole idea of occupational - not therapy but sort of changing the

workplace to suit people and get them back to work. We have been very active in

that and last year we spent about $178,000 on it. I think it is a very

worthwhile activity.

We do the pensions for government, and John and I

had a meeting with the doctor who does the assessments for us on which we, in

most part, base our decisions. The point was made that in Europe, if you are out

on injury, 85 per cent to 90 per cent of the people get back to work. In North

America, it is the exact opposite. Only 10 per cent to 15 per cent get back to

work. We are not very active in the whole field of trying to get people back

into active employment. Once you go on Worker's Compensation you are just

generally - I would not say forgotten about, but there is not an active effort

by the employers at Workers' Compensation to bring people back. It is just a

matter of general policy, something I think we should pursue more, and that is

part of our effort to do it.

His point as well was not from a cost standpoint

but saying that it is very disabling in every sense when you are labelled

disabled. It has a very substantial effect on a person's self-image and so on.

He thought it was important that we all take efforts to try to easy people back

to work and adjust the workplace and so on, very (inaudible). What is the

doctor's name?

WITNESS: Ciaran O'Shea.

MR. DICKS: Ciaran O'Shea, yes. It is worth

speaking to him about it because he is very convincing and very understanding of

this issue.

CHAIR: Okay. Mr. Manning?

MR. MANNING: Under subhead 2.1.05., Financial

Assistance to Crown Corporations, last year there were no dollars allocated in

the budget and it was revised to $5 million, and we have no dollars allocated

this year.

WITNESS: (Inaudible).

MR. DICKS: Yes, okay.

MR. MANNING: Page 36; sorry about that.

MR. DICKS: That was the grants and subsidies to

municipalities. What we did was, before year end we set aside $5 million in NMFC

to assist municipalities in financial difficulty. It is what we call the

debt-relief program. So we have, over the last several years, put $17 million

aside to assist municipalities.

I know, Mr. Manning, you represent a lot of small

communities. It is probably not proper for me to name some, but there are

probably some in your area and you are probably aware of it as well without

going into great detail. I am not sure to what extent these are public

knowledge, but a lot of communities find themselves in a position where -

MR. MANNING: We are looking to double that

budget.

MR. DICKS: What's that?

MR. MANNING: We are looking to double that

budget this year.

MR. DICKS: Oh, I see, yes. Well, I suspect one

of your communities might take most of it, but it will certainly take more than

that.

The point is that a lot of them have very

substantial burdens so we are working with them to make them more self-reliant.

We are also using this money to alleviate penalties on prepayment of debt

because a lot of communities now are in an environment where they can go out and

borrow long-term money, five and ten years at 6 per cent or 7 per cent from the

banks.

Unfortunately, because they are borrowing over a

period of years through NMFC, NMFC has a debt program that is spread out over

many years and they are servicing debentures that are 12 per cent, 13 per cent

and 14 per cent, locked in for ten, twelve, fifteen years, twenty years in many

cases, and more. So the problem is that when people want to pay us off and take

advantage of lower interest rates, the Province gets stuck with debt that has

service for another five, eight, seven years, at much higher interest rates.

This is part of the program, to try to help

municipalities become more independent and also to assist them with servicing

their debt load. So far we have allocated about $6.3 million and we have

restructured the debt of thirteen municipalities.

MR. MANNING: So you have no dollars allocated

for that this year?

MR. DICKS: No, that is because - there is a

fund set aside that does not have to be spent in any particular year, it does

not lapse, and that kind of thing; we put it in NMFC. What we did is we topped

up the amount we had by another $5 million. We have paid about $17 million out.

We have allocated about $6.3 million so there should be about $10.7 million

still in there.

MR. MANNING: Okay.

MR. DICKS: We are fairly prudent with it. Our

concern was that the department would rush off and slash the money out to a

whole bunch of municipalities and it has not worked that way. They are very

judicious in the way they go about it because, of course, everybody wants it but

not everybody deserves it.

The other side is that you have to pick and choose

among a lot of crying needs in many cases, particularly with depopulation and

lack of a regional tax base in a lot of rural municipalities in particular.

I think it is a worthwhile effort. It seems to be

working. Our objective is to try to help these municipalities become independent

of government generally and make their normal arrangements with the bank.

MR. WALL: (Inaudible).

MR. DICKS: Yes, the deputy minister points out

that what we do is more than just give money. We also require municipalities to

increase their taxes to a certain level. To my recollection it is about 9 mills.

That is another factor of the program.

What it is, it is sort of an incentive to help

municipalities become more independent, to make their arrangements with the bank

rather than rely on NMFC and government, and also to bring their taxes up to a

more reasonable level - or what we consider a more reasonable level anyway.

MR. MANNING: Do you have a figure of what the

debts of the municipalities are in the Province, that are owed to the Department

of Finance at the present time?

MR. DICKS: Well, the NMFC debt was about $600

million but, of course, that would not be all the debt of the Province. My

recollection is that, because of these various payouts, the NMFC debt is reduced

to something in the range of $400 million.

MR. WALL: (Inaudible).

MR. DICKS: The deputy minister points out that

in Exhibit V to the Estimates, Public Sector Debt - page xi, at the back - you

will see Municipal Debt on the bottom, $572.4 million. Over $100 million of that

is the City of St. John's alone.

WITNESS: Which is not in NMFC.

MR. DICKS: Which is not in the NMFC.

Now, Phil, would that include all the debt of all

the municipalities (inaudible)?

MR. WALL: Yes.

MR. DICKS: So that is a pretty reasonable

estimate, is it?

MR. WALL: Yes.

MR. DICKS: The NMFC would be in the range of

$400 million of that, or less?

MR. WALL: Four twenty-five.

MR. DICKS: Four twenty-five.

The NMFC debt - two things: One, it is probably

going to come down if we continue to allow municipalities to pay out. The other

part of it is that the portfolio is probably going to become, you know, less.

(Inaudible) will look worse because municipalities

will end up keeping those the banks do not want. A lot of those do not have a

tax base. Of course, we are ending up with a lot of the communities that do not

have the ability to service their debt over time.

MR. MANNING: More of a general question on

auditing: How does the Department of Finance decide who to audit?

MR. DICKS: It is funny. I could tell you the

answer to the federal question. I don't know, Terry, how do we decide who to

audit?

It is changing a bit now because our big audit

effort was in retail sales tax. Now, we mostly have gas - and we are cluing

those up. We have gasoline tax and tobacco tax, or alcohol tax.

MR. PADDON: (Inaudible).

MR. DICKS: Go ahead, Terry.

MR. PADDON: The tax administration audit system

was set up to prioritize all the accounts, not just municipalities but anybody

who was registered for our retail sales tax, either collecting it or paying it.

It was basically just a system that assessed, I guess, prior activity in the

accounts, certain elements of risk that might be related to a particular

account, the volume that goes through it, and any collection activity that was

on the account in previous years. Those sorts of factors went into the

determination of whether a particular municipality or any account was selected

for audit.

MR. MANNING: Is there a mechanism in place for

a town, or a business for that matter, to - if the Department of Finance came

out and said: Okay, you guys owe us - I will just use a figure -$500,000. Is

going to the bank the only mechanism they have?

MR. PADDON: To repay that?

MR. MANNING: Yes.

MR. PADDON: Not necessarily. They could make an

arrangement with the department themselves to pay off - each one is assessed on

its individual merits. You have to look at the particular circumstances in each

case, but we do look at individual proposals by particular taxpayers to retire

outstanding liabilities.

MR. DICKS: Fabian, are you thinking of

municipalities or general taxpayers?

MR. MANNING: General taxpayers.

MR. DICKS: If a taxpayer gets an assessment

that they are unhappy with - maybe I will supplement what Terry had to say -

they have the right to appeal under the Retail Sales Tax Act, for example -

MR. MANNING: Under retail sales, is there a

mechanism to -

MR. DICKS: - or the Gasoline Tax Act. There is

a method of appeal to the minister. Essentially what we were following - just to

give you a sense of it - is this. I was concerned when I went there first

because I didn't really understand. I would get these things: Write off so much

tax for so-and-so. The general practice we followed with respect to the retail

sales tax was this. Any interest over three years we wrote off, because we felt

that if we could not get around to assessing a business on retail sales tax for

more than three years, we should not hold them to pay tax.

We had something like 16,000 entities and

individuals who remitted retail sales tax. About 8,500 of those are remitted

monthly, but if you were below certain volumes you could remit annually. The

problem with it was that for us to have the staff to audit everybody every month

would be an impossibility. So we felt, as Terry said, certain criteria - people

were lax in getting it in, or people who had bad experience with high volume -

those were the people who you would generally try to assess. You would get

around to everybody or most people eventually. We felt that three years was

fair. If we did not do it in three years we would write off anything over three

years.

The second thing was that if a business purchased

something and did not remit the tax on it - a lot of times, for example,

somebody would order a computer system from outside the Province, get it, and

then we go in two or three years later and say: You forgot to remit the retail

sales tax on it. We would not question whether or not they knew the difference.

We would assess them on it, and we would assess them interest.

On the other hand, if a store, hotel or something

like this collected money from the public and did not remit that tax, well, they

had the use of our money, number one, which is the reason we (inaudible)

interest, and to some extent that was a pretty clear obligation to remit to us.

In that case, we would try to charge a penalty and interest.

Those were the three criteria. The fourth was just

a common sense thing. If you are in a situation where collecting it will

bankrupt a business, we try to make an arrangement to collect the tax in some

other fashion. You can give them more time to pay, or in some cases write down

the amount. We were reluctant to do that, but on the other hand we are a taxing

authority and we are sensible about it. If you push someone into bankruptcy you

are not going to get anything. Sometimes you have to make choices like that.

Generally speaking, we try to have consistent

policies that we apply to all taxpayers, because the last thing you would want

is for you to be paying taxes on a certain amount and the person down the block

getting it written off. We just try to manage it as a collection business.

