Manitoba Committee Hansard — 19 October 1995 (Education Committee, Sitting 4, 36th Legislature, 1st Session)

36-1-ed4

Manitoba — Debates (Hansard)

First Session - Thirty-Sixth Legislature of the Legislative Assembly of Manitoba Standing Committee on Economic Development Chairperson Mr. Mike Radcliffe Constituency of River Heights Vol. XLV No.4 -7 p.m., Thursday, October 19, 1995 ISSN 0713-9969

Name ASHTON, Steve BARRETI, Becky CERILLI, Marianne CHOMIAK, Dave CUMMINGS, Glen, Hon. DACQUA Y, Louise, Hon. DERKACH, Leonard , Hon. DEWAR, Gregory DOER, Gary DOWNEY, James, Hon. DRIEDGER, Alben, Hon. DYCK, Peter ENNS, Harry, Hon. ERNST, Jim, Hon. EVANS, Clif EVANS, Leonard S. FILM ON, Gary, Hon. FINDLAY, Glen, Hon. FRIESEN, Jean GAUDRY, Neil GILLESHAMMER, Harold, Hon. HELWER, Edward HICKES, George JENNISSEN, Gerard KOWALSKI, Gary LAMOUREUX, Kevin LATHLIN, Oscar LAURENDEAU, Marcel MACKINTOSH, Gord MALOWAY, Jim MARTINDALE, Doug McALPINE, Gerry McCRAE, James, Hon. McGIFFORD, Diane MciNTOSH, Linda, Hon.

MIHYCHUK, MaryAnn MITCHELSON, Bonnie, Hon. NEWMAN, David PALLISTER, Brian, Hon. PENNER, Jack PITURA, Frank PRAZNIK, Darren, Hon. RADCLIFFE, Mike REID, Daryl REIMER, Jack, Hon. RENDER, Shirley ROBINSON, Eric ROCAN, Denis SALE, Tim SANTOS, Conrad STEFANSON, Eric, Hon. STRUTHERS, Stan SVEINSON, Ben TOEWS, Vic, Hon. TWEED, Mervin VODREY, Rosemary, Hon. WOWCHUK, Rosann MANITOBA LEGISLATIVE ASSEMB LY Thirty-Sixth Legislature Members, Constituencies and Political Affiliation Constituency Thompson Wellington Radisson Kildonan Ste.

Rose Seine River Rob lin-R usse ll Selkirk Concordia Anhur- Virden Steinbach Pembina Lakeside Charleswood Interlake Brandon East Tuxedo Springfield Wolseley St. Boniface Minnedosa Gimli Point Douglas Flin Flon The Maples Inkster The Pas St. Norbert St. Johns Elmwood Burrows Sturgeon Creek Brandon West Osborne Assiniboia St. James River East Riel Ponage Ia Prairie Emerson Morris Lac du Bonnet River Heights Transcona Niakwa St. Vital Rupertsland Gladstone Crescentwood Broadway Kirkfield Park Dauphin La Verendrye Rossmere Tunle Mountain Fon Garry Swan River :em N.D.P. N.D.P. N.D.P. N.D.P. P.C. P.C. P.C. N.D.P.

N.D.P. P.C. P.C. P.C. P.C. P.C. N.D.P. N.D.P. P.C. P.C. N.D.P. Lib. P.C. P.C. N.D.P. N.D.P. Lib. Lib. N.D.P. P.C. N.D.P. N.D.P. N.D.P. P.C. P.C. N.D.P. P.C. N.D.P. P.C. P.C. P.C. P.C. P.C. P.C. P.C. N.D.P. P.C. P.C. N.D.P. P.C. N.D.P. N.D.P. P.C. N.D.P. P.C. P.C. P.C. P.C. N.D.P.

75 LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COMMITTEE ON ECONOMIC DEVELOPMENT Thursday, October 19, 1995 TIME-7p.m. LOCATION- Winnipeg, Manitoba CHAIRPERSON - Mr. Mike Radcliffe (River Heights) ATTENDANCE- 11- QUORUM- 6 Members of the Committee present: Hon. Messrs. Ernst, Stefanson Mr. Ashton, Ms. Cerilli, Messrs. Evans (Brandon East), Helwer, Newman, Pitura, Radcliffe, Sale, Sveinson APPEARING: Mr. Kevin Lamoureux, MLA for Inkster WITNESSES: Mr. Rob Hilliard, President, Manitoba Federation of Labour Mr. Rick Wiend, CUPE Local 500 Mr. Gary Russell, CUPE Manitoba Mr.

Peter Holle, Manitoba Taxpayers Association Ms. Maureen Hancharyk, Manitoba Nurses' Union MATTERS UNDER DISCUSSION: Bill 2-The Balanced Budget, Debt Repay-ment and Taxpayer Protection and Con-sequential Amendments Act WRITTEN SUBMISSION: Mr. Victor Olson *** Mr. Chairperson: Good evening, ladies and gentlemen. Would the Standing Committee on Economic Development please come to order. Our first order of business this evening is to elect a vice-chairperson, as the position is currently vacant. Are there any nominations? Mr. Edward Helwer (Gimli): Mr. Chairman, I would like to nominate David Newman. Mr.

Chairperson: David Newman has been nominated. Are there any other nominations. An Honourable Member: I move, nominations are closed. Mr. Chairperson: A motion has been presented that nominations close. David Newman has now been elected as vice-chairperson of the Standing Committee on Economic Development. Congratulations, Mr. Newman. We have before us the following bill for consideration this evening, that is, Bill 2, The Balanced Budget, Debt Repayment and Taxpayer Protection and Consequential Amendments Act.

Before continuing on with the business before the committee, there are a few matters to clarify at this point. It is our custom to hear presentations from the public before detailed consideration of bills. At this point there are, we believe, either 25 or 26 persons registered to speak to Bill 2. Is it the will of the committee to hear these presentations? [agreed] At this point I will read out the list of names so that the persons registered to speak to the bill can be assured their name is on the list and know the order the names are listed in. These are the presenters and the organizations: 1.

Peter Sim on behalf of Manitoba Assoc iation for Rights and Liberties; 2. Rick Wiend, CUPE Local500; 3. Gary Russell, CUPE Manitoba; 4. Peter Holle, Manitoba Taxpayers Association; 5. Vera Chetnecki, Manitoba Nurses' Union; 6. Maureen Hancharyk, Private Citizen; 7. Betty Edel, President, Community Education Development Association; 8. Linda York, President, Manitoba Teachers' Society; 9. Dr. John Loxley from Choices; 10. Rob Hilliard, President, Manitoba Federation of Labour; 11. Mark Francis, Private Citizen; 12. Diane Beresford, Private Citizen; 13.

Darrell Rankin, Communist Party of Canada, Manitoba Branch; 14 . Ian Fillingham, Private

76 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 Citizen; 15. Dan Kelly, Canadian Federation of Inde pendent Business; 16. Peter Olfert, Manitoba Government Employees' Union; 17. Lawrie Deane, Community Action on Poverty; 18. Paula Prime, Manitoba Action Committee on the Status ofWomen; 19. Ron Schmalcel, Private Citizen; 20. Dr. Sid Frankel, Canadian Mental Health Association; 21. George Harris, Private Citizen; 22. Elizabeth Carlyle, University of Winnipeg Students Association; 23. Nancy Paterson and Pat Isaac, Transcona/Springfield Teachers' Association and Seven Oaks Teachers' Association; 24.

Robert Brazze ll, Manitoba Chamber of Commerce; 25. John Wiens, Seven Oaks School Division; and we are anticipating that a Victor Olson, a private citizen, may be faxing in a written presen tation. We have not had anything yet, but there has been some communication from this individual. If there is any person present in the audience this evening who wishes to appear before the committee and has not yet registered, you may register at the back of the room, and your name will be added to the list. *

(1910) A further matter to deal with at this point is the out of-town presenters. It has been the practice of the committee in the past to allow persons from out of town to present first as a matter of courtesy. Currently we are aware of one person registered to speak tonight who is from out of town; that is person No. 12, Diane Beresford. Does the committee wish to grant its consent to hear from the out-of-town presenter first? Mr. Steve Ashton (Thompson): Not only would I support that, but there is also another circumstance I am aware of.

The person requesting might not be available later on today, which is No. 10, Mr. Rob Hilliard. So I would ask if it would be possible if he could also present. Mr. Chairperson: Is that the will of the committee? [agreed] Before we proceed with public presentations, does the committee wish to establish any limit on public presentations? Bon.

Jim Ernst (Minister of Consumer and Corporate Affairs): In light of the fact that there are 25 or 26 persons wishing to present and in light of the fact that it is 10 minutes after seven and if everybody spends a reasonable amount of time giving their presentations, it will take us a very long time to get through them all. In light of the fact that we do not want to keep people here all night long waiting to make their presentation, I would suggest, Mr. Chairman, that perhaps we ask them to limit their presentations to say 15 minutes or so. Then we could ask any questions, I suppose, after that.

That at least would provide some semblance of assistance to, I think, all of the members of the public who want to appear and who are here at the present time. Mr. Ashton: Yes, we have been through this type of discussion before, and I know our preference is not to have time limits. But if the minister is going to suggest any kind of limit, I think 15 minutes would probably be restrictive.

My experience would be that 20 minutes would still restrict some presentations but would probably, with some flexibility on the part of the committee and the Chair-this is a fairly detailed bill, and I just would suggest that if we are going to have any kind of limit, I am not saying we would not be necessarily in support of it but, if we are, then I think 15 minutes is probably a little bit restricted. Certainly, if it was 20 minutes, along with questions, I think, even though our preference would be to not have any limits, that would probably be better than 15. Mr. Ernst: I will second Mr. Ashton's motion. Mr.

Ashton: It was not a motion. Mr. Chairperson: Is it agreed? Mr . Leonard Evans (Brandon East): Is it 20 minutes plus questions and discussion? Mr. Chairperson: That is what Mr. Ashton said. Mr. Leonard Evans: We may find, Mr. Chairman, that that is more than reaso nable and many of the briefs may be much shorter than that. Who knows?

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 77 An Honourable Member: Let us try the 20 minutes. Mr. Leonard Evans: Agreed. But, as our House leader has stated, this is probably the key legislation that we have before us this session and one that has very fundamental implications for the future of the economy, the future of public finance, so we should not shortchange ourselves if we can get any advice on this. Mr. Ernst: Twenty minutes is ftne. I am only trying to think of the ability of the members of the public to endure sitting and waiting for long periods of time.