MR. MANNING: There is an appeal mechanism to

the minister.

MR. DICKS: Yes, that is right. Those are the

criteria we follow. There are really four of them. People come in and say: It is

terrible, I do not want to pay it, and I shouldn't be. Well, sorry, but if you

had paid and you had paid, you do not like it. You have to pay it too. Within

that we thought there were fair mechanisms that should come into play based on

our own inability to audit everybody on a timely basis, and secondly to ensure

fairness among collection efforts of different groups.

MR. MANNING: When you say the retail sales tax

under three years, does the gas tax fall under that scope also?

MR. DICKS: I do not see the gas tax very often.

We do not get many appeals. Terry, (inaudible) to get around to that?

MR. PADDON: The gas tax is a little different

because it is not quite the same as the retail sales tax where you have a high

volume. You do not have the same volume of collectors. There are probably only

maybe a couple of hundred remitters. Usually it is collected at the wholesale

level so it is not quite the same type of risk.

MR. DICKS: It is the same thing with the

tobacco tax, which makes it an easier tax to administer.

MR. MANNING: Yes. I will move on for now, Mr.

Chairman.

CHAIR: (Inaudible).

MR. H. HODDER: If I could go back to page 35,

Debt Management. We did note that in the Salaries for this particular heading,

2.1.01.01, that last year you had Salaries of $598,400. That went to $652,500

and we are now back to $582,400. Has there been changes in staff, reductions in

staff, in that area? Is that change reflected in the salary allocation here?

MR. DICKS: That amount is pretty stable from

last year on budget. As you notice, last year the budget was $598,400 and went

up to $652,500. The reason for that increase was we had a workforce reduction

program the year before, so we had to pay out a severance and redundancy for an

employee who retired. He was at a fairly senior level. That is what accounted

for the additional $54,000 or so. It is down a little bit this year. I do not

think we have lost very many positions, but the one thing we do there is this.

Three positions under our sinking fund and two positions under NMFC are

recovered from the agency. It does not show up here. That would not affect these

figures. It looks like a position or half a position in the difference.

WITNESS: We filled the vacant position at a

lower salary. (Inaudible) was a high salary.

MR. DICKS: Oh I see, that is what happened.

That is right. When we phased out the person last year we filled the same

position with a person who has a lower salary, a more junior level. So, that

accounts for the difference from $598,400 down to $582,400.

MR. H. HODDER: In the Revenue-Provincial we

have a revenue here of $236,500.

MR. DICKS: I am sorry, what head note was that?

MR. H. HODDER: The same head, 2.1.01, under

section .02 under Revenue-Provincial. There is a revenue here of $236,500 for

this year's budget which is consistent with other years. What is the source of

that revenue? Is that all from the Newfoundland Municipal Financing Corporation?

Is that for the management of it?

MR. DICKS: Well, yes. It is not all from the

NMFC. The first amount we get is from the sinking fund. We have one-half the

salary of the manager of cash management and investments, because of course they

manage our general revenues that we get, $3.4 billion or so, as well as the

sinking fund which is very substantial. It is over $1 billion now, isn't it? We

allocate the salary back to the sinking fund as an expense, 50 per cent of it.

That is because about half his time goes into that. We also allocate to the

sinking fund all of the salaries of three staff who are fully employed with the

sinking fund. They manage the purchase of securities in the market and so on.

Pardon me?

WITNESS: (Inaudible).

MR. DICKS: Accounting support on that. As you

can imagine, with a fund that size there is a considerable amount of

administrative work.

Secondly, the reimbursement from the NMFC is

one-half the salary of the manager of capital markets and financial assistance

programs. About half of his or her time goes into that as well. We get the

salaries for two NMFC staff. We also get one-quarter of the staff of the

divisional secretary and that is our proportional allocation, the amount of time

that the secretary spends in NMFC related work. The reason that it is slightly

decreased this year is that earlier a factor I mentioned was that we recruited

somebody at a lower pay level for that position. That is manager of cash

management and investments. That is the amount we recovered from the sinking

fund. The salary went down, so naturally half the recovery went down as well.

MR. H. HODDER: Under the next head, which is

2.1.02, Crown Agencies-Recoveries, we had a budget there last year of $69

million. We had a reduction there to $17 million, and now we are up to

$145,900,000. I wanted to ask a question relative to the -

MR. DICKS: I thought you were going to

congratulate us on finding all the additional revenue.

MR. H. HODDER: - source and to a breakdown of

the recovery of the dividends by a Crown agency.

MR. DICKS: These are all the Newfoundland and

Labrador Hydro dividends. What we have been doing as I mentioned in the Budget -

certainly in the lockup and so on - is that where we have had effective services

since the last number of years, part of what we have been doing is we have been

moving out monies. As I mentioned in response to the Fabian's question: NMFC, we

have been setting up a debt relief program, we have paid school board debt, we

put out monies to hospitals and so on like that. We set up the school program,

we put out the money to build them and so on.

The other thing we have done is we have managed

some monies forward. Because in Newfoundland there is always a looming disaster

a year or two out. That is sort of the nature of our Province because we are so

dependent on Ottawa's equalization transfer payments and there is less certainty

with that. If that picture should change dramatically at any time you could have

a substantial downward trend. If we have additional monies we try to even out

what could be a very lopsided effect on our budget by managing monies forward.

Last year we have could taken $69 million from

Hydro based on the dividends we had asked for them. In the end we only took the

$17 million. I will give you an exact breakdown. The $17 million, is that the

regular dividend? Why did we only take $17 million?

WITNESS: (Inaudible). That was all we required.

MR. DICKS: That was all we required really.

That is the regular Hydro dividend of $12 million. Maybe I can just go through

the list of all the various amounts we get from Hydro.

MR. H. HODDER: Yes.

MR. DICKS: What it is is we get a regular

dividend from Hydro, based on its general operations, of $12 million. In the $17

million we took last year there is that $12 million. In the last number of years

the second thing we took was a CF(L)Co pass through. Of all the power sold in

Labrador, the amount that we get - it varies a little bit - but last year it was

$5 million that we took. That gave us the $17 million. I will just run down

through this.

The regular dividend of Hydro has been increased.

The regular dividend in 1999-2000 will be $32 million. That is the regular

dividend we would take. In addition to that we have deferred $22 million from

previous years, including some from last year. That would give us a total of $54

million. These are all the amounts that go into the $145,900,000.

WITNESS: Yes.

MR. DICKS: Of the $145,900,000, $32 million is

a regular dividend, and there is $22 million that we have deferred, for a total

of $54 million that we can take this year. In addition to that, we have required

- you remember back in 1995 or maybe 1996 when we had the problems with the

Budget and trying to balance it and that kind of thing. We went to Hydro and

said: Look, we have $450 million worth of retained earnings here. The taxpayers

are seeing very little return for it. We felt that Hydro should be contributing

more to the Province. The bottom line is we said: We want a special dividend out

of Hydro. They squawked a little bit and we squeezed. They agreed that they

would pay us another $15 million a year as a special dividend. As events turned

out, we haven't needed to take that in any year. This year we will get the

special dividend of $15 million plus, since we have demanded it, we have not

needed to take it. So we have built up three years of deferred special dividends

for another $45 million, for a total of $60 million.

Just to recap where we are, you have the regular

Hydro dividend and the deferrals.

MR. H. HODDER: Fifty-four million dollars, $15

million, and $60 million.

MR. DICKS: No, $54 million and $60 million.

MR. H. HODDER: That is right, yes.

MR. DICKS: Because in the $60 million there is

the $15 million plus the $45 million deferred from the three previous years, for

a total of $60 million. So you have the $54 million plus the $60 million now.

The CF(L)Co pass through - CF(L)Co is owned, basically, 65.8 per cent by

Newfoundland Hydro and 34.2 per cent by Quebec Hydro. This is our share of the

profits of CF(L)Co. The regular dividend or pass through we would get will be

this year $16.9 million, plus we have deferred $15 million from previous years,

which will give us $39.1 million on the CF(L)Co pass through.

WITNESS: (Inaudible) $31.9 million,

(inaudible).

MR. DICKS: I am sorry, $31.9 million. If you

add up the $54 million plus the $60 million plus the $31.9 million, it is

$145,900,000 which is where that figure comes from. If you add up the deferrals

you would have the $22 million in the regular Hydro dividend, $42 million in the

special -

MR. WALL: Forty-five million dollars.

MR. DICKS: I am sorry, $45 million. Thank you,

Phil. Then there is the $15 million, which will give you a total of $82 million

in deferrals. The regular amounts we would take would have been the $32 million

regular dividend, the $15 million Hydro special, and the CF(L)Co pass through of

$16.9 million, for a total of $63.9 million.

WITNESSES: (Inaudible).

MR. DICKS: Okay. That is right.

MR. H. HODDER: That does add up to

$145,900,000.

MR. DICKS: Yes. I was just asking the Deputy

Minister the question about last year. When we negotiated with Hydro Quebec and

got an agreement in principle on development the Lower Churchill, part of the

benefit to the Province was an immediate recall of, I think, 130 megawatts of

power which we immediately sold. The net amount that we realized on that,

because it was sold on our behalf, (inaudible) recall it was about $20 million.

I was just asking where it showed up. That shows up in our regular dividend.

That is why our dividend was increased from $12 million to $32 million.

MR. H. HODDER: In essence of course what we

have done here is we have used Newfoundland and Labrador Hydro, which of course

gets its money through the rate payers who pay on a timely basis. Is there any

concern in government that we are using Newfoundland and Labrador Hydro as an

indirect taxation vehicle?

MR. DICKS: No, because this does not effect the

rate base. What you have to remember is that Newfoundland and Labrador Hydro has

retained earnings of $450 million. That is money that it has sunk in its

operations and so on like that. This will not affect the rates because it is

money they have, not necessarily in cash lying around, but tied up in assets and

depreciation and so on like that.