So let us try 20 minutes and see how it works out. Mr. Ashton: I would also suggest that we have a set adjournm ent time, Mr. Chairperson. Mr. Chairperson: Can we perhaps deal with this one item at a time? Is it agreed that we will try and limit the presentations to 20 minutes plus questions, given that the Chair would be flexible with the presentation. If somebody is about to wrap up, we certainly would not cut them off in mid thought. Is that the will of the committee? [agreed] Mr. Ashton: I am suggesting that we sit no later than eleven o'clock.

I think that is reasonable, especially with the time limit that has been established here. I think we will go through fairly steadily tonight, but my experience-and I have been here with committees, in fact, other members of this committee have been here as presenters where we have had upwards of 200 people registered to present. Somehow 26 does not strike me as being an excessive number of presenters on what is a very important bill, so I would suggest that we not sit beyond eleven o'clock, to convenience members of the public.

We will still get through a significant number today, and we are quite willing on our side to discuss this committee hearing and what other possible meeting times we might have. But we are sitting until November 3, so we have another couple of weeks ahead, so we are more than willing to sit whatever length of time it takes, but not beyond eleven o'clock. Mr. Ernst: I think we can use that as a guideline at the moment until we see how we make out. If in fact we are close to the end at eleven o'clock, we may wish to continue on.

If we are not, then eleven o'clock seems like a reasonable time to me, bearing in mind, Mr. Chairman, that should we not finish tonight, I intend tci call the committee again for tomorrow at 1 :30 p.m. Mr. Chairperson: Mr. Ashton, would you be agreeable that we could use that as a guideline, the eleven o'clock deadline, if there were one presenter to go or if we were close to wrapping it up we could exceed that time, given that Mr. Ernst has indicated that he has prepared to call the committee again tomorrow? Mr. Ashton: I do not mind, if there is one presenter left.

We have done this and that is for the convenience of the presenter. That is not my concern, but the problem with this process is that if we have an open ended adjournm ent time we end up having people coming who are not able to stay until eleven o'clock, which is quite late, to my mind, for most people. I think it is important if someone knows there are two or three presenters ahead, that they know that if they cannot stay here beyond eleven o'clock that they can come back at a more reasonable hour. I think we strived towards that.

So long as eleven o'clock is a fairly clear target time and so long as we are flexible in the sense that people cannot . come back after ten o'clock and can return, say, tomorrow, that we will sit, I do not see any difficulty with it. I do not want it to be, eleven o'clock we try and run things through. That is really important for our side, so if the government House leader wants eleven o'clock as a guideline, fine, but so long as we are willing to come back tomorrow at 1 :30 p.m. I think that is probably more reasonable than going much beyond eleven o'clock. Mr. Chairperson: I see that there is- Mr.

Ernst: We could have heard one presentation already. Mr. Chairperson: I see that there is agreement on the committee tonight that we will assess the issue at eleven o'clock with the understanding that we will be sitting again at 1 :30 tomorrow afternoon to hear

78 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 additional presentations if there are a significant number. Otherwise, if there is one to go at eleven o'clock, we will push to wrap it up. That is agreed? [agreed] We are now ready to begin to hear public presentations. Our list indicates and I believe Mr. Ashton had indicated that there was a Mr. Hilliard, who is item No. 10. Perhaps we could call him first, and then I will proceed to Ms. Beresford secondly and then call the list in sequence. Mr. Hilliard, are you in the audience tonight? Good.

Could you step forward to the microphone, sir, and present your presentation. Before commencing, sir, do you have any written presentation? Mr. Rob Hilliard (President, Manitoba Federation of Labour): Yes, I do. There are copies being handed around now. Mr. Chairperson: Very good. Thank you, sir. Please proceed, sir. Mr. Hilliard: The Manitoba Federation of Labour has promoted the adoption of wise economic policies by all three levels of government for nearly 40 years.

We have urged governments of every political stripe to govern in a fashion that promotes fairness and justice for all Manitobans, to implement policies that are focused on improving the quality of life for Manitobans and to ensure a secure future for our children. The challenge of meeting these objectives requires an evenhanded, fair approach to dealing with issues such as public debt and deficits. The use of deficit financing by governments to meet specific economic and social goals is an essential tool for any government to have at its command. *

(1920) This is how unfo resee n difficulties and the highs and lows of the business cycle can be dealt with immediately in order to benefit citizens and to ensure that a minimum amount of negative impact is experienced. Of course, the remedy must be balanced by paying down the debt or deficit as economic conditions improve. Overall, we believe that good gov ernm ent budgeting is characterized by a number of elements. First of all, it should counter the sometimes erratic private-sector impact on the economy to avoid the inevitable boom and-bust cycle that private sector-based economies are noted for.

In good economic times, a government-controlled progressive tax structure can and often should result in a government surplus. In poor economic times, it is usually advisable to minimize the effects of the downturn through deficit budgeting. Government budgeting should also bring fairness and equity to the economy. It should ensure that all members of society are able to participate in the economy's rewards and responsibilities by serving as a fair distributor of wealth through progressive taxation and judicious spending policies.

As you are aware, government budgeting has a tremendous impact on the delivery of important social services which, in large measure , establishes a floor for the quality of life for Manitobans. The ability of government to deliver these programs must be a fundamental part of all budget exercises. Too often, governments have taken the economic activity sparked by timely intervention through deficit budgeting as a signal to reward loyalty and election campaign contributors with tax reductions, tax holidays, grants and other government revenue reductions. This, of course, is exactly the wrong thing to do.

It means that government is operating with only half the equation. Government intervention during the bad times must be balanced with government surplus during the good times in order to keep the books balanced. The successful use of deficit financing requires a dedication by government to a fair and progressive tax policy, using the taxation benefits of a healthy economy to pay off the debt incurred during periods of economic instability.

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 79 Putting privileged and corporate interests ahead of the larger public interest is responsible for a significant portion of the public debt In recent years, corporations in Manitoba have enjoyed nearly $100 million in tax breaks. Government funding of elite private schools has increased since 1994 to more than 63 percent of their budgets, while support for the public school system has been allowed to dwindle to only 66.1 percent. Community college funding has been cut by $10 million, putting an end to 120 jobs.

At the same time, business has received more that $30 million in grants and tax breaks through the mysterious Workforce 2000 program. If the government's real objective was deficit reduction, why does the government deliberately turn away from revenue sources which would help it balance the budget? Of course, the best remedy for our economic cha llenges is the adoption of an effective jobs-and wages strategy as the government's No. 1 priority. Giving Manitoba's 41,000 jobless workers access to well-paid, permanent jobs will increase government's revenues and decrease social safety net expenditures.

The Filmon government is able to contribute directly to job creation by reversing its own job destruction poli cy while at the same time preserving the vital public services that Manitobans need to maintain their standard of living. Hundreds of well-paid public-sector jobs have disappeared through layoffs and program reductions, reducing services to the public and increasing the ranks of the jobless. Since 1993, in primary health care alone, more than 1,400 jobs have been cut and over 300 beds have been closed in our hospitals.

Another step the government can take to alleviate high unemployment is to promote the adoption of a job creation strategy by business. Government and society must demand that business live up to its social responsibility by returning to the community a measure of the profits it realizes in the form of quality, permanent jobs. The government must make job creation a prime condition to be met by business in its dealings with government. Governments have a responsibility, both moral and legal, to govern in a fashion that includes the interests of all residents.

They have a responsibility to ensure access to good quality jobs, to basic services such as medicare, to a high-quality education system and to social safety net structures that are designed for the elderly, the impoverished and those with special needs. These services have not been well treated by this government since 1990.

In addition to the cuts we have already referenced, $2 million has been cut from the Access program, a program that benefited disadvantaged Manitobans; the student social assistance program has been ended; funding was cut for the New Careers training program; the Pharmacare deductible was increased by more than 50 percent, and hundreds of drugs were removed from the insured list; clinician services to the hearing and visually impaired have been cut by more than 22 percent; 56 community groups, including Indian and Metis Friendship Centres had their funding cut; and the Children's Advocate reports that excessive caseloads and inadequate resources for workers mean some children are forced to stay in abusive homes.

We fear that the shackling of government's hands through balanced budget legislation such as Bill 2 means this unacceptable trend will continue and indeed will probably worsen. The introduction of Bill 2 by the government of Manitoba implies both a debt of crisis proportions and the need to pay it off over a short period of time. Neither analysis is correct.

It is fair to say that it is better to have no debt than a lot of debt, but to characterize the current government debt situation as a crisis that must be dealt with immediately and totally is to support the political agenda of those who want to eliminate the role of government in the economy and to turn the citizens of Manitoba over to an unaccountable and antidemocratic corporate elite. Accumulated debt through deficit budgeting is not an overnight phenomenon, nor should its retirement be.

Simply stated, it took years to accumulate public debt in Manitoba and paying it off should not be attempted over the short term envisioned by Bill 2.

80 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 Broadly speaking, balanced budget legislation is an inappropriate limitation on the ability of a government to deal with the peaks and valleys of the business cycle and with unforeseen crises that may confront society. It may well be that a budget deficit is required to revitalize our economy during periods of recession or to undertake a project that the private sector cannot or will not do. In fact, much of the history of Manitoba is indicative of this kind of public enterprise initiative.

Where would Manitoba be today without the government-financed railway expansion earlier this century? Where would it be without Manitoba Hydro, without the Manitoba Telephone System, and without the many hospitals and schools that private enterprise has no interest in? Bill 2 is flawed in a number of respects. The bill wrongly includes both current and capital spending in its definition of expenditure. Treating capital spending in this fashion fails to recognize that such an expenditure produces an asset that should be listed on the balance sheet. It is an investment.

It produces benefits in the short term through job creation and benefits in the long term by being part of the economic infrastructure. Capital spending must be viewed on a long-term context and paid for over an appropriately lengthy term. An expanding business does not pay cash for its capital works projects, nor does it attempt to retire any debt associated with it over a one- or two-year period. Similarly, individuals rarely, if ever, purchase a car or a house with these rules in place. Limiting capital spending in the way outlined in Bill 2 is bound to produce one of two results.