The other issue is that there is a debt-equity

ratio thing. Manitoba Hydro, which has a better rating than Newfoundland and

Labrador Hydro, has about a 90-10 debt ratio. There was a point at which they

wanted to get the debt to equity ratio down to 80-20 or preferably 60-40. That

was in anticipation of privatization of Newfoundland and Labrador Hydro, because

of course if you go to the markets the better your debt-equity ratio is - if you

want to privatize something - the more likely you are to command a better price

for it.

At the time, you remember the day well, when the

government of the day wanted to privatize Newfoundland and Labrador Hydro, the

issue was: We have to improve the debt to equity ratio. When the decision was

made not to privatize it, and we looked at a reasonable return to taxpayers, we

believed that it was fair. I think we do not need to have that close a scrutiny

of the debt- equity ratio. We do not have to follow it that peripherally as you

would if it were a publicly traded corporation, because essentially Hydro's

ability to raise capital in the markets is solely dependent on the Province's

ability to - let me put it this way, their debt rating will be no different than

the Province's. There is not going to be a time when Newfoundland and Labrador

Hydro has an AAA rate and the Province has a BBB. That just will not happen.

Because of course their credit worthiness is reflective of general economic

circumstances in the Province, as is the government's. Hydro basically raised

the money with our guarantee anyway.

We discussed it with our fiscal agents to ensure

that it would not cause any problem with them in the capital markets. If you ask

Hydro and they were being frank and honest, they would probably say: We would

rather not give the dividends because we want to get our debt-equity ratio

improved and all this kind of thing. We just say to them: Thank you very much,

but we own you, and fiscal agents don't say it makes any difference. If the

Province needs the money we are not going to let you sit here on a very

substantial nest egg and raise taxes or cut hospital and educational services,

so have a nice day. Not that I would ever say anything quite that barely and

nastily to people, but there probably would be a variance in point of view.

From our point of view as a province, while we

respect Hydro and its board and its right to manage its affairs, where we are

with the shareholder we have the right to direct them to handle it in a way that

reflects the best interests of the 543,000 shareholders out there in the

Province. They agree with us, of course.

CHAIR: Time is up. Yes, do you have a question?

No? Okay.

Do you want to continue or does Fabian want -

MR. H. HODDER: I just want one more.

CHAIR: One more? Okay, go ahead.

MR. H. HODDER: I just want one more follow up

and then -

MR. MANNING: By leave.

MR. H. HODDER: My colleague for Placentia & St.

Mary's is giving leave.

The reality is, in the public's mind at least, that

if you have people who are the investors with Newfoundland and Labrador Hydro,

they must get an adequate return. While you and I remember all the debate we had

here during the Hydro privatization and all the ratios with Quebec and all of

that kind of thing - I do not want to get into all of that stuff, but we all

remember it -, but when you are taking out this kind of money, I am not

comfortable with your answer that it does not have any impact on the average

household. Because Hydro will say to us that they have to pay out this kind of

money, substantially big monies, to the Province. While the Province does own

it, and while the Province is sure to get agreement ultimately from Hydro, that

if you are taking out these kinds of dollars that it does not have an impact on

the ordinary citizen who is paying his or her power bill on a regular basis.

I was wondering if you could elaborate on that.

Because your position is that it does not have an impact on the average citizen.

Since I am not convinced that it does not, and I am sure Hydro's arguments might

say something different, I'm wondering how you can give us reassurance that we

can take this money from Hydro and it is not having any impact on the average

householder.

MR. DICKS: That is right.

The first thing to realize is that the only special

dividend is the $60 million, not the whole $145 million, because the rest of it

are regular dividends. I will just take a little example. The $20 million we

receive from CF(L)Co as a pass through, for example, has no effect on their

balance sheet. They just pass money through to us; and the regular dividend is

very modest when you consider Hydro has really $450 million in retained

earnings, so you get $12 million of it.

WITNESS: It is over $500 million.

MR. DICKS: It is over $500 million, so do the

math; we are getting less than 6 per cent even at $12 million. That is a fairly

modest dividend.

The thing is - just in comment - you mentioned

about return to investors. The investors who buy bonds as such get the same

return because their rate is fixed, and the sense of what we should be doing

with Hydro in terms of its corporate arrangements and debts and so on is

different than if you had people out there who are shareholders and you had,

say, 10,000 people who owned 10,000 shares each in Hydro and they would be

looking for returns on their equity. We are the equity shareholders in Hydro

and, from my point of view, what it would cost them to service $60 million would

not substantially affect the rate base.

The other aspect you have is that they have to go

the Public Utilities Board for a hearing, for example, before they can change

the rate base and the Public Utilities Board would have to decide whether or not

any interest payments on the $60 million that we would take out of it should be

attributed to the rate payers and so on like that.

To service the debt of $60 million is not going to

appreciably affect the rates of the electricity in the Province, when you look

at the total amount that they have out there, because you are only looking at

the debt servicing cost: $60 million at, say, 7 per cent roughly, less than $5

million, and you spread that over the rate base of - the other thing, too, is

that I think what it is, is that it would also force Hydro to look more

carefully at its operations and find efficiencies there as well.

Sometimes to have a higher debt load is a good

discipline for corporations as well. If they have too much equity, it is not

good. In fact, I was down in the States some time ago and I went to one of these

management organizational things and one of the criticisms the professor of

accounting had, of a lot of these charitable institutions - as you know, in the

States we talk about their health system being a public system or being a

private system and paying for it. What we forget is that these are all

charitable foundations, for the most part. The fact that you have to pay does

not mean that people are making lots of profits.

Of course, in the States, if you are on a major

hospital board or a symphony board or a museum board, it is quite a distinction

and honour. Normally, people are very wealthy.

One of the criticisms that the professor of

accounting had was that they owned the building, they owned too much, and they

had not financed it. In her view, what they should be doing is taking the equity

out, financing more of it, because it provided more discipline when they had to

meet a debt load and it made them more conscious of providing a service to the

community.

So, sometimes having something without any debt

load can make you pretty lazy and inefficient because you do not have to meet

the discipline of a debt burden and servicing it.

MR. HODDER: So you intend to keep our debt load

up in Newfoundland and Labrador?

MR. DICKS: I will tell you one thing, it is a

discipline. Well, you know, there are corresponding arguments in another way.

For example, maybe if you reduce taxes it makes us all more efficient. It is

always a worry that if you reduce them you may have to raise them again. On the

other hand, if you reduce them you are going to be reluctant to do it and you

may have to make some tough choices; but at least it forces you to consider

things that you would not otherwise do.

Sometimes you have to make choices like this in

decreasing revenue in one way or another, whether it is through additional debt

or it is through reduced revenues, which have essentially the same impact. It

does cause you to look more closely at things that you would normally just not

examine. It looks at where your money (inaudible).

CHAIR: Okay, thank you, Minister.

Mr. Manning.

MR. MANNING: Minister, I have just a couple of

questions on the HST/GST combination. A couple of years ago when that was

announced, I think it was a three-year federal payout spread out over a

three-year period, if my memory serves me correctly. Is this the last year for

that payment?

MR. DICKS: No, it is reducing this year. I

think we have one more year after this. It was $125 million for two years and

then it went down to, was it $50 million, Phil?

MR. WALL: Sixty-three million.

MR. DICKS: It was $63 million, and next year it

comes down to $31 million.

MR. MANNING: The collection of that is being

cost-shared with the federal government?

MR. DICKS: The federal government will bear all

the expenses of collection of the HST, which is part of the attraction on our

side. There is no allocation back to us for their cost of collection. Is that

correct?

WITNESS: Yes.

MR. DICKS: Yes.

MR. MANNING: There is no allocation on it,

okay.

I just want to step ahead to the health care board

debt. In the Budget you announced around $40 million for health care debt. Will

that eliminate all health care board debt in the Province?

MR. DICKS: Just to the end of last year.

MR. MANNING: That is March of 1998?

MR. DICKS: That is right, 1998. The debt they

have accumulated to the end of 1999 is not provided for. You have a very

difficult situation in the Province from a management point of view. We have put

out, I guess, about $800 million to the health care boards now. The budget has

gone up in health care, as you know, by almost $200 million over the last

several years. It was under a billion dollars about two or three years ago. Now

we are up to $1,178,000 or $1,179,000, something of that sort.

The institutional budgets have increased

substantially, as you know. Last year we gave an additional ten, and then we

gave an additional fifteen, and that is just on their base budgets. Now, as you

know, we have been putting a lot of money out to the hospital boards for nurses

and so on like that. We will have a look at what the consolidated amount is, but

it has increased substantially.

Part of the issue that all of us have identified -

you people use an election campaign - and something that we had identified as

well, is that you are putting out all of the money and there is no direct

accountability back to government. So what you have is a situation where you

have budgets, and if you assume the budgets are properly set then people should

live by them.

When they run deficits, the question is two-fold.

First of all: Why did you not allocate sufficient monies to provide the services

that you expect to the boards? Secondly: Do they spend whatever they want anyway

and ignore it because they are not accountable back to government? That is

really the issue.

What we intend to do is to have a new

accountability framework to ensure that we are getting the right accountability.

I think most of us would agree that if we are underfunding health care boards,

we should provide the monies to them to provide an adequate level of health. You

will always have waiting lists, you will never keep everybody satisfied, because

that is the nature of the thing. If you put another billion dollars in health

care, someone will still have to wait somewhere for something.

All that being said, you want to make sure that

reasonable expectations are met and that we have the best health care we can

afford.

I guess it is a long answer to your question, but

my concern is that you keep paying off debt and yet we still do not have the

level of accountability we would all want. We are moving in that direction - and

not a criticism of the administrators because they may be doing yeomen work, but

you see variances in the boards and it raises issue at general government levels

as to whether or not some boards are more efficient and better than others;

whether or not we are providing appropriate funding, because maybe we are not in

some cases; and, thirdly, whether or not people are just ignoring the budgets

and soldiering on, knowing that we are going to pick up the tab and that they

are not really accountable back to their own boards which, of course, are

appointed by (inaudible).

Some of the same issues are there in the school

system as well because we paid off school board debt. I am not making a

conclusion on that, but those are the types of questions that arise that I think

we, as legislators, have to account back to the public for.

MR. MANNING: I am just wondering, as you said

there, in regard to some boards seeming more efficient than others. I guess all

walks of life are like that.

I am just wondering, from the Department of Finance

point, in the Budget you also mentioned $6 million to cover the cost of ensuring

that all boards have a common financial system to provide accurate and timely

financial information. What is the plan, I guess, of the Department of Finance

in regard to ensuring that? It seems like - we will certainly agree on this side

that you underfund the health care boards, but -

MR. DICKS: Well, I would not jump to that

conclusion. A lot of people, including people of your persuasion, say there is

lots of money in the health care system but it is just not appropriately

managed.

MR. MANNING: In some cases, but I think there

is a (inaudible) feeling out in the Province when it comes down to

accountability and management in a lot of cases also.

I am just wondering, from a Department of Finance

view, what is this $6 million allocated for? How does the Department of Finance

plan to ensure that it is spent in the proper manner to ensure accountability of

these health care boards? They do, as you say, deal with the largest part of the

Budget for the Province.

MR. DICKS: The Department of Finance

technically only raises and collects the money for government. The Treasury

Board and Cabinet determine where the money is allocated in the budgetary

process each year. The responsibility to determine whether or not the money is

well spent really resides with the line department, be it education, health,

social services, and so on - or the new name for social services. That is where

the line of responsibility lies.

Having said that, we raise the issues if we have

concerns about it. This particular amount of money is to update the financial

systems. I think we have already done the ones in Western and Labrador.

If you go into an institution, in some cases they

cannot even tell you where they are in the year because their financial systems

are so antiquated. I do not know if they are still using ledgers and books, but

one of the realizations that the Department of Health had and came back on was:

Look, we have to have better accounting systems, better computer systems in

place.

Phil says, and I am sure the Auditor General will

comment on it as well, because it is very hard to demand accountability of

people when you do not give them the tools to do the job. It is also very

difficult for us to go in and try to figure out where they are when they cannot

tell you where they are, sort of thing.

In some cases, and I not deciding blame here, I am

just raising issues that we all need to address, one of the primary things that

we had to do with the health care system in several of the boards was to update

their financial management systems.

Frankly, in one case when the department when in

the directors, number one, did not know what their budget was and, secondly,

could not tell you where they were and how much they had spent the year. We all

know the basics of business, but one of the things you have to know is how much

you have to spend and how it is being spent.

As I just say, before you can come to the

conclusion that we are underfunding the system, we have to make sure that we

know where it is being spent and whether or not the service levels are

comparable, whether it be in Corner Brook, Labrador, Central Newfoundland, or

here on the East Coast, because each area provides different services. St.

John's is the tertiary centre so you have to make sure that given the services

we expect in the different regions that we are providing them with adequate

funds to do the things that are expected of them.

MR. MANNING: We cannot leave them with the

impression that they are going to be bailed out each and every year, because

then the accountability is not in place either, is it?

MR. DICKS: I agree with you completely. That is

why I say, if you say they are underfunded, I think that is the wrong

conclusion. I think we have to assume that with all the money out there - you

are spending, in this Province, $1.2 billion on health care. I saw the budget

for New Brunswick which only has another $250,000. Their health care budget is

only $1.4 billion. If you look proportionately across the country, you have to

look at where we are.

The other thing you have to take into account is,

it gets pretty complex because then you look at some of the other provinces and

they are allowing their institutions to run up debt and they are not taking it

into account in the provincial budget.

What we are doing is, we are trying to consolidate

and see where we are. The other thing you have to recognize in Newfoundland and

Labrador is the geography makes it more difficult. We have to provide services

over a larger area; our ambulance services, air ambulance, and so on add to our

costs. The number of hospitals we have here, I do not know, I think we have

thirty or more institutions (inaudible).

The City of Ottawa, which has more people, must

have three hospitals. We probably have as many people as Mississauga and we

probably have thirty times the number of institutions, but that is in the nature

of providing the services to our people.

When you make comparisons of the health care

system, you have to be very careful as to how you do it. From my point of view,

and I think from the number of people that you speak to, the first thing you

have to do is ensure that the money you are giving is being spent on the things

that it has been allotted for and make conclusions about whether or not it is

adequate.

MR. MANNING: Can you tell me, Minister, what

this Province received in revenue last year from the Upper Churchill contract?

MR. DICKS: From the Upper Churchill contract?

CF(

L) pass through was about - well, we have $20 million in special dividends,

that is the result of recall. The regular dividend was about $5 million. I think

the total amount that we net on the Upper Churchill contract is in the range of

$5 million to $10 million. It is very little money. In fact, if you remember, it

was an issue some years ago and it is actually going to decline and go in

deficit on a cash flow basis so we get very, very little return.

I would have to double-check that with the Minister

of Mines and Energy of that department, but it is very modest, maybe $5 million

or $6 million, very, very little money.

MR. MANNING: One other question. During the

Budget we also announced an increase in minimum wage -

MR. DICKS: Right.

MR. MANNING: - not to take place until October

of this year. That still is the lowest minimum wage in the country. Well, we are

on par with one more province.

MR. DICKS: (Inaudible) does. I think we get up

to - I think New Brunswick is at $5.75 as well.

MR. MANNING: Yes. Is there any feeling in the

Department of Finance to look at that over the next year, into bringing it up at

least on a level with the lowest other province in Canada?

MR. DICKS: Well, it is not a Department of

Finance recommendation. It comes out of the Department of Environment and

Labour. They are responsible for labour standards in the Province. We looked at

it.

One of the issues you have is that in Newfoundland

and Labrador I think we have one of the highest percentage of workers who are

dependent or paid at the minimum wage, which is about 9 per cent or 10 per cent,

somewhere in that level.

It is still relatively substantial. In most other

provinces, the workforce who are actually paid the minimum wage is less than

that. The issue I hear from the business community is, if you raise the level

beyond a certain amount it affects people's ability to hire other people and you

have to be careful. If you were to increase it to $9 or $10 I think you would

see a lot of jobs (inaudible) the economy. The same argument that on the payroll

tax the payroll burden for small business in particular is pretty difficult and

you know people spend a lot of hours.

Just an interesting statistic, some years ago I saw

that if you work fifty hours in your own business you make $40,000, if you work

fifty hours for somebody else, on average in Canada, you make $54,000. The myth

of getting into business and making a lot of money is not very true. Normally,

most people I have seen work much longer hours much harder for a lot less return

than if they had a regular job from somebody else. I'm not a proponent that you

shouldn't raise the minimum wage, but I think you have to get a sense that there

is a level that if you go beyond you will start losing jobs in the economy.

A lot of people are happy, and they want to get

that first experience as well. A lot of these jobs are for students and

part-time people. It is a good way to get into the workforce. A lot of people do

not stay at minimum wage for a long period of time. I think what we will do is

try to look at a program to bring it up over time, but what the interval would

be - and I suspect we would do it in twenty five- or fifty-cent segments or

something like that. If we are starting to require more pay per minimum wage

than Nova Scotia or New Brunswick, I think it will have an affect in the

economy.

WITNESS: (Inaudible).

MR. DICKS: The Deputy Minister points out

something as well. In answer to your earlier question about how much we make out

of Churchill Falls, and I overlooked this, we get an actual dividend, but in

addition to that we get a royalty of about $5 million. If you look in statement

II, Natural Resources Taxes and Royalties, at $27,800,000, well, $5 million of

that approximately is in royalties from the Upper Churchill. I guess our total

take in dividends and royalties is somewhere in the vicinity of $10 million.

CHAIR: Mr. Manning, I understand from the

vice-chair that he would like to have a break. We normally do take a break. I

understand you can clue it up by 11:30 a.m.

AN HON. MEMBER: (Inaudible).

CHAIR: The minister is pretty short on answers,

if you are going to clue up by 11:30 a.m.

MR. DICKS: The minister could be shorter.

CHAIR: We will reconvene at 10:30 a.m.

Hopefully we can clue it up by 11:30 a.m.

Recess

CHAIR: Order, please!

We are seven minutes later than we had planned it. I

would hope that the Member from Waterford Valley is going to be kind enough to

subtract his time now from 11:30 a.m., which will make it 11:23 a.m. when we

should be able to clue up, Mr. Hodder. You have already taken up seven minutes

now. Being a good committee member, I know you will clue up at 11:23 a.m. The

other two members, I will give them a blast when they get back. We said we would

reconvene at 10:30 a.m. It is now 10:37 a.m.

Mr. Manning, you may have been in the middle of a

statement. You took a breath, and I said we would take a break.

MR. MANNING: You took my breath away, Mr.

Chairman.

CHAIR: If you want to, I am courteous enough to

allow you to finish the statement you were maybe about to make.

MR. MANNING: Mr. Chairman, you took my breath away

so I am going to pass it over to my colleague.

CHAIR: Okay, then we will go to Mr. Joyce.

MR. JOYCE: I pass, Mr. Chairman.

CHAIR: Mr. Joyce passes. Okay, Mr. Hodder, you

have ten minutes. Before you do that though, I want to say to - no, go ahead, I

will wait until the other member gets back.

MR. H. HODDER: Thank you very much. If I could,

Mr. Minister, return for a moment to page 35, Crown Agencies-Recoveries. I have

one follow up question that I intended to ask at that time. Given the fact, of

course, that we are drawing down extra monies this year - and we went through

the analysis of the $145,900,000 - and given the fact that we have reached the

point on the Term 29 monies, and next year we will have $31 million coming by

way of harmonization recovery, and we will have drawn down the substantial

amounts that were due from Hydro, the $82 million you mentioned in your Budget

Speech, what strategies do you have in place to make sure that next year we can

be in a balanced budget position, given the fact that these sources will have

substantially changed?