Either needed capital works will go unaddressed-a situation that is unthinkable in any dynamic economy that is interested in job creation-or vital current spending will be cut in order to bring about the desired balance, killing jobs and important services along the way. This last option is exactly what the people of Manitoba cannot afford, particularly at a time when economic policies implemented by both senior levels of government and the business sector have created thousands of victims who are in desperate need of the very services supported by current spending.

Insofar as needed public works is concerned, it is unlikely that major public capital works projects such as the construction of flood control structures like the Winnipeg Floodway could have proceeded if the gove rnment of the day had been handcuffed by a law such as Bill 2. How many schools and hospitals would have been constructed had Bill 2 been enacted 40 years ago? *

(1930) We are also concerned about the impact of

Section 2 of the act, the requirement that government not incur a deficit on a yearly basis or in exceptional circumstances the requi rement to balance the deficit over a two-year period. Such a tight cycle virtually eliminates any hope of the government being able to intervene in the economy in a meaningful and effective way. Economic cycles simply do not operate over such a brief period. Similarly, the exceptions contained in Bill 2, the circumstances under which a deficit would be allowed without penalties being levied on cabinet ministers, are too restrictive.

A single year of a 5 percent or more reduction in government revenue requires crisis conditions to exist before a government can take action. This means that a government cannot take preventive measures to head off a crisis before its effects become too severe on its citizens. Instead, it must wait until hardship is firmly rooted in many people's lives. The people of Manitoba deserve more than this "lock the barn door after the horse is gone" approach to public policy. The Fiscal Stabilization Fund and the Debt Retirement Fund referenced in

Section 8 are simply not viable in the context of maintaining vital services for people in need. The budget surplus that needs to exist for contributions to be made to the DRF in fiscal 1997- 98 without further deterioration of government services likely will not exist in light of anticipated federal government transfer cuts. The FSF is to cushion future revenue fluctuations. However, in order to be effective, nongovernment analysis estimates that contributions to the FSF would need to be in the order of 13 percent of total spending or $702 million in 1995 dollars. The contributions to these funds required by Bill 2 will require draconian

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 81 current spending cuts that will exacerbate the job destruction-government revenue loss cycle. While Bill 2 does not make specific reference to Crown corporations, it is silent on the fate of revenue derived by their sale. It is not acceptable that a government desperate to avoid a budget deficit may be allowed to sell off valuable public assets in order to use the revenue from such a sale to comply with Bill 2.

In fact, such a practice appears to offend institutions such as the Dominion Bond Rating Service, which criticized this government for using revenues from the sale of McKenzie Seeds as current revenue in its last budget. Inclusion of revenue from the sale of Crown corporations in the curre nt operating budget should not be permitted. Insofar as the use of referenda to determine changes to personal income tax, corporate income tax, retail sales tax and the health and post-secondary education tax levy is concerned, we are opposed.

Presumably, making taxation decisions that reflect the well-being of all Manitobans is the reason why we go to the expense of electing governments that are responsible to the people. A referendum to test the will of the people on a specific matter where it is reasonable to assume that voters have all the relevant information is sometimes well advised. However, it is not a particularly useful tool for making budgetary decisions. Deciding to raise or lower taxes must be made in the context of a broad economic and social strategy.

Communicating this strategy in an effective manner each time a taxation change is felt necessary is neither effective nor is it likely to produce positive results. Simply put, people are generally predisposed to voting no to any tax change.no matter how critically needed or fair a proposed tax increase may be. The implications of this approach to public policy are apparent when one reviews the impact of California's Proposition 13, a taxation relief measure voted on in June of 1978.

It limited the ability of government to finance education and other important public services through the taxation of business, industry and privately owned proper ty. Proposition 13 contributed greatly to a crisis in the delivery of essential public services such as education, a crisis that continues to this day. From the California experience it would appear that people tend to vote with the short-term objective of reducing or eliminating taxes without fully considering the delayed impacts of this decision on the delivery of important programs such as public education.

Another reality in the California experience is that the supporters of a particular side who have the most money will almost always win the day. Economic policy that is determined by the largest advertising budget is antidemocratic and subversive to the respon sible government process. On the appropriateness of referenda we need look no further than the clear statement made by none other than Premier Gary Filmon while addressing the possibility of a referendum on the Winnipeg Jets arena issue. He was commenting on why people elect governments.

Quote from Premier Filmon: They elect people to make judgments on their behalf, judgments that are ultimately in the best interest of the province and its future. We are in office with a mandate to exercise our judgment and to make decisions on a whole range of issues under new and changing circumstances. One wonders what has so obviously changed the Premier's thinking on this subject in so short a period of time. If we are unable to convince this committee to let this bill die on the Order Paper, we urge you to at least adopt amendments to Bill 2 that will address the concerns we have outlined.

Before closing, we would like to make one last observation. Too often proponents of legislation such as balanced budget legislation also champion the view that government must be operated like a business, that citizens must be treated like clients. The reality is that governing a province is not like running a business. Business seeks to maximize profit through offering for sale goods and services that consumers need or have been convinced they need. However, governing a province means putting people first, not profits.

It means ensuring that people have access to a universal, high quality health care system, a high quality education system, a strong social safety net for people

82 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 in need and that people are treated in a just and fair manner. Governing a province means doing just that, governing. Not dodging responsibility for making key economic and social policy decisions by having a government deliberately tie its own hands behind its back and then declaring that there is nothing it can do to address emerging economic and social problems. Residents of Manitoba are not government clients. They are citizens who have rights. Clients are people who shop at a business and have the option of going elsewhere for services or goods.

Citizens have one provincial government, the only one they can rely on for justice and fairness. They expect the government to be accountable to them. It is their provincial government, not some external agency that is marketing goods and services for their consumption. It is key that government debt be addressed over an appropriate period of time that reflects the needs of people and the health of the economy. A blind, headlong rush to dispose of the public debt through a short -term strategy that rules out and punishes deficit financing is not good government.

It is pandering to the hysteria about government expenditures created by corporations and wealthy individuals who do not wish to be held accountable to the communities in which they live and operate. In conclusion, we wish to reiterate that provincial government budgets need to clearly state to the citizens of Manitoba what the economic and social policies of the current government are, not just the fiscal policies. It needs to state what the impact of the budget is on important economic and social objectives in addition to setting fiscal targets.

It should also set targets in these areas such as a reduced unemployment rate, such as an improved youth employment rate, such as a reduced level of poverty, particularly for seniors and children. Provincial government budgets should be all inclusive statements about the kind of society we want to live in. They are not merely bean counting exercises for back-room accountants and political strategists. If that is all they were, Manitoba would not have developed economically to the point that it has.

If future provincial governments are reduced exclusively to the role of bean counting, then we will be faced with a very limited future characterized by a deteriorating standard of living. I would like to thank the committee for giving us the opportunity to present our views. Mr. Chairperson: Thank you very much, Mr. Hilliard. Do any members of the committee have any questions of Mr. Hilliard about his presentation? Mr. Ashton: I just want to focus on the comments in terms of Crown corporations.

Your suggestion is that the commi ttee look at amending the bill, short of defeating it which obviously is the position of some of us on the commi ttee, that would prevent the ability of governments to essentially hold fire sales of Crown corpor ations and dump those funds coming from that sale into a current year's revenue. I am just wondering if you could clarify that, and also you made reference to McKenzie Seeds as well, if you could give some further information to the committee in terms of the background of that particular incident. *

(1940) Mr. Hilliard: In the last provincial budget, the government included in its revenues of the day the sale of McKenzie Seeds and it used that revenue to what it called balance its books. That practice has not been well received by the bond rating agencies and in fact it is not considered good accounting practice. I also think it is a bad practice to sell off the family farm in order to meet current expenditure needs. It is just a bad way of going about things. Mr.

Ashton: I appreciate your comments because certainly this is a concern that we have raised and we have raised in other context in the same room in terms of hearings in terms of Crown corporations. Just one final question, as well, too. Just in reading the presentation, I take it that essentially Manitoba Federation of Labour is arguing for a more flexible and cyclical approach to budgeting at the provincial level. I was wondering if you would perhaps expand on that,

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 83 because I know you referenced it a few times throughout the brief. You referenced some of the difficulties with the current bill which attempts to tie the fiscal process into a one-year cycle that you have to balance each year. I am wondering what the concern is of the Manitoba Federation of Labour with the approach in Bill 2 that essentially does that. Mr. Hilliard: The business cycle that is characterized by a capitalist economy goes in cycles.

It goes in boom-and-bust cycles, and usually those cycles, over a length of time, are something like seven to nine years. The difficulty with requiring an annualized balanced budget is that it does not accommodate the business cycle in anyway whatsoever. I think it does make sense for a government to take a look at its expenditures and its revenues over a period of time, roughly equivalent to the business cycle, and say over that period of time that our revenues and expenditures should be approximately equal.

However, by requiring it on an annualized basis, it forces the provincial government of the day to balance the budget when in fact it may make sense if we are in a boom economy, for example. It may make sense that we should have a surplus which would help pay down the debt. Conversely, it may make sense if the business cycle is in a downturn. It would make sense to stimulate the economy with some provincial government intervention or, as well, to offset the effect of people who are sometimes thrown out of work during a downturn. That keeps money going in the economy.

Those people who are in need of that kind of government assistance spend almost all of it, so it is circulated in the economy and it is beneficial for the economy. In other words, what I am really saying is that government ought to take a look at balancing its books over a period of time roughly equivalent to the business cycle, not on an annualized basis. Mr. Leonard Evans: Mr. Chairman, I would like to ask Mr. Hilliard just a couple of questions. Reference was made to, that there is not necessarily a debt crisis today, or words to that effect, say, compared to the time that this government took over.

I do note, looking at the budget document of Manitoba, that the per capita debt has certainly gone up. In fact, since this government has been elected, the debt has gone up by a third, roughly. We have had a deficit in every year except one, according to the Dominion Bond Rating Service, and that was in 1988, thanks to a number of factors including certain policies of the previous government. So there is no question that the debt has gone up per capita-wise.

But are you not therefore referring to-1 trust what you are doing is referring to the debt in relation to our gross domestic product or our ability to earn income, because I do note that in 1986-87 we were at 25.1 percent of the GOP for net general purpose debt, and by 1995 -96 we are still at 25.9 percent, so virtually no change. Is this what you are referring to? Mr. Hilliard: Yes, it is. In fact, I was referencing a statement by the Minister of Finance (Mr.