MR. DICKS: As I mentioned earlier, there is always

a looming disaster a year or two out in Newfoundland and Labrador, so it is

always a matter of trying to manage your affairs in a prudent manner. There has

been a general increase in economic activity. One of the reasons why we

implemented the HST was to alleviate the retail sales tax burden on people

generally in the Province to discourage out-of-province shopping, because you

have equalized it virtually with most other jurisdictions in the country, which

has a 15 per cent retail sales tax rate. The third thing was to increase

business activity.

That has been successful. The ability of businesses to

claim the rebates on the HST has been a substantial benefit for the business

community. You are seeing that in increased activity. Frankly, we believe that

generally across the business sector, and secondly coupled with the resource

developments, will lead to increased activity in the Province.

Last year we had GDP gross of about 5 per cent and led

the country. This year, 4.5 per cent, and we expect that trend to continue even

with the depleted or depressed commodity prices. The oil and gas sector in

particular still had substantial investment. You are looking at the mining

sector and you still have very strong investment in Labrador West, and the

forestry products sector is doing very well as well.

The pious hope, at least, is that the tax measures we

have taken and our approach to government will lead to increased revenues or

increased activity, as opposed to increased taxation.

MR. H. HODDER: If I could, I wanted to ask some

questions to the minister from the Consolidated Fund Services. I know there is

provision to ask these types of questions in the House itself when we come to

these particular matters, as there is in all of the Estimates. I do find that it

is better, if I could, with the indulgence of the minister, to direct some

questions on this particular budget allocation at this time at this Committee

level.

MR. DICKS: Yes.

MR. H. HODDER: On page 5 we note that the entry is

1.1.02, Treasury Bills. We note that the interest expense in treasury bill

borrowings had changed from $17,545,000 to $19,031,900 to $19,207,100. Why would

there be a variation there? There are about $1.5 or $1.48 million dollars'

variation?

MR. DICKS: Yes, I am sorry, I was just a little

busy finding it. You were saying: Why did we vary last year or this year?

MR. H. HODDER: Last year, basically we put in the

budget $17,545,000. Actually it went up to $19,031,900, and this year we have

$19,207,100. Why the variation here? Is this because of change in the interest

rates or -

MR. DICKS: Yes, exactly. Each year we have to

predict, when we do the budget, what the exchange rates will be with on our

general debt with the American dollar, Japanese yen and Swiss franc, which is

where our offshore monies are. We need to estimate the Canadian dollar.

Secondly, we need to estimate the costs of borrowing in the Canadian market as

well. We need to have some sense of where the dollar will be going and where

interest rates will be going. So we make an educated guess at that.

It is the same thing for our Treasury Bills program,

which is money. As you know, we put out $30 million for over thirteen weeks for

a total of $390 million revolving. Last year at the beginning of the year we

estimated that the returns to the Treasury Bills program would be about 4.5 per

cent. As it turned out, interest rates strengthened, so our returns were closer

to 5 per cent on that. That accounts for the increase of approximately $1.5

million.

MR. H. HODDER: What processes do you go through to

determine the expected interest rates and the expected rates of exchange? Is

there any particular formula or process you use for that?

MR. DICKS: Yes, there is a very particular

process. We consult generally and we see what the banks are predicting, we check

with our fiscal agents, and then we eviscerate a chicken and check its liver.

There is a little bit of witchcraft involved.

What we generally do is we tend not to be overly

optimistic. I remember the year before I went to a little dinner or breakfast or

something with the Bank of Montreal. (Inaudible) -

WITNESS: (Inaudible) CIBC.

MR. DICKS: No, at the time for the Bank of

Montreal. The chief economist was predicting the Canadian dollar was definitely

going over eighty cents, eighty-two cents. It was trading at about seventy-two

cents at the time. Then of course by the end of the next quarter it was down in

the basement at about sixty-six cents. You have to be a little sceptical. We

tend to be moderate and not be too optimistic in our assumptions so that gives

you some latitude.

What you don't want to do is, for instance, assume

right now the Canadian dollar is going to seventy-five cents in the next six

months. You can assume that but if you budget for it it is a different matter.

We have to be careful about how we -

MR. H. HODDER: It is a more cautious approach.

MR. DICKS: Yes. It becomes the Department of

Finance, regardless what the government is. We have to give sound, stable,

reasonable advise to government and then hopefully, in most cases, they accept

it. We tend to be prudent. We tend to look at the variations and the

fluctuations. I mean, there is a range of predictions. From our point of view we

have to come to the centre. We cannot afford to take the most optimistic

predictions. If you do that you could be very, very disappointed. I think it is

a good sign when our Treasury Bill program does better than anticipated.

It can work the other way too, because we had major

problems last year in terms of the Canadian dollar going down. It could have

been disastrous had we assumed the most optimistic predictions. As it was, our

trading losses or our debt servicing cost were pretty manageable. I think the

total net loss or variation was only about $3 million or $4 million on a total

debt servicing budget of about $500-plus million, or something in the vicinity

of $500 million.

I must say, in compliment to the officials, they do a

very good job of managing our monies and giving us reasonable predictions of

what we can expect in the exchange rates and the interest borrowing cost.

The other thing we do, just as general debt

management, and these are the officials' advice, is, if we look at - we borrow a

lot of money just in refinancing earlier debts. We look very carefully at where

interest rates are going and we try to predict. So if we believe interest rates

are going to increase we will go to the market now and borrow the money and have

it on hand because when you are going twenty or thirty years, if you can shave

one-quarter of a point or a tenth of a point off, even if you borrow two or

three months before you need the money, started to borrow now and have it on

hand, because you will recover the interest differential or the cost of carrying

the money for two months very quickly. I must say, our debt management people

and people who manage our cash and give us advice on borrowing are very

proficient.

MR. H. HODDER: What will be the effect, given the

fact that the Canadian dollar, as of yesterday, is at an eleven month high in

comparison to the US - which means of course that it will have an effect on our

monies that are held in other currencies as well. What will be the positive

effect of that particular change if the Canadian dollar continues to strengthen

and if the other indicators like the Dow in the US is now - the last time I

checked it was about 10.8 and the Canadian TSE is also finally showing some

strength as well. What effect will these changes have on our cost of borrowing

this year?

MR. DICKS: Well, it depends on what happens. There

are a lot of factors (inaudible). The first thing is that we have assumed, for

this year, that the Canadian dollar would trade at about $1.49 US, and that is

on page 253. Hopefully the improvement you have seen will persist.

I had a meeting yesterday with the head of the

Dominion Securities, RBS, Tony Fell. The only thing about it is that you have to

be careful because the Dow, I just noticed this morning, is over $11,000. You

are seeing historically unparalleled earnings - price to earnings multiples in

terms of what they are trading at, particularly technology stocks. How long that

will persist in the exuberance of the American markets, I do not know.

The other thing, too, is that inflation has not shown

up in the American economy in the way it is expected. The economic paradigm was,

if you got it down below about 5.5 per cent unemployment that would be

inflationary. The assumption is that would continue.

I read an interesting

article in The Economist

a little while ago pointing out that wage inflation is there and is present but

really where it is showing up and is more in (inaudible) levels and people are

managing inventories a little more carefully; the point being that we were

assuming - we always fight the last war rather than the current one. We assume

then inflation won't show up again. He mentioned yesterday that he felt there

might be possibility of an interest rate increase when (inaudible) has his

meeting I think it is on May 17.

It is the little things. If the American interest

rates go up, then that will affect the Canadian dollar because we are trading -

I think it is on parallel that we pay less interest than the Americans, and it

is very hard for the dollar to strengthen in that position. If the Americans

raise interest rates, it will create more interest in the American treasuries

and Canadians will have to raise our interest rates; the dollar will fall. These

things usually happen; they are not necessary.

The other side of it, with strengthening commodity

prices, that will probably bring up the level of the TSE because we are seen

basically in the rest of the world as a commodity-based economy. As our

commodity prices increase for grain, copper, metals and so on, that will

generally bring up the interest in the Canadian dollar, because at a basic level

people have to buy Canadian dollars to buy our products and we are still very

heavy exporters of natural resources.

There are a lot of factors in there and it is hard to

predict, but you watch them and you just see. Anything could happen. Latin

America seems to be strengthening a little bit; the Far East is doing very well,

and you expect that will create additional demand for our commodities as well,

but the Euro has gone down and there are some concerns about how they are going

to manage it in the European community. The Germans have a very tight fiscal

policy. They are not very happy with the way the head of the European Central

Bank has been responding; the decrease in interest rates, for example. My sense

of it is - having met with some German bankers, I guess it was last week - they

were not too impressed with that move.

There are a lot of factors internationally that affect

the value of the Canadian dollar, where interest rates will be and so on.

It is just a guess - but Tony Fell being the most

recent person you talked to, so you generally tend to adopt that point of view

for whatever reason - there are some reasons to think that there might be some

upward pressure on interest rates in the US and that would affect our dollar,

which would probably drive it down and also increase our interest rates, which

would increase our cost of borrowing as well. Hopefully, it will not happen, but

it is a scenario.

MR. H. HODDER: We could move on to the next

heading which is 1.1.03 Debentures. We note that we did have a $364,680,800 that

was increased to $373,087,600, and you are leaving it at $373,094,800 this year.

However, the Paid to Newfoundland Government Sinking Fund line is the $50

million. I'm wondering if you could tell me more about the payment to the

Newfoundland Government Sinking Fund. Why would that increase from $39 million

to $50 million in this budgetary year?

CHAIR: (Inaudible) interject here, Mr. Hodder, for

a second. I understand from the Clerk that this is one area that is solely

debated in the House, that it does not pertain to this Committee actually.

MR. H. HODDER: The minister and I have agreed that

given the fact the House is sometimes a volatile environment, he has agreed to

take some questions on these particular matters here.

MR. DICKS: Yes.