Stefanson) during his last budget when he noted that in fact the ratio of public debt to the GOP was approximately stable over the last 10 years, so that is the source of that comment. Mr. Leonard Evans: I was referring to the net general purpose debt. We could also talk about the total net debt, which, of course, includes the Crowns-in fact, all debt. There, again, I noted it was 51. 2 percent in 1986- 87; by 1995 -96, it was 51.8 percent-so again virtually no change. Mr. Hilliard: Yes, that is really what I am referring to.

The fact of the matter is that the provincial government debt relative to these other indices has remained relatively stable over the last 10 years. In fact, if a crisis exists now, it existed 10 years ago, it existed five years ago and existed during the last two terms of government. It seems that the government did not deem it to be a crisis during those periods of time, so I am not sure why it is now. Mr. Leonard Evans: Also, I would like to ask Mr. Hilliard if he or the MFL has looked at the other dimension of debt, that is, the expenditure on the interest on the public debt.

In other words, of the total spending that a government does, that this government

84 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 does each year, have you looked at what percentage of the spending has gone towards the interest on the debt? More precisely, I would like to know if you have any comment on how we compare to some of the other provinces in that respect. Mr. Hilliard: I am sorry, Mr.

Evans, I do not have information at my fingertips, although certainly we will note that there is an ever-increasing proportion of public debt that goes towards interest payments but acknowledge the fact that those are due to policies set at the federal level, at the Bank of Canada, but we would disagree with some of the high-rate interest policies that have been put in place in recent years that have contributed to that phenomenon. Mr. Leonard Evans: Well, just again, I might add that according to the budget document, there has been very little change.

We paid around 11 cents on the dollar back in 1986- 87, and now we are paying 12 or 13 cents on the dollar. As I understand it, Manitoba does not do too badly in comparing itself with other provinces. We are among the lowest in terms of the amount of money we spend on interest on the debt of our total spending. In other words, of the dollar that we spend in total expenditures, 12 cents, 13 cents on the dollar, I think, ranks Manitoba the third best in the country, so, relatively speaking, I would suggest that we do not have a crisis. Does Mr. Hilliard agree with that? Mr.

Hilliard: Yes, I do agree with it, but the gist of our comments is that there appears nothing to be substantially different over the last 1 0 to 12 years or so in provincial government debt relative to all other indices to warrant this kind of drastic action, and I guess that is the gist of our comment. Crisis? Where is the crisis? It is a concern that needs to be dealt with, but crisis it is not. Mr. Leonard Evans: I wondered if Mr. Hilliard had any thought on the fact that what this legislation purports to do is to put future legislators and citizens of Manitoba, 10, 20, 30 years from now in a straitjacket.

In other words, what we are doing in this legislation and I would like you to comment on this if you would what this legislation purports to do is to set out a debt repayment

schedule that is binding on citizens 10, 20, 30 years from now. To that extent my observation that it is undemocratic and not in keeping with our traditional parliamentary system where governments should make a decision year by year on their budget questions, depending on the economy, their overall financial situation, as opposed to what is being proposed here is a rigid repayment

schedule that is binding on future citizens. To that extent it is undemocratic, and I wondered whether Mr. Hilliard had any thoughts on that or whether he disagreed with that. Mr. Hilliard: I do agree with that sentiment, and actually I probably would take it a step further. I think it is . . . in fact is designed to prevent . . . . It is deliberately tying the hands of the government; it is not allowing you to act. In turning over the economy completely to nonelected players, strong players in the marketplace, who are not accountable .... So I am going to take it a step further. I would say that .... *

(1950) Mr. Kevin Lamoureux (Inkster): Mr. Chairperson, my apologies for attending somewhat late. I was with my Justice committee dealing with other matters, so my apologies for not necessarily listening to the full presentation. I did get a copy of it. What I am interested in knowing from the MFL in particular is the concept of balanced budget legislation. There are many different forms-in Saskatchewan, New Br unswick, and now in the province of Manitoba It would appear, at least on the surface, that in fact it will ultimately become law. What is the MFL's position on the concept of balanced budget legislation?

We, too, have pointed out a number of areas in this particular piece of legislation where there are problems, but the concept is something which we do feel the public as a whole is wanting to see. Mr. Chairperson: Mr. Hilliard, before you proceed with this answer, I would advise the meeting that apparently the technician is advising us that he is having trouble with transmission from your microphone. Could you please respond to this question in a loud voice so that the other microphones will pick it up? We then will have a brief recess in order to do

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 85 the necessary technical changes. Thank you, Mr. Hilliard. If you could proceed in that fashion I would appreciate that Mr. Hilliard: Yes, I will. Thank you very much. What was the question? Mr. Chairperson: I am advised that you are coming through loud and clear now. Mr. Hilliard: Oh, about the concept of balanced budget legislation. I would say that philosophically we are opposed to the concept of balanced budget legislation.

That does not necessarily mean we are opposed to balancing the governments books over a suitable period of time, but we feel that the government is elected to govern in a lot of different ways. You have to be sensitive to all kinds of things that are going on. You have to be able to react and adjust to all kinds of things that are going on. To tie the government's hands with a particular piece of legislation that forces them to act in a way that may not be socially or economically responsible is not a good idea.

A government should be flexible enough to meet all of these needs and demands in society without tying its hands to act in a certain way at a certain time It needs, of course, to be fiscally responsible, and we are not suggesting that a government not be fiscally responsible. It must also be economically and socially responsible in addition to being fiscally responsible, and if it is to do that, it cannot tie its hands by focusing solely on a fiscal requirement. I would suggest to you that we are opposed to balanced budget legislation as a concept.

We are not opposed to balancing the government's books over an appropriate period of time. Mr. Lamoureux: The MFL carries some considerable amount of credibility when it comes before the Legislature, and I know I have had ample opportunities to hear the MFL make presentation. What I am curious about is-the concept of balanced budget legislation, is this something that would have taken the form of a resolution at an annual meeting? How does the executive come up with this particular position on it? Mr. Hilliard: Well, actually, Mr. Lamoureux, your question is quite timely.

We have just come through our biennial convention at the end of September, and, in fact, in that four-day convention, we devoted one half-day of our agenda to the concept of balanced budget legislation. We brought up expertise from the AFL-CIO in Washington. We brought in economists; we brought in speakers from anti-poverty organizations; we brought in speakers who have experience with balanced budget legislation in other jurisdictions. This issue, more than any other issue at our convention, received the highest prominence. It was widely debated; it was widely commented on.

It was resolutions passed and it was absolutely solidly endorsed by almost 700 delegates at our convention that we are adamantly opposed to this piece of legislation in particular but also opposed to the concept of balanced budget legislation. It was a process of our biennial convention and most recently so. Mr. Lamoureux: No doubt it would have been an interesting process to have participated in, and I speak for myself personally, in the future on resolutions of this nature, I would definitely be interested in hearing some of those more detailed arguments.

I understand at the beginning of the committee that it was decided 20 minutes per presentation, so we cannot necessarily get into all the detailed discussions that I would like to be able to get into. But I will read very carefully through your presentation and appreciate MFL once again coming before a committee and making a presentation. Thank you. Mr. Chairperson: Are there any other questions? Thank you very much, Mr. Hilliard, for your presentation to this evening. Much appreciated.

I would like to inform the committee that we have now received a submission from Victor Olson, who is unable to make it to the hearing tonight The Page will distribute copies of the submission. Is it the will of the committee that the submission is to be printed in the committee meeting on the Hansard script at the termination of the proceedings? [agreed]

86 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 The next presenter I would like to call forward at this time is Diane Beresford, presenter No. 12 . Ms. Beresford, are you present? I believe the usher is calling in the hall. No answer. Fine. We will put Ms. Beresford's name to the bottom of the list then. The next presenter I would call in order on the sequence of the list would be Peter Sim, on behalf of the Manitoba Association for Rights and Liberties. The usher is calling for Mr. Sim in the hall. Mr. Sim does not respond to his summ ons; his name will fall to the bottom of the list.

The next person to be called would be Rick Wiend, on behalf of CUPE Local 500. Mr. Wiend, would you please proceed. You have a written presentation which you will be circulating to the committee this evening? Thank you. Mr. Rick Wiend (CUPE Local 500): On behalf of CUPE Local 500, I would like to thank you for the opportunity to present this brief before this committee. CUPE Local 500 represents 6,0 00 public-sector employees at the City of Winnipeg, the Winnipeg Convention Centre, the St. Boniface Museum, Highlander Sportsplex, Riverview Health Centre, and the Winnipeg Humane Society.

The proper management of government fmances is an important task which public employees have a huge stake in. Bill 2 represents for us much more of a political agenda than an economic one. We believe a strong public sector with comprehensive services is necessary and complementary to a strong private-sector economy. We believe Bill 2 will hurt public services and, in turn, will impair our ability to create a strong private economy. This submission analyzes Bill 2 and compares it to Bill62 from Saskatchewan.

In addition, legislative and public democracy trends throughout the world are reviewed, along with proposals for a sound government deficit management policy. Our presentation consists of five parts and a conclusion. I am going to just summarize the salient points of each part and go over the conclusion with you. The first

part consists of a critique of Bill 2 and some comparisons with the comparable legislation from Saskatchewan, Bill 62. The definition of an expenditure,

Section I, includes both current and capital spending. The inclusion of capital spending in Manitoba's legislation ensures either limited capital spending or continued pressure to reduce current budget expenditures to pay for capital projects or a combination of both. The second point in the critique is the requirement for a balanced budget.

Section 2 of the act requires the government not to incur deficit on a yearly basis or in exceptional circumstances to balance over a two-year period. I am just attempting to summarize these points. You have the submission in full and you can read it at your leisure. *

(2000) The Saskatchewan legislation is based on a four-year financial plan and debt-management plan, Sections 3 and 4 of Saskatchewan's Bill 62. The third point in the critique is the exceptions. Bill 2 lists three fairly narro w exceptions for which a deficit could be incurred without contravening the act: (

a) a serious disaster; (

b) Canada is at war, or (

c) a single year reduction in revenue of 5 percent or more, about $270 million in 1995 dollars. Saskatchewan's legislation, which is based on a four year balancing plan, contains a far more general and preferable, we feel, exception clause.

Section 4(2): if a major unanticipated identifiable event or set of circu mstances has had a dramatic impact on revenues in a fiscal year. That

section goes on to detail that the bill will not be breached by adding to these circumstances, i.e., incurr ing a deficit. The fourth point, the Debt Retirement Fund.

Section 8. This legislation requires financing of both the Fiscal Stabilization Fund, FSF, and the Debt Retirement Fund. DRF. To finance the FSF and the DRF targets that is in

Section 8, subsection 4--would have required previous surpluses. These do not exist, and this fact

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 87 along with the expected federal cuts means that substantial expenditure cuts will be required to meet the bill's DRF targets even in 1997 or '98. The fifth point in the critique: a referendum is required for tax changes,

Section 10, Taxpayer Protection. The bill requires a referendum vote to change the following taxes: (

a) The Health and Post Secondary Education Tax Levy Act, payroll tax; (

b) The Income Tax Act; (

c) The Retail Sales Act;

d) Part I of The Revenue Act. Another salient point is that the legislation leaves it open to the province to broaden the sales tax or reduce property tax credits to bolster revenues without having to resort to a referendum. Both moves are likely to occur in the future. The sixth point is the Crown corporations. The bill does not specifically mention Crown corporations or the fact of possible sale. Unlike the Saskatchewan legislation, there is no prohibition on including revenue from the sale of a Crown corporation into the current operating budget. The previous submission dealt with the McKenzie Seeds operation, and I will not go into that again. The second

section of the brief focuses on referendums. That is on page 6. Advocates of referendums see them as a form of direct democracy in which the will of the people is measured. By bringing people directly into the decision-making process, they are seen as a means of diluting the influence of special interest groups in government and of constraining politicians in whom the public is losing confidence.

Later, on the same page, we make a point: The case against the use of referendums is that they oversimplify issues and lead to decisions being arrived at without appropriate consideration of the complexity of the matters involved. Complex questions are reduced to yes or no answers. On page 7, we go on to say-previous on page 7 and continuing on page 6, we list historically where referendums have been used throughout the province, and the federal government and the use of plebiscites.

In conclusion, we say, there is, therefore, no history of using referendums to decide detailed questions of budget content which have been left to the discretion of elected representatives. While balanced budget legislation has been introduced in three other provinces, no other provincial government has sought to limit its discretion by requiring referendums be held on issues of fiscal detail. Referendums are not well suited for decisions on budget matters generally but especially not when limited to increases in taxation.

The need for such increases needs to be justified in the broader context of the general economic and social policies for which the government was elected and of the overall budgetary situation that the government faces. This cannot be readily captured in a simple yes-or-no question. Page 8, we go on to again summarize Premier Filmon's description ofthe use of referendums and his critique of it. I will not read it out to you. It is printed there; the source is Hansard. You are probably familiar with it by now.

Section 3, we go on to list Balancing Budgets-Other Trends, and we look at the federal government. Although the 1995 federal budget and Bill C-76 represent the major fiscal cutback which will be felt by all junior levels of government in Canada, the federal government does not yet have a formal balanced budget legislation in place. Finance Minister Paul Martin says, such laws are not the way to go.

Apart from limiting the choices of duly elected governments, this legalistic approach simply encourages ingenious politicians and bureaucrats to spend time looking for ways to get around the rules through accounting hocus-pocus and subterfuges of various kinds. The federal government recently came under criticism from its own Auditor-General for focusing too much on its annual deficit as opposed to its overall level of debt. See Appendix 2, and we include a report from the Auditor published in The Globe and Mail. Another observation on our national finances as a whole is that they cannot be viewed simply from the

88 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 perspective of expenditure reduction pr oposals. Matters such as revenue structure and taxation policy must be exa mined as well. In Appendix 3, we reference another

article from The Globe and Mail, I believe again written by Dalton Camp, critiquing this issue. The second point in other options is the Maastricht Treaty. The European Monetary Union, to take eff ect among all EU nations by January 1, 1999, stipulates that member countries should achieve fiscal deficits of 3 percent of GDP by 1999 and debt ratios under 60 percent of GDP by 200 2. This approach to managing finances by way of setting percentages of GDP recognizes the legitimacy of some form of deficit/debt level such as exists in the private sector as well.

Further on page 10, we look at the example in Australia, the State of New South Wales. Pending legis lation bef ore the New South Wales State Parliament is entitled General Government Debt Elimination. This legislation does not contain provision for ref erendums on tax increases, rather tax restraint is dealt with as follows: Fiscal principle No. 7 is that the level of taxes should be restrained to the maximum possible extent and policies should be pursued that are consistent with a reasonable degree of predicta bility about the level and stability of tax rates for the future years.

Page 11, we look at the example of New Zealand, which has been touted as an economic model to be followed by some. New Zealand's Fiscal Respon sibility Act of 1994 requires balancing of the country's operating budget until debt is reduced to prudent leve ls. A prudent level of debt is not defined, but New Zealand's debt-to-GOP ratio was 43 percent in 1993 with the government predicting a decline to 38 percent this year. Once a prudent level is reached, the budget must be kept in balance on average over a re asonable length of time, making it more like Saskatchewan' s legislation than Manitoba's.

In the United States,

Part 5, page 11, we look at the State of California's Proposition 13. Balanced budget legis lation has emerged in the U.S. over the same period in which most American wealth has been increasingly housed in a shrinking percentage of the public's hands. Decreased levels of overall economic growth have led to increased deficits and in turn to higher debt levels. This has fuelled the impetus for a right-driven tax revolt atmosphere throughout the country. On page 13 ,

Section 4, we examine another possible option, Public Input -Citizen Juries. Various countries have utilized a variety of citizen jury models to improve public input into both political debate and the making of legislation. While political opinion polls and ref erendums are commonly touted as indicators of public views, they provide little in the way of direct citizen input into decision making. They are at best illusionary forms of heightened democracy. I will not go on to read the whole page to you, but Appendix 4 at the back of our presentation lists a number of articles which give examples of the use of these citizen juries which might prove useful in our system . The fifth and last

section refers to A Sound Government Debt/Deficit Policy. That is on page 14. The stabilization function of budgets is important because private-sector spending is notoriously unstable, and if left to its own devices, a pure capitalist economy suffers from pronounced booms and slumps. Governments can reduce these cyclical fluctuations by running budget surpluses during booms and allowing deficits to occur during slumps. *

(2010) Governments have a respons ibility in our economic system for providing the physical and human infrastructure without which the private sector would not be able to function and without which there would be no long-term growth. Since these expenditures are of a capital nature in that the items they are spent on have a life span of greater than one year, it is perf ectly appropriate, in principle and subject to fiscal guidelines to be suggested below, for a government to borrow money and capital markets to finance them. After all, private companies and individuals do not normally purchase their factories, buildings or houses out of

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 89 current income; they borrow for that purpose and service the debt out of current income. The assets purchased usually serve as security for the debt. Page 15: The economic equity and social aspects of budgeting should be achieved within the framework of a number of fiscal principles to which the government should adhere. These might be as follows, and I will summarize them briefly for you: (

a) There should be consistency in the accounting for different items of revenue and expenditure from one year to the next. (

b) Any contributions to or drawings from special funds which can have an impact on the budget either immediately or at some time in the future, such as rainy-day funds or lottery reserves, should be specified clearly in the annual fmancial statements of government. (

c) In normal circumstances, the operating budget of the provincial government should be balanced or in a surplus, i.e., tax and other revenues should be equal or exceed recurrent spending, operating transfers to individuals and institutions and interest payments on debt. (

d) The capital budget may be financed in whole or in part from surpluses on the operating budget. (

e) Government borrowing can be important, therefore, in financing long-term growth and in helping stabilize the economy, and, from this perspective, it is socially beneficial. (

f) Over the economic cycle, normal operating revenues and expenditures should not exceed 20 percent of provincial GDP, and preferably this ratio should decline over time provided social and distributional objectives can still be met. This limit might need to be changed over time to meet major constitutional or program changes which have the approval of the electorate. (

g) Where changes in revenue or expenditure at the provincial level have the effect of significantly changing net revenues to lower levels of government, such as municipalities or semiautonomous agencies such as school boards or universities, this should be specified clearly in the budget. This would not stop offloading of fiscal problems by the province, but it would make it more transparent and better enable the electorate to evaluate it. (

h) Responsible budgeting requires the province to calculate the value of its fixed assets so that a true picture of the province's net worth situation can be found. Responsible budgeting recognizes the several different roles played by the budget and avoids the use of simplistic restrictions which prevent governments from using budgets to achieve broader economic and social goals. These would include stabilizing the economy, reducing unemployment and encouraging growth, and protecting and enhancing the quality of services in health, education and other fields of social policy.

At the same time, responsible budgeting would also provide fiscal guidelines within which these broader dimensions of budgeting would have to operate. These guidelines would address any concerns the electorate might have about tax and debt burdens becoming unbearable and need not be enshrined in the law. In conclusion, for the foregoing reasons, CUPE Local 500 opposes Bill 2. While we favour responsible management of all public funds and the provision of comprehensive, universally accessible social programs, we are not alone in criticizing Bill 2.

I will quote from the Free Press: "The bill is full of stupidities." "Fiscal prudence is important . . . . So too is the capacity to govern with flexibility and creativity. . . . The bill should be withdrawn." Winnipeg Free Press editorial, Saturday, September 23, 1995. The second quote: "The Filmon government's fiscal games never really fooled anybody .. .. " Would not clever politicians have figured out that it was better to come clean in the budget than to have been found out in the middle of an election campaign? Winnipeg Free Press editorial, April ?, 1995. Both editorials appear as Appendix 1.

90 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 On the international level, as mentioned, many companies are wrestling with debt deficit problems and enacting various forms of balanced budget legislation. The International Monetary Fund has recently commented on this trend. The costs of a balanced budget law are the loss of fiscal stabilization over the cycle and the loss of flexi bility in reacting to shocks on expenditures of reven ue. The unenf orcea bility of a balanced budget law is also a complex question. Any law can be changed by a sover eign.

Bill 21 does not chart a course for resp onsible management of government funds and for the provision of government service obligations. This is a shallow and regressive piece of legislation which ought to be withdrawn. Thank you for your time. Mr. Chairperson: Thank you very much, sir. We thank you for your presentation. Are there any questions? Mr. Leonard Evans: Mr. Chairman, I thank the presenter for a very informative presen tation. It has a lot of very useful data, and I appreciate the comparisons with some other jurisdictions and the information from some international agen cies.