MR. H. HODDER: We may again ask the very same

questions in the House so that all members of the Legislature can then have an

equal amount of enlightenment.

MR. DICKS: Yes. I had mentioned to my critic, Mr.

Hodder, that I did not mind doing the questions here. We have done this in the

House before, and in particular with the Executive Council it is often hard to

hear the questions and the answers across the House, because not everybody has

equal enthusiasm for the details of the Estimates. I said sure, I would be

delighted to answer the questions here where it might be a more informal

environment. If we are not precluded, Mr. Chairman, by policy or by rules of the

House, I would be happy to do it here as opposed to having to go through it in

the House.

CHAIR: It is not a part of the Committee's

procedure, I guess is the word, but if the Committee is in agreement that we can

do it, I guess the Chair is at the wishes of the Committee.

MR. WALSH: Mr. Chairman, maybe what we could do is

approve the headings of what we are here for without taking the final vote on

the actual Committee's report, and then by leave we could go to the hon. member

and just do a tte--tte back and forth for the sake of doing it. Maybe we

could do that, because if not we could find ourselves pushing noon and still not

covering off what we are here for.

Harvey, if that was comfortable for you, I would have

no problem. I guess what we are looking at is we may chew up the time and not do

it. If I could move the headings, then we could have that out of the way and go

on with the discussions here without any problem at all, with just one vote

left, and that would be for the report itself.

MR. H. HODDER: That is satisfactory. I have given

a commitment from our committee that we can be out of here by 11:30 a.m. That is

satisfactory to us.

CHAIR: Let's proceed to where you are going and at

11:25 a.m. we can call the subheads in total.

Go ahead, Mr. Hodder.

MR. H. HODDER: I think the hon. member raises a

legitimate question that we should not go into the other aspects of the

Department of Finance's responsibilities if it is going to mean that the time

allocated would be exceeded, and we would have reason to return for another

sitting. I've indicated that that should not happen, and in fact it will not

happen unless my colleagues to my left here cause it to happen.

MR. WALSH: Mr. Chairman, for the record then. By

leave we would stay with the Consolidated Funds Services, knowing that the

Committee itself will rise at 11:30 a.m.

CHAIR: Okay, Mr. Hodder, go ahead.

MR. H. HODDER: The question was on the debentures

and I was asking the question about why the amount Paid to Newfoundland

Government Sinking Fund had changed from $40 million or thereabouts to $50

million.

MR. DICKS: The reason is the Canadian dollar and

our exchange rates vis--vis the U.S. What we do with all the bond and debenture

issues we have is that we have to put money into a sinking fund so that when the

issue comes up for retirement, we put in sufficient funds that with investment

income is equal to the amount we borrow. If we borrow $100 million, for example,

over thirty years, each year we contribute a certain amount so at the end of the

thirty years there is enough money there to pay off the debt. That is what our

sinking fund is essentially.

The reason it is higher this year by $10 million is

that a large part of our debt still is in American funds. It is $1.7 million, in

that vicinity. Because the Canadian dollar, according to - last year we

estimated the Canadian dollar trading at $1.41. This year we expect it to trade

at $1.49, which is an increase. It means that we have to increase the amount of

the contributions to the Sinking Fund by $10 million. Those are essentially

exchange mechanisms. If the Canadian dollar were to strengthen back to $1.41,

for example, we would save about $10 million.

WITNESS: (Inaudible) half on the new borrowing

(inaudible).

MR. DICKS: I am sorry, it is about $5.5 on the

American. The other thing was that last year we had borrowed a -

WITNESS: A $450 million issue (inaudible).

MR. DICKS: If I could refer you to page 252, the

other amount was $450 million on the issue that we have there. It is a 1 per

cent sinker. That is the amount we borrowed last year, 1998. If you go to page

252 you will see Payable in United States Dollars. If you go up three lines from

that you will see: 1998/2028 6F. We borrowed $450 million at 6.15 per cent. If

you go to the second column from the right, it says: Sinking Fund, $4.5 million.

We did not have that issue last year and that is the reason it shows up this

year. It says we have to make a 1 per cent contribution to the Sinking Fund for

this. That gives us $4.5 million, and the balance of $5.5 is the exchange.

MR. H. HODDER: Going to the Canada Pension Plan

heading, 1.1.04, page 5, it says: "Appropriations provide for interest expenses

on funds borrowed from the Canada Pension Plan Investment Fund." I haven't

looked at the direct report. Since we have a decrease here of the amount I have

two questions. One is, how much does the government owe to the Canada Pension

Fund? The other one is, why would there be a decrease in the debt expenses for

this year?

WITNESS: (Inaudible) million.

MR. DICKS: If you look at the beginning, it is

actually $636.7 million. If you go to the front of the book, page xi.

MR. H. HODDER: I know it is over there.

MR. DICKS: Pardon me?

MR. H. HODDER: Roman numeral...?

MR. DICKS: Page xi. At the beginning of the

Estimates, page xi, you will see Provincial Direct Debt, Payable in Canadian

have borrowed from the Canada Pension Plan over the years. So that is the total

amount.

What is happening this year is that we are rolling

over some borrowings that we had in previous years and those are at a higher

interest rate because the interest rates are lower now. We are going to save

approximately $3 million. A little bit less, $2.9 million, I believe.

I mean, you can follow all these but there is a

schedule for the Canada Pension Plan if you look at page 253 which lists all our

debt and the interest payments as well. These are at higher interest rates then

we will now pay. Some of them are 9.8 per cent, 11.6 per cent, 13.6 per cent,

12.0 per cent. Right now we are borrowing in the range of 6 per cent. Less than

6 per cent on Canada Pension so that is the reason our interest rates are down.

(Inaudible).

WITNESS: In some cases we are saving 5 per cent or

6 per cent on the loan.

MR. DICKS: In some cases 5 per cent to 6 per cent.

WITNESS: That is rolled over.

MR. H. HODDER: Okay. The next item is on page 6,

1.1.06, Recoveries on Loans and Advances. It is down approximately $1 million

from last year. We budgeted $5,455,300. It dropped to $4,383,400 and this year

we have an estimate of $4,133,500. That is in .02, Revenue-Provincial. I ask the

question: Why are the recoveries down? Is it because we are doing a better job

or interest rates have changed or a combination of both?

MR. DICKS: I would say the second rather than the

first. I do not think there is a significant difference in what we are

recovering. The main thing there is ENL. Those interest recoveries are down on

loans and advances. Last year in 1998-1999, we budgeted $5 million. It went down

to $3.9 million. This year we are anticipating collecting $3.7 million. Corner

Brook Pulp and Paper is another factor. We collect $2.43 million in there. Small

amounts are gone now. We had $5,000 we were collecting from the Electric

Reduction Company of Canada, whatever that is, and also the old DRIE loans.

There was $8,400 budgeted last year and we collected $36,000. We are not

budgeting anything this year.

Next, there is another $190,000 budgeted for this

year. Last year there was $198,000 budgeted there for the St. John's regional

sewer system. The main difference is that recoveries from ENL are down by about

$1.3 million in budget this year from the $5 million that we had last year.

Phil is the former expert on ENL. I do not know if

that is as a result of people not paying interest. I suspect more so that

interest rates have lowered over the last period of time.

WITNESS: Most of these are based upon floating

rate loans so the rates have gone down. (Inaudible) ones are being collected.

MR. DICKS: Exactly. Of course, loans are being

collected and as they are being paid off - the other thing we have done is we

have curtailed the amount that we put out to ENL. At one point government was

voting them about $14 million. We have reduced it to $7 million. So over time

that will show up in less interest because there is less money being lent. There

is a factor, I suspect, of fewer monies being lent and also interest rates being

lower.

MR. H. HODDER: Where would things like interest

coming in by way of student loan debt and the Fisheries Loan Board, where would

that show up in here?

MR. DICKS: Your student loan debt, I am virtually

certain, is accounted for in the Department of Education, if you look at the

amount there. If you notice, that has been increasing very substantially. It was

down about $2.5 million. This year we will put about $20 million in new student

loans. Maybe one of the officials could check the Estimates for the Department

of Education and we will find that for you.

The Fisheries Loan Board is in ENL as well. That was

consolidated.

MR. H. HODDER: Okay, that was consolidated with

ENL.

MR. DICKS: Yes, it was all brought together: ENL,

the Fisheries Loan Board and I think the Farm Loan Board.

MR. H. HODDER: There are various others. They are

all consolidated to one entry. It is not necessary to find the student loan. I

just used that as a reference particularly -

MR. DICKS: The experience on the Fisheries Loan

Board, contrary to some of the others, has been very good. I think they had a

default rate of 2 per cent or 3 per cent. It was one of the more favourable

experiences in government with actually lending money. Would you agree with

that, `Mr. Former ENL President'?

WITNESS: That is right, exactly.

MR. H. HODDER: In the Newfoundland Government

Sinking Fund heading, 1.1.07, we see that the Sinking Fund changed from

$10,300,000 down to $10,200,000, then up to $35,600,000. What is the rationale

for that?

MR. DICKS: What we are doing there is we are - CPP

Sinking Funds. Where we are rolling over monies from CPP, the monies that were

set aside in the Sinking Fund to pay off the CPP loans do not have to be used

for that purpose because the government is re-lending the money. Part of the

discussions we had with the federal government when we made the changes to the

Canada Pension Plan was whether or not we would continue to borrow. Because

provinces had always borrowed at a preferential interest rate. We all agreed we

would pay market rates. They continued to give us more limited access to the

funds. What they are trying to do is make it a more market oriented fund so they

will invest in equities and general securities. Part of what we are doing this

year is we are rolling over about $25.5 million, I believe it is, worth of

Sinking Funds that we do not need because we are just rolling over our

borrowings. That comes into revenue in the Province.

MR. H. HODDER: This wouldn't have anything at all

to do with the change to the teachers' pension plan or to the public service

pension plan?

MR. DICKS: No, that is all off balance sheets.

That is the general debt of the Province.