I wonder, you made ref erence on page 12 to the fact that there is such a concept as national wealth. We are always talking about the national or provincial debt. We have got figures in budgets and other government documents estimating debts, but we never seem to want to talk about our assets. I would maintain the people of Manitoba have billions, that surely we have billions of dollars worth of debts, but we have billions and billions of dollars worth of assets, assets by way of schools, hospitals, highways, bridges, you name it.

I was wondering whether CUPE had done any research into the amount of assets that we have in the province of Manitoba Mr. Wiend: To my knowledge they have not, or I am not aware of the research that has been done. But I will certainly make note of that. Our research department is more than up to the task. I am sure . Mr. Leonard Evans: I notice your ref erence to the Washington-based Economic Policy Institute noting the amount of debt, but then going on to say that there was the national wealth.

They made an estimate of the national wealth being $196,000 per person in the United States, well in excess of per capita debt in that country. Another question arises out of your analysis of budgeting. So, in a nutshell, CUPE is saying they are not against balancing a budget, but you have concerns about balancing the budget in a specific year? Is that correct? Mr. Wiend: I believe that would be accurate, yes. Mr. Leonard Evans: In other words, perhaps we should learn something from the Great Depr ession and maybe from the writings of John Maynard Keynes .

The ideal way to balance a budget is over a business cycle. I mean, at some point we have to pay for our debts, but to do it over a business cycle rather than a year, what is so magical about a year, I would ask? Why not every quarter or every month? How about every day? Mr. Wiend: I would submit that to try and cure the budget problems over the course of a year would be somewhat draconian and unrealistic. I would tend to agree with you that the business cycle over which we can mitigate should be mitigated by use of fiscal and monetary policies. Mr.

Leonard Evans: Have the CUPE researc h people looked at the debt repaym ent

schedule as outlined in the budget document of 1995 where the government purports to bring it down to zero in 31 years ? Mr. Wiend: I do not know if they have or not. Mr. Leonard Evans: I am simply going to ask-it does not include unfunded liabilities, and the Auditor, I believe, has some concern over the fact that unfunded liabilities are not included in the schedule. I just was going to ask the presenter if he had any comment on that, but perhaps he does not because of the fact that that has not been looked into.

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 91 Mr. Wiend: You are correct in that assumption. *

(2020) Mr. Tim Sale (Crescentwood): I want to say to the presenter, I really appreciated a very thorough brief, and I appreciated, in particular, the references to other nations and to one of what I think all members of the House would agree is one of the most conservative organizations in the world, the International Monetary Fund, commenting that balanced budget legislation is inappropriate. I think that is a very pow erful warning to us all. I want to ask, on page 17 of your brief, Mr.

Wiend, you make a kind of prescriptive suggestion that in broad terms, over the cycle, operating revenues and expenditures sho uld not exceed 20 percent of provincial GOP. I am struck in your brief by that because, looking over the 10 most recent years, it has hovered right in that range, occasionally exceeding it, but most often being under it. I know you do not have the figures in front of you, but the highest it ever reached was 21 percent in 19 88-89. The lowest was 18.4 percent in 19 86-87. It is currently at 19.5, and in the past fo ur years it has been at some range between 19.4 and 19.9.

Again, I think, as the previous brief pointed out and your brief points out, an extremely stable picture, hardly a crisis, and I wonder if you have any comments on that. Mr. Wiend: Yes, we tend to agree that the budget deficit hysteria is somewhat overblown, and our figure of20 percent in relation to what has actually happened in the economic performance of the province tends to bear that out We basically see this bill as an oversimplification of a problem that is simply that. It is a problem and it is not a crisis, to echo the previous speaker. Mr. Lamoureux: Mr.

Wiend, on several occasions inside the brief and you have actually commented on it, you quite often make reference to the business cycle. You also make reference to the booms and busts of an economy, and I do not think I would question any of that logic. In fact, I think that is a very valid concern, and, in fact, Saskatchewan has legislation, as you have pointed out, that takes that into consideration.

I guess to a certain degree there is an argument that could be made that, no, the province of Manitoba is not in a crisis situation in terms of a deficit, but I think to a certain degree an argument could be made that the public as a whole could, in all likelihood support the concept of balanced budget legislation. You point out some of the problems that are in Bill 2, but you also make reference to Saskatchewan's bill on several occasions.

I am wondering if it is not possible to take into consideration the types of things that you have talked about and also to take into consideration that what many believe the public wants to hear from government is concern, an expressed concern. If you take into consideration your concerns as pointed out here and that can be taken into account in balanced budget legislation-Sa skatchewan has gone a long way in taking that into account-would you then not agree that the concept, if put into place properly, is acceptable? Mr.

Wiend: I think that is, in part, our point and the point that was made in the last submission as well. If this bill cannot be defeated outright, I would certainly support amendments that could be made to it in the fo rm of those we have quoted from the Prov ince of Saskatchewan. We are not against fiscal responsibility or prudent management. We are not against that at all. What we are fo r is fo r a common-sense approach to this deficit problem and not a deficit hysteria, and I think the Saskatchewan model is one that tempers the draconian methods presented in Bill 2. Mr.

Lamoureux: So, if Bill 2 reflected-and I think it was Bill 62 in Saskatchewan? You would be content with that sort of legislation if we were to amend this to that extent, knowing full well that, in all likelihood, it is not going to be amended, of course? The government has not given very much flexibility, but would you support that?

92 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 Mr. Wiend: Well, the proof would have to be in the pudding, and we would have to see it before we could make any comment on that We would hope that there would be some flexibility with the government on this bill. Bon. Eric Stefanson (Minister of Finance): Mr. Chairman, I just have one question, and it is a reference on page 3 of the brief and it is, I think, an identical reference that was made in the Manitoba Federation of Labour brief and it is the second last paragraph.

It says: The Fiscal Stabilization Fund exists to provide a cushion against revenue fluctuations. It is estimated that the Fiscal Stabilization Fund would need to be raised to 13 percent of total spending, i.e., $702 million would be the requirement in 1995 dollars. I am wondering if you can provide me with the source of that and any details that you might have in terms of arriving at that calculation. Mr. Wiend: I do not have the source of that with me but will be happy to provide it to you at a later date if that is possible. Mr.

Stefanson: I would appreciate that, the source, and if there are any other details showing the detailed calculation, I would appreciate those as well if they are available. Mr. Wiend: Certainly. Mr. David Newman (Riel): Mr. Wiend, I know how some business organizations and some unions increase their membership dues. Generally, how does the union movement increase membership dues? Do they do it through the executive committee or do they go back to the membership to get approval? How does yours do it? Maybe you know that one rather than asking you to speak generally. Mr.

Wiend: Well, ours has not done it for quite a while, and that is as a result of numerous factors. The last time it was attempted- the dues increase is the responsibility of the central council of our local. Mr. Newman: Is that the general concept used in most union constitutions or in most cases does a general membership have to approve dues increases? Mr. Wiend: I do not know. Mr. Chairperson: Any other questions of this presenter? Mr. Wiend, thank you very much, sir, for coming before us tonight and spending the time you have with us. The next presenter on the list is Gary Russell on behalf of CUPE. Mr.

Russell, could you come forward, sir. Thank you. I see some written presentations. Thank you for circulating those. Please proceed, Mr. Russell. Mr. Gary Russell (CUPE Manitoba): Thank you. I looked at the number of pages we had here and decided this would take about half an hour, so I have highlighted it in order to keep it within 20 minutes. I begin at the first page after the table of contents.

CUPE Manitoba represents over 21 ,000 public-sector workers in Manitoba CUPE members work for more than 190 different public-sector employers including municipal governments, school boards, hospitals, nursing homes, child care centres, children's aid societies, public libraries and social service agencies. CUPE, along with many Manitobans, opposes Bi11 2, The Balanced Budget, Debt Repayment and Taxpayer Protection Act. This brief outlines our reaso ns for opposing this legislation.

I skip down to the second paragraph after the introduction: Prudent management of public finances is essential at any time and especially so in the current climate of federal oftloading, economic uncertainly and exposure to global financial markets. However, Bill 2 does not propose a responsible approach. Its restrictions on the ability of the government to respond to changes in the economy would weaken the provincial finances and promote cuts to public services.

Bi11 2 proposes restrictions which are far more stringent than balanced budget legislation in other provinces and in other jurisdictions outside of Canada * (2030 ) Moving to the bottom paragraph: Responsible management of the public finances requires a recognition of the economic and social consequences of

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 93 budget decisions. It also requires making the budgeting process more transparent and open to the public. Instead of tying its hands with Bi11 2, the government should retain the powers it needs to stabilize the debt at a more sustainable level. This goal should be complemented by explicit targets for economic and social development, and the impact of fiscal decisions on these targets should be clearly set out in the budget.

Under item 1, Balanced Budget Orthodoxy, on page 2: The government's fanfare surrounding Bill 2 suggests that it will usher in a new era of prosperity and deficit-free government. Quote: We can look forward to the day when our children will be free of public debt Freedom from debt will let Manitobans accomplish more than ever before, the Finance minister promised in this year's budget. Anyone familiar with Manitoba history should be very skeptical of these claims. The provincial economy declined when past governments refused to borrow to make public investments and to offset downturns in the business cycle.

Contrary to the current government's claims, freedom from debt diminished Manitobans' standard of living and denied them the opportunities provided by a modern economy and society. On the bottom of the page, I will introduce it by saying, an early budget of the Duff Roblin administration stated: We have consistently maintained that inadequate capital investment in recent years has handicapped the growth of the province. Parsimony is rarely true economy.

On page 3: The defeat of Campbell's government marked the beginning of a period of modernization during which the Roblin and Schreyer governments made major public investments in education, health, hydro and other capital products. Without these investments, Manitobans would not enjoy the standard of living and access to services which we now take for granted. These investments did incur a significant provincial government debt. However, it is misleading to consider the province's debt burden without also taking into account the public assets acquired by borrowing.

This point was made most eloquently by Duff Roblin, the Conservative Premier: Who can say what the monetary cost is of not building a road, a school or a hospital? Must we assume that investment for growth can only be justified when it can be supported by a settlement of profit and loss? Nevertheless, this factor is as real as any reflected in a profit-and-loss statement. All factors must be weighed and indirect benefits offset against the costs.

The current provincial government keeps no comprehensive record of the value of Manitoba's public assets. ·Its practice of reporting only the public's liabilities, not our assets, does not provide a full picture of the Manitoba fiscal situation. Moving towards the bottom of the page: Like the present government, the Lyon administration also aspired to reduce taxes by cutting government spending. His government cut civil service jobs, held up capital spending on public hydro and housing projects, and cancelled spending on job creation.

Welfare benefits were reduced by over 20 percent during the term of the Lyon government. These measures deepened the downturn of the economic cycle, giving Manitoba the worst economic record of all Canadian provinces in 19 79. Under New Challenges on the following page: Economic integration has made our export sector and the entire provincial economy increasingly volatile. Recent trade agreements have contributed to a greater dependence on U.S. markets. Deregulation of global financial markets has reduced the ability of the Canadian economy to control the international value of our currency.

Strong demand and a weak Canadian dollar contributed to very strong growth in exports to the U.S. in 19 94. However, a change in these conditions can bring a dramatic drop in exports, slowing economic growth, causing government revenues to decline. Skipping a paragraph: This context increases the importance of the provincial government's role in diversifying the Manitoba economy and offsetting

94 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 downturns in the business cycle. Federal government offloading also adds to the importance of provincial government measures to support stable economic growth. The federal government's withdrawal from programs that help stabil ize regional economies makes the economic and social role of the Manitoba government all the more crucial. The austerity policies that Bill 2 would impose could have far more disastrous effects than in the Lyon years. More austerity is not the answer. Manitobans learned that lesson during the Depression. A

section we label quite consciously Responsible Budgeting, in the second paragraph, the provincial government should concentrate on keeping Manitoba's debt within sustainable levels while using public resources to facil itate economic growth and support a strong social infrastructure. The operating budget should normally balance out over the business cycle. Deficit spending is necessary during recessions to offset revenue losses and increased social assistance payments and other costs. These shortfalls in the operating budget should be balanced out by the surpluses generated during periods of growth.

A different principle applies to the capital budget. Capital spending is an investment which should be distinguished from current consumption. The assets acquired by capital spending provide a public benefit throughout their lifespan, which by definition is longer than one year. Standard business accounting practice requires that capital costs be allocated over the productive life of the asset. Just as businesses and individuals borrow to make large investments, it is appropriate for governments to borrow for capital purposes and service the debt out of operating revenue.

I mig ht add just to ela borate on that a little bit, I personally would even go so far as to say that our spending on salaries for teachers to provide education as a social investment and perhaps that part which is now in operating expenditure should be considered part of capital expenditure and not be subject to balancing over the cycle. Contrary to normal business practice, the Manitoba government treats capital spending as current expenditure. Large capital investments are entered in the budget as if they were an annual expense instead of being amortized over the life of the asset.

The sustainable level of public debt should be measured in relation to total provincial income and the cost of borrowing. A large public debt with high annual debt charges can become a drag on the economy. The level of debt becomes unsustainable when, over the economic cycle, debt interest charges grow at a faster annual rate than growth in the economy. Past performance suggests that Manitoba can support a public debt equivalent to 25 percent of GOP without it slowing growth in the economy. Debt interest payment should not exceed 11 percent of the operating budget.

Higher levels begin to crowd out spending on public programs and services. These ratios may fluctuate over the economic cycle but should be stable or falling over the long term. Based on these indicators, Manitoba's general purpose debt, which excludes self-financing debt such as that of Manitoba Hydro, is slightly above sustainable levels. I will skip over the details. Instead of tying its hands with Bill 2, the provincial government should exercise all the tools at its disposal to manage the economy and stabilize the debt at a more sustainable level.

These tools must include public investments and reasonable revenue measures, including fairer taxes, as well as measures to contain costs and make spending more efficient. Legislation cannot guarantee that a government will act responsibly. As the next

section shows, even the stringent rules in Bill 2 contain loopholes. A better way to increase government accountability to the public is to make the budgeting process more transparent. This includes setting clear targets for economic and social development, as well as fiscal targets. Budgets should provide the inf ormation required to monitor the government's performance in relation to these targets. A more detailed discussion of guidelines for responsible budgeting is included in appendix 1.

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 95

Section 2 entitled Bill 2: Wrong Goals, Wrong Rules-moving on to page 7: The goals of prohibiting deficits and eliminating the debt are wrong because they are not required to get the debt to a sustainable level and because they will force severe cutbacks in services. Moreover, Bill 2 sets out the wrong rules to ensure that future governments reach these goals. These rules are wrong because they require moderate income earners and future generations to shoulder the lion's share of the costs of debt reduction.

Further down the page: In failing to distinguish between operating and capital expenditures, Bill 2 will impede future governments from investing in physical and human infrastructure. Without the ability to borrow for capital purposes, governments are likely to let existing public assets deteriorate and neglect to invest in infrastructure for future generations. Bill 2 will bequeath our children a deteriorating physical and social infrastructure and prevent them from borrowing, as our generations have in the past, to invest in these assets.

At the bottom, this rule precludes any effort to use public spending as a counter-cyclical influence to cushion fluctuations in the Manitoba economy. CUPE's preferred policy of balancing the operating budget over the economic cycle would permit counter-cyclical spending. In fact, Bill 2 virtually guarantees cuts to public programs during a recession because the government will have few other options for reconciling falling revenues with increasing costs for social assistance, social services and other income-sensitive programs.

Cuts to public spending will deepen a recession, compounding the cycle of economic hardship and declining government revenues. *

(2040) The costs of capital projects are usually not evenly distributed over the construction period because there may be large up-front costs or particularly expensive equipment and facility costs in one year. Without the ability to amortize these costs over a longer period, the impact of a single year's budget could be prohibitive. It is not clear how the government intends to deal with this problem. The government claims that the Fiscal Stabilization Fund will be available to make up for shortfalls in revenue.

In the next paragraph, according to one estimate, annual budget surpluses of about $200 million would be required in order to finance the fund to this level over a five-year period and make the payments to the debt reduction fund required by Bill 2. I do not have the footnotes in this brief to provide references, but I can provide references at a later date, if you would like. In four out of the past five years, this government has transferred money from the FSF and from lottery revenue to improve its budget balance.

Without a $14 5 million transfer from the lottery fund, this year's budget would be headed for a $97 million deficit. Given this recent performance, the government will have to severely cut spending on programs in order to make the annual contributions needed to build the FSF fund up to an adequate level. Moving to page 9 and the

section called Debt Retirement Fund: CUPE supports a policy of stabilizing the accumulated debt at a sustainable level equivalent to 25 percent of GDP or less. This can be achieved within a reasonable period by balancing the operating budget over the economic cycle, making taxes fairer, and using capital investment to support economic growth. In contrast to this reasonable approach, Bill 2 requires annual payments into a Debt Retirement Fund. This requirement reflects an orthodox faith in the virtue of zero debt, which at the very least should not be imposed on future governments.

As previously stated, there is a legitimate role for public borrowing for capital purchases. Businesses and individuals borrow in order to purchase assets such as factories, vehicles and houses. They do not normally regard their debt as a dead weight, neither should the government when it borrows to invest in public assets. As well as imposing the goal of debt elimination on all future governments, Bill 2 sets out a

schedule of payments which transfers a lion's share of the cost onto

96 LEGISLATIVE AS SEMBLY OF MANITOBA October 19, 1995 future genera tions. In doing so, it violates a responsi bility of government to ensure that costs are distributed fairly over time. This responsibility is particularly important because as Lars Osberg has observed, the power relationship is unavoidably unequal : This genera tion can affect the welf are of future generations by running down the capital stock, or by despoiling the environment, but there is nothing future genera tions can do to us. There is a ref erence for this one .

On page 10 , the government justifies weighting the cost of debt reduction on future gene rations by arguing that they will benefit the most from lower debt interest charges. This argum ent does not allow for changed circumstances which may reduce the savings on interest payments. A little further down: An equally important weakness of the government's argu ment is that it neglects the other side of the ledger. Future generations may benefit from reduced interest charges, but they will also bear the cost of our failure to maintain Manitoba's physical and social infrastructure.

These costs are very real, regardless of whether they are paid publicly or privately. One needs only look to the United States for an indication of the price future Manitobans will pay for our governmen t's austerity. Because of their minimal public health insurance system, Americans pay a much larger share of average family incomes for health services than do Canadians. Government's neglect of the social and physical infrastructure has entrenched gross inequality and spawned a culture of violence in the United States.

As a result, public and private costs for police, prisons and protection services are far higher than in Canada For these reasons, CUPE opposes any legislation which locks future governments into a policy of reduc ing the debt to zero . Bill 2 is particularly objec tionable because it imposes the greatest cost of debt reduction on future generations of Manitobans. The next section: Bill 2 prohibits the government from raising rates on major taxes without first winning approval in a public ref erendum.

At the bottom of the page : Experience in American states confirms that the ref erendum requirement is a formidable obstacle to any future government that proposes to raise taxes no matter how evident the need for increased revenue. Voters consistently resist tax increases when they are not required to specify what services will have to be cut as a consequence . Evidence from the U.S. suggests that tax ref erendums have consequences which are not intended by many of the voters who support tax limits.

There are ref erences to California's education system, its decline; the Michigan and Massachusetts decline; greater inequality in the public school system; Oregon's declining spending on higher education; Orange County, California bankruptcy, which is in part a product of Proposition 13 , and how the state of Calif ornia has been forced to bail out that county after their residents, who have the highest average incomes in the States, used California's referendum law to refuse a property tax increase , in other words, to refuse to pay their debts.

This evidence is not included to suggest that the public cannot understand budget issues. Rather the ref erendum is too crude an instrument for making complex budget decisions . No ref erendum questions can adequately summ arize the various options available and the consequences of each. I, too, will not repeat the quote from Premier Filmon on the Winnipeg Jets, but I want to emphasize the content of that quote and that it essentially concurs with our position on ref erend ums.

Measures to make the budgeting process more transparent are a much more appropriate way of making the government more accountable to the pu blic. We refer again, as CUPE 500 did, to citizens' juries as one approach. Local governments in Germany and other parts of Europe have incorporated citizen juries into the planning process. We have an appendix 4 which has some description of how the citizens' jury process works. Proceeding to a little further down the page : Other problems stem from the specific provisions of the tax

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 97 referendum requirement in Bill 2. It prevents a government from raising the rates of major taxes, but it does not prevent a government from implementing hidden increases to those taxes or from raising other taxes and fees. These revenue measures would hit middle-and low-income Manitobans the hardest. Examples of hidden increases permitted by Bill 2 include broadening the base of the sales tax and reducing property tax credits. Both are highly regressive because low-income earners are the most affected.