The only thing that shows up from borrowings is the

amount of interest we have to pay each year. The debt retirement is all - we

call it off balance sheet. It is not budgetary because it does not affect your

yearly cash flows. It would distort it, because each year you are $600 million

or $400 million, and they are not new figures, just monies you are borrowing.

The amounts we have committed to borrow for the pension plans, both the

teachers' and the government pension plan, is not new money.

This is just a servicing of an existing debt. It has

always been out there. We have never put aside the money. Now what we are doing

is borrowing money to put into the pension plans and what will show up is the

cost of servicing that debt. The interest cost is a budgetary item and the other

one is just a rearrangement of your line of credit and your mortgage and this

kind of thing.

MR. H. HODDER: In essence, what we have done with

the $196 million or thereabouts is to move it from a indirect debt to a direct

debt, which is on page xi in the front of the document.

MR. DICKS: Exactly, yes. That is precisely the

explanation. The interest cost of doing that shows up in our budget.

(Inaudible).

The Student Loans are on page 192, 3.4.03, in the

Department of Education. You will see there the Revenue-Federal, .01, is about

$2,250,000, and Revenue-Provincial, .02, is only $20,000. Our actual recoveries

are pretty small on that, compared with, I think it is, the $20,720,000 goes

out, and the net cost runs about $18,450,000.

MR. H. HODDER: In the Capital category on page 6

again, 1.2.01, Recoveries on Loans, Advances and Investments, it says:

"Appropriations provide for principal recovery from various loans, advances and

investments." We had an expectation last year of $979,100. In reality, it was

changed to be $2,275,600. This year we are expecting it to go to $13,636,000.

That is a provincial revenue. Why that change?

MR. DICKS: Do you want me to deal with them both?

MR. H. HODDER: Yes.

MR. DICKS: Some of the amounts we knew about. I

will just run down through the amounts that we have. We have budgeted for

$55,000 for Newfoundland Harvesting which we collected, and Electric Reduction

Company of Canada, $67,200. Municipalities under DRIE, we had budgeted for

$84,300 but they actually paid back $160,800. I suspect that is as a result of

us allowing the municipalities to go out and refinance their debt with banks. It

was about double the amount there. The St. John's regional sewer system, that

amount is fixed at about $72,600. That is the amount we collected. It will go up

to $81,000 this year. Newfoundland and Labrador Housing Corporation paid off a

loan early. We had not budgeted anything for it but we received $1.290 million

from them. So we got close to $1.3 million.

From Hotel Buildings Limited we got $430,000. That was

the entity that owned the Holiday Inns. We had arranged for the sale of the four

hotels to Fortis for about $6.5 million. We netted about $5 million. That is my

recollection. We had about $1.5 million worth of various expenditures. What we

did when we sold that was we kept two pieces of land: one was here in St. John's

next to the Holiday Inn, and the other one was in Clarenville. We had that

listed for some time. We did one of the things where we get a little more money,

we went out on public tender. The best bid we had was about $130,000 so we

refused to sell. Then we enlisted with a real estate agent and got $430,000, so

we, through wise decisions, netted the Province another $300,000. That land we

had kept, obviously. We did not see a need to give it away and we got a good

return on that.

Five hundred thousand dollars last year was budgeted

for Newfoundland Hardwoods. We did not get that, so that brought it down a bit.

Newfoundland Industrial Development Corporation, we budgeted for and got

$200,000.

This year the big difference, and I do not know if you

need me to go through all these, is we got $55,000 from Newfoundland Harvesting

and $81,000 from the St. John's regional system. The big difference there is

that we will get $10 million in NLHC from repayment of debt that they owe us. Is

that debt repayment?

WITNESS: That is not debt repayment (inaudible)

pay us (inaudible).

MR. DICKS: I see. No, that is monies we have taken

out of Newfoundland and Labrador Housing. That is not debt repayment. This is a

surplus of cash that they have, so we felt it would be better used in the

general revenues in the Province. (Inaudible) $10 million there.

As for Newfoundland Hardwoods, the $500,000 that we

budgeted for last year that we did not collect will be collected this year. The

wind up of Gull Island Power will give us $2.8 million this year. This is a

subsidiary of CF(L)Co, I suspect, but there were a couple of related entities

when these whole enterprises were established. There was Twin Co and Gull Island

Power, so they have decided to wind up Gull Island Power. That $2.8 million will

flow through to the Province this year. So the two main differences there are

that and the Newfoundland and Labrador Housing Corporation.

MR. H. HODDER: Mr. Chairman, I will reserve the

rest of the questions on Consolidated Fund Services for the House. I want to

thank the minister for his cooperation. I do have some general questions toward

the end of it, but I invite you to ask any other member if they have some

questions at this point.

CHAIR: They indicated they pass.

Mr. Manning.

MR. MANNING: (Inaudible).

CHAIR: Okay. So, Mr. Hodder, you are still on the

Consolidated Revenue Fund?

MR. H. HODDER: No, I'm going to move to some

general questions. In the Auditor General's report there are sections on

Accounts and Loans Receivable in Government. It indicates that during the last

six years government has written off $198,301,000 in accounts receivable owing

to it. There is a substantial, lengthy list in the Auditor General's report,

which again is one page 43, and varies from writing off $47,551,000 to Baie

Verte Mines Inc. to court fines of $3,840,000 million and so on and so forth.

MR. DICKS: Perhaps you could wait for the House

and you could ask the question of the Member for Lewisporte.

MR. H. HODDER: You will note that yesterday when I

was doing the Budget commentary I never read this list.

MR. DICKS: Right.

MR. H. HODDER: I did not read it because in some

cases you and I know there are very good reasons why these matters should be

written off. They are simply uncollectible.

I'm wondering about the process that is followed in

government for writing off debts owed to government, whether they be by way of

taxation or by way of loans. My question is on the process of determination

rather than on the individual item itself.

MR. DICKS: Yes. I think if you want a reason that

government should not be supporting businesses, all you have to do is look down

through this list. Government of any political strip - and not to point fingers

at yourselves or ourselves -, but it is just that government does not do a very

good job of picking winners. We always pick dogs. If a company needs government

support it probably should not be in business.

All you have to do is look down through this list.

Government of any political stripe - not to point fingers at yourselves or

ourselves, it is just that government does not do a very good job of picking

winners - we always pick dogs. If a company needs government support, they

probably should not be in business.

If you look down through this list, government over

the years - well, of two political stripes at least - has had a habit of

weighing in with guarantees to shore up industries that were probably

unsupportable - for greater social good, I am sure, to maintain employment - but

inevitably you result in some pretty substantial losses here: Baie Verte Mines,

$47 million; NIDC, $30 million; Newfoundland Enviroponics, Sprung, that is $15

million.

Newco was an initiative of the Department of Fisheries

to build a middle-distance fishery. Nobody in the Province, (inaudible) did not

want to do it so they went out and contracted to build all these vessels. They

were financed through, I think, Roynat, and we have been trying to get rid of

them. So you have vessels that cost $5 million or $6 million and you are lucky

if you can get $1 for them, or you give them away - or $1 million and so on. We

still had to service the lease payments and write the debt up.

If you go down through all this stuff, how we decide

whether or not to write them off, whether or not we will collect them - St.

Lawrence Fluorspar Ltd., has been out of business; Baie Verte Mines has been out

of business. Most of these businesses have been out of business for a decade, if

you go down through them. Some of the amounts in the departments are small

amounts that cannot be collected. The Department of Health for example, I

suspect that is ambulance things and so on like that.

Harbour Grace Fishing Company Limited, that company is

out of business. In some cases you (inaudible) the fishery because one company

goes out of business and another one resurfaces with licences and so on, with

many of the same shareholders and so on.

St. Clare's Mercy Hospital, I suspect that was related

to the consolidation of the hospitals here. I know that the government agreed to

pay monies to the Grace, I guess in one case the Salvation Army, in one case the

Sisters of Mercy, was it? Now there may have been some debt owing to the

Province as part of the package. I expect that they paid money and wrote off

some debt.

You can just go down through - Governor's Park, that

hotel has been out of business for about five or six years, and so on and so on

and so on.

I don't know if there is much else I can add. Masonic

Lodge, we were suing the masons there and we got, I think, $100,000. We were

owed a million and we settled that thing.

Basically what we do is look at it and say: Is there

any prospect for collecting it? If not, we carry it on the books in the event

that some of the same people try to come back and borrow, or sue government, or

there may be some money change and then we try to seize it, but after awhile it

is just a non-performing debt and you may as well clear up your books and get

rid of it.

It goes to Treasury Board; it is not done by the

Department of Finance. We bring forward this stuff and try to do it on a timely

basis.

MR. H. HODDER: My colleague asked me to ask: Is

there any personal liability attached to any of these loans?

MR. DICKS: When it goes to Treasury Board, we look

to see if there is any possibility of recovery. In some cases we sue individuals

on personal guarantees. The commercial practice is different from government. If

you go to a bank and you wanted to borrow $1 million, they will generally tie

you up with cross-guarantees with corporations. They will take mortgages on your

houses. To better secure the debt they will take personal guarantees. So if you,

your wife, your children, your grandchildren or your dog, ever come into money

they will get their money.

In government we are less of a financial and more of a

social institution. Governments, federal and provincial, have lent money and

taken smaller guarantees. In the case of $1 million, maybe there would be a

$50,000 guarantee and so on like that. In some cases the government realizes,

and in other cases it does not.

My view is that we should not be lenders, we should

not be doing this, and we should be out of the business altogether; because very

often what happens is we are not making loans on a commercial basis, we are not

taking the types of security, and when we do we do not realize on it. So in all

this debt there might be some government guarantees but by-and-large they are

lent to large entities: Baie Verte Mines, Sprung Greenhouse, things like that,

Newfoundland Dockyard. I should say the Newfoundland Dockyard is an example. The

$8 million we have there, we have an ongoing - that was a support (inaudible) -

dispute with the federal government about what the amount is of interest subsidy

and we are in court about that now. So these are, probably more than anything

else, amounts we will not collect and are just unfortunate examples of us making

loans we should not have made.