The present government has used both measures as a hidden way of raising tax revenue. Future governments would likely do the same. Page 13: Bi11 2 allows increases to taxes on property, gas and other items, without a referendum. Numerous fees and other fees such as drivers' licences and park permits could also be increased. These increases also would have a more regressive impact. An additional specific problem with Bill 2 is that it crea tes an obstacle to better balance in the revenue raising respons ibilities of local and provincial governments.

Municipally administered property taxes are higher in Manitoba than in most other provinces including British Columbia. Property taxes would likely be higher if Manitoba did not have a provi ncial-municipal tax-sharing agreement that gives municipalities a very small share of the revenue from income taxes and sales taxes administered by the province. It is unlikely that Bill 2 would permit increases to these provincial taxes to raise rev enues designated for municipalities.

While the legislation allows such increases to respond to changes in federal tax laws, there is no similar provision for rebalancing taxing authority between the provincial and municipal governments. Conclusion: The previous

section outlines our objections. It would entrench the wrong goals as fiscal policy for future government. It sets off the wrong rules to ensure that future governments achieve these goals. It is far more restrictive than balanced budget legislation in other jurisdictions. The curr ent context of economic uncertainty requires responsible measures to stabilize the debt at a more sustainable level, not a law that imposes an extreme version of fiscal austerity on future genera tions. Bill 2 is a simplistic yet dangerous piece of legislation. For the reasons outlined in the submission, CUPE requests that it be withdrawn. *

(2050) I would add to that, since there was a previous question about where does this come from, at the CUPE Manitoba convention back last spring in which several hundred members attended, there was a debate over our opposition to balanced budget legislation. There was a debate over whether we should amend that to ask for modifications. The result of the debate by an overwh elming vote of the delegates was not that we should ask for modifica tions, but that we should ask that it be totally withdrawn. Thank you. Mr. Chairperson: Thank you very much, Mr. Russell.

Are there any questions from the committee of this presenter? Mr. Leonard Evans: Mr. Chairman, first, I thank Mr. Russell for an excellent presenta tion on behalf of CUPE Manitoba. I would guess that, generally speaking, Mr. Russell, CUPE would probably agree with Dalton Camp, who, in a recent article, referred to politicians, quick to spot a trend, have seized upon the debt issue and declaimed upon it, punishing the poor with the illusory economies while visiting tax deductions upon the more fortunate, but we know all of this.

He goes on to talk about-being very critical of governments going in for really what amounts to pursuing a fad, a fad type of legislation. Would you agree with the observa tion of Mr. Dalton Camp who says it seems quite clear that we do not have a deficit problem as much as we have a revenue problem? Mr. Russell: The position I have always taken, and my colleagues in my union have generally supported

98 LEGISLATIVE ASSEMBLY OF MANITOBA October 19 , 1995 the same idea, is to put it in its most provocative form: the debt crisis is bogus. There is not really a deficit crisis. If you look at personal terms, my bank allows me to take out a mortgage equal to twice my annual income, and my bank allows me to have total debt repayment of up to maybe one-third of my income and one-third is far less than what governments are paying right now. So, if it is good enough for the banks for my personal finances, something better than that should be good enough.

I think the major criterion of whether there is a financial crisis is whether there is any risk of the individual or the government not being able to make the payments, and there is no risk of the government not being able to make the payments . So we are inclined to interpret this as more political than it is economic because it does not really have an econom ic basis. Mr. Leonard Evans: Mr.

Chairman, you point out under New Challenges to problems that provinces run into and making ref erence to the fe deral government withdrawal from various transfers of funds to the provinces and how that does create problems and that perhaps we have not taken sufficient account of this. So I guess what you are suggesting is that, because this legislation virtually puts us in a form of a straitjacket, we are not able to respond, the province is not able to respond to the fiscal realities, to the economic realities year by year.

I would like to ask you specifically if this would be one example of some of the factors. We live in a very fluid situation, and we do not know the future, of course. There are a lot of unknown factors.

Another factor has just come up recently, and that is the announcement by the Harris Conservative government of Ontario that they would cut income tax rates by 30 percent, which, I understand, will have a substantial impact on fe deral equalization payments to smaller provinces including Manitoba So here is an example, would you not say, of another factor coming along that would have a negative impact on Manitoba trying to achieve whatever it is trying to achieve by way of debt reduction in this straitjacket piece of legislation? Mr.

Russell: I think, then, that perhaps you are contradicting yourse lf if you say we do not know the future because you are giving us some reasons by which we can predict some elements of the future very well. I think it is clear that we are looking at very substantial reducti ons in the transfer payments that will be received by these provinces and the only way with this-yes, it is a good term, straitjacket-in place to deal with 5, 10 , 15 percent cutbacks in fe deral transfer payments will be massive reductions in social programs, massive reductions in government spending.

I would go so far as to say that, even though the legislation says that if the fe deral cutbacks are more than 5 percent, they do not have to balance the budget. I would expect the government to be in a position where they have put so much public relations into balancing the budget that, even though it is more than 5 percent reduction in transf er payments, they will fe el politically compelled to balance the budget anyway, and we will end up with these massive cutbacks in public spending and the social programs and infrastructure and development needs that it supports. Mr.

Leonard Evans: When I said we do not know the future.-of course, we know that Ontario has set its plans to reduce the cut-I am sure that was not taken into consideration when the Minister of Finance brought in his medium-term fiscal plan. At least I do not see any ref erence to that in the document,

whereas there is ref erence to fe deral transfer cuts. You stated that we should have other targets besides fiscal. You suggested we should have some clear economic and social development targets . Would you care to elaborate on that? Mr. Russell: First of all, the context would be that we large ly believe in what is commonly called a mixed economy, which means that there are some areas where the private sector perf orms well and the private sector should do the job in those areas.

There are other areas where the public sector perf orms well and the private sector is not particularly suited to do that, especially things like infrastructure development and social programs that do not have a commercial revenue base and theref ore do not have a profit base.

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 99 So there is some necessity for the government to be establishing an overall economic program of economic and social development and providing those programs and economic goods and services where it is seen as better provided or necessary to be provided by the public sector.

That degree of economic planning to find a balance between public-and private-sector goods so that we achieve some degree of balance in the economy, this is the overall comprehensive kind of approach we are talking about rather than the simplistic, balance-the-books at all costs, let everything be done by the private sector because the public sector does not have any money to do anything any more, and let the chips fall where they may-sort of almost anarchist point of view of just letting us accept whatever the market takes.

So I am contrasting a comprehensive planning approach with just catch-as catch-can approach of free market at all costs. Mr. Leonard Evans: I agree with Mr. Russell. It is rather interesting that back in the late-'60s, a former Conservative government had a report entitled Targets for Economic Development-the TED report fostered and introduced and submitted to the Legislature and the people of Manitoba by the Honourable Mr. Spivak at the time. At least that was an attempt. You may not agree with the targets or the detail but at least it was an attempt to set out a pattern of growth.

So what you are suggesting, this is what we need today. I do not know of any plan by the government or any target set forward by this government, by this Minister of Finance (Mr. Stefanson), for specific economic goals that we should try to strive for. There does not seem to be any notion of where Manitoba is headed as an economy. So what you are suggesting is that we would do well to do our research and to establish some goals and to decide what kind of public investment we may need in addition to any private investment in order to achieve a higher standard of living, let us say, for our people. Mr.

Russell: And it also carries the implication, as I have said on many occasions in the past myself, that governments in the past, even Conservative governments, used to stand for social policy and finding the balance in the mixed economy. There has been a swing in a lot of governments, not just the Manitoba government, and perhaps more elsewhere than in the Manitoba government. There has been a swing to the hard right and private enterprise at all costs. Social planning and social programs and social infrastructure are illegitimate because they interfere with the private market.

Part of the thrust of our brief is wanting to try and soften this swing to the hard right and private enterprise at all cost. *

(2100) Mr. Leonard Evans: I would just comment that, again, Dalton Camp who is a long-time Conservative, responsible for maybe in many ways getting Bob Stanfield the leadership of the Conservative Party, and, of course, more latterly, an adviser to Mr. Mulroney. He himself has referred to the present Conservatives as Cro-Magnon Conservatives as opposed to the Conservatives that he knew in the tradition of Sir John A. Macdonald, who saw that there was a significant role for governments to play in bringing about economic development. My question, and I am supposed to put questions [interjection] Any time.

I would, I guess, gather that you would agree with Mr. Dalton's comment in this respect. Mr. Russell: I would be inclined to agree with this eminent Conservative's comments, but I would also add that when I first started teaching economics at the University of Manitoba in the 1970s, it used to be that there would be a footnote at the bottom of the

chapter saying: and this is what the crank right thinks. Nowadays, this seems to be the mainstream right. It is this, again, move to the hard right and hope to move them back to a more moderate stance where they really used to be that I would like to see. Mr. Chairperson: Any other questions of this presenter? If not, thank you very much, Mr. Russell, for your time and expertise this evening. The next presenter on our list is Mr. Peter Holle of the Manitoba Taxpayers Association. Mr. Holle, could you come forward, sir. I see from your appearance

100 LEGISLATIVE ASSEMBLY OF MANITOBA October 19 , 1995 tonight that you have a number of printed manuals to circulate, and I thank you very much for that We have now circulated your brief , would you please proceed, Mr. Holle. Mr. Peter Holle (Manitoba Taxpayers Association): Thank you, Mr. Chairman. Thanks very much for inviting the Manitoba Taxpayers to talk to Bill 2 to this committee. As you might know, we strongly support this leg islation.

Bef ore I get into my comments, what we have done is we have assembled some past mat erials; we have a lot of writing on balanced budget legislation, also on taxation, debt, spending in Manitoba The material that I have circulated to you is really a compendium of past materia ls. I think some of you have probably already seen it. Some quick background on the Manitoba Taxpayers Association. First of all, we represent around 13 ,000 taxpayers across the province. The general profile is that we are average taxpayers.

A common member might be a medium-sized grain farm er out in rural Manitoba; in Winnipeg