The other thing here that is interesting, that maybe

bears comment, is Court Fines, $3.8 million. What has happened with the court

system is that the judges decided a few years ago that you could not carry out

default provisions. So if you fine somebody $500, and they are in default thirty

days, if they don't pay the $500 you can't now go and put them in jail for

thirty days because they say it is the maximum debtor's (inaudible). So now what

do you do in order to collect amounts when you cannot enforce default

provisions? It would be very effective to go to someone's door and say: Thank

you very much, you have not paid your fine, come along with me now.

People often had a way of finding the money. Of

course, we removed that particular remedy so our court fines have gone up

substantially as a consequence. We have been looking at trying to find some

other way to collect the money. For the small amounts involved, if somebody owes

a $50 fine, we are not going to hire a lawyer to attach their car and this kind

of thing.

In some cases it is tough to collect monies, and

government is not as proficient as the private sector in doing it, who tend to

be more enthusiastic about pursuing creditors - debtors, I should say.

MR. H. HODDER: In essence, someone can walk away

from the court with absolute impunity and they do not have to really worry

because we do not have the mechanism to be able to go and enforce a collection.

MR. DICKS: Well, we do some things. For instance,

if it is a traffic violation you cannot get your vehicle permit renewed. We are

looking at tying it to other provincial privileges or licenses so that, for

example, if you do not pay your fines perhaps you cannot get a moose license and

things like that.

You would have to change the legislation to do it and

you would question whether or not that is an appropriate thing to do. On the

other hand, if people are fined and they do not pay it then why should they be

allowed to have the other privileges that come in living in a regulated society?

These are issues around the edges of what we do.

MR. H. HODDER: There was some contemplation of

legislation changes last year to give effect to these. Is that still a strategy

of the government?

MR. DICKS: I asked about it recently. I honestly

don't know where it is at. As you know, among the many other things we do it is

one of those things that is on my list of things to check on. I asked about it

about a month ago and frankly, Harvey, I forget the answer I got. I know they

were looking at it as between justice and, I think, Government Services and

Lands. I know there were some concerns about it; I just forget what they were

offhand. I do not think any paper has been brought to Cabinet to implement that.

I think they were looking around the natural justice issues and so on. From my

point of view, it would probably be something productive to do if we can

implement it.

The other thing, too, is that the problem, I believe,

is that you do not have all of these centralized. It seems to me there is a

computer problem. You would have to have everybody in a computer system and make

sure you are identifying the right people. In other words, if someone owes a

court fine, that is in the court system and we do not have a computer system

that accesses that so before we make the justice systems available towards

Services and Lands or the Department of Tourism, whoever gives out the moose

licenses, or the Department of Forestry, you have to be careful about what

information you make available. So to come up with a way to provide the

information to other government departments, as we provide licenses, is not

always easy because there is still an element of confidentially about the fact

that someone has been fined, and criminal records, or quasi criminal records.

That issue we haven't really addressed yet. I think

that was a major problem as to how you collate and use the information.

MR. H. HODDER: In the Auditor General's Report,

she does make a statement, "There is no Government-wide system to record,

control and collect total amounts owed to Government. Departmental systems range

from manual year-end listings and other manual records, to computerized systems

and there is little consistency among these systems."

Earlier in the morning you talked about the Oracle

accounts receivable modular and how we did put in $1 million last year, it was

increased a little bit, but it is not there this year. However, I am wondering

if you could give us a response to the Auditor General's comment which, of

course, was as late as - this document did not go into print until December 11,

1998. We are wondering, at that point in time, why would the Auditor General

make such a general, broad statement and yet in your departmental response you

do mention the Oracle accounts receivable modular. It may be too early to see a

dramatic impact there but I want you to give a commentary on what steps have

been taken to make sure there is consistency and control in the collections done

by all government departments.

MR. DICKS: I could probably reply to that in this

way: Some departments are better than others. For instance, one of the big

concerns we had in merging the RST with the GST was that our collections were

infinitely superior to the federal government.

Our people did a survey on Duckworth Street, for

example. Within the shadow of the Sir Humphrey Gilbert Building, 75 per cent of

the business were not remitting GST to the federal government. They were

basically not collecting in the way that we would provincially. Our default rate

for RST was under 1 per cent; my recollection was about one-third of a per cent.

It is frightening. Having been out there myself, it is frightening how efficient

our collectors and assessors were.

The retail sales tax system was as close as you could

have to a virtually closed, completely effective system. Our people were very

good at it, as people can attest - not always pleasantly.

While the Auditor General makes a general comment,

that is not true of all departments and I think she would acknowledge that

herself.

The second thing really, from my point of view, is

cost-effectiveness. The Oracle system is one specific just to our agency, for

example, just for tax administration. That is $1 million just to buy the

hardware and so on.

If you were to go to every government department and

try to come up with a comprehensive system that would provide all the

information for every person, every amount owed to every government department,

the cost would be phenomenal to provide computer systems support, the

interlinking of the systems around government.

Secondly, you would have to ask yourself how effective

it would be. For example, how effective would it be to know that Baie Verte

Mines Inc. owes us $47 million? I just think that for the amount that we spend

in trying to do something, I do not think we collect any more money. I think

what we need to do - I think we should be out of the business of lending money,

period. Then you would solve the problem.

MR. H. HODDER: I agree.

MR. DICKS: As long as these amounts are around, I

do not think you will ever come up with a system where someone probably will not

owe one government department money and still be accessing it somewhere else. We

look to find a system that will do it. We do it with municipalities because it

controls their finance. We had complaints because we hold up monies, when we

know that they owe us money. That is fair enough, I think.

General speaking, we have 37,000 employees; we have

500,000-plus people who use government services in various ways. Unless you can

encourage some sort of prohibition for government services, you owe government

money, I cannot think of another way that you would collect it - for small

amounts at least.

MR. H. HODDER: It does cause me some concern

though when you hear tell of the Department of Human Resources and Employment or

its predecessor, the Department of Social Services, tracking down some poor lady

who received $24 in overpayment two or three years ago and whose husband to whom

that was paid is long since dead. Suddenly they get a bill saying: You owe the

department $25.

On the one hand, we know that kind of things happens.

I am not saying that people in that division should not be aggressively

collecting and should not be aggressively following up when there are cases

where people have indeed accessed money that they do not rightly, shall we say,

have access to, but when the Auditor General says that we have manual systems in

some departments, surely the Department of Finance is a department that should

be, shall we say, the leader in government in terms of tax collection.

I do agree with you that we have far too much

corporate welfare, which is what we are looking at here. Our party policy, as

you know, would be to change that, and to that extent we are talking in the same

language.

I want to talk about what leadership you are giving to

other government departments. It is now 11:28 a.m. and, Mr. Chairman, after this

response we can call the heads.

MR. DICKS: What you say, I think, bears a lot of

different comments that should be made. People who are very poor, who are

depending on the public purse, are the easiest people to collect from; because

if you overpay them $25 for their social services this month, you can deduct it

from their cheque next month.

There is an issue involved as to what extent you

should do that and enforce that. Where there is fraud involved, I think you

should do it. On the other hand, people have such marginal amounts of income, I

do not know that it is always a fair thing to do.

The other thing, too, is that where departments are

willing we do work with them. The Department of Finance does not have the right

or the authority to dictate to every government department as to how to run

their affairs. Frankly, the line departments see themselves as providing

services, not necessarily as providing money to government to run their programs

and collecting money, so you have different levels of enthusiasm within the

departments for our help, if you will.

In the Department of Social Services, for example, or

Human Resources, we have two people over there working with them now that have

been seconded to the department.

When I was in Treasury Board, we had a committee that

went to work with the Department of Health and looked at some of the

institutional problems they had; institutional in the sense of, with the

institution. They went out and did an audit and tried to identify some of the

problems. The consequence of that was we spent $6 million to improve the

computer systems in just two of our institutional boards.

The other thing with the Department of Finance is that

our systems do work very well. Our collection systems are very efficient. I am

proud of the effort and the ability and the professionalism of our department. I

think once you get outside the finance departments there is less of that ethic

to work with it. I do not think the departments see themselves as collectors but

rather as providers of government services, so there is less attention paid to

it.

Having said that, some of departments have made a lot

of progress. Human Resources and Employment have done a very good job in

reforming some of its welfare provisions in the sense of whom they provide it

to, ensuring that people are getting what they should get, taking people off who

should not be there, and reforming their system so that they make it more

attractive for people to go to work and so on - not precisely collections.

The other thing, too, is small amounts of money. I do

not care what system you have; they are just not worth spending the money on to

collect it. There is no point in spending $500 to collect $25. To some extent,

even if you have the most perfect system in the world, you would still be

writing monies off just on efficiency basis.

CHAIR: Thank you very much, Minister.

Since there appears to be no other speakers, I would

ask the Clerk to call the subheads.

On motion, 1.1.01 through 3.1.01 inclusive, carried.

On motion, Department of Finance, total heads,

carried.

CHAIR: I want to thank you, Minister, for your

appearance here today, and your staff. You have done a superb job. I want to

thank the Committee for their precise questions. I want to thank the Clerk and,

of course, let us not forget our recorder up there, Kevin Collins.

Thank you very much.

MR. DICKS: Mr. Chairman, I want to thank the

Committee for this opportunity to appear before them and shed some light on the

mysterious workings of the department and its officials. Thank you for your

courtesy.

On motion, the Committee adjourned.

Document details

Collection	Newfoundland and Labrador — Committees
Citation	1999-05-04
Type	committee
Volume / chapter	committees_standingcommittees_govservices_ga44_1999-05-04_gsc-wst_.htm
Language	en
Format	html
Source	PROVINCIAL
Identifier	3aa2ad2e58962b9782ffc0a05bc8ed6e53a235ff

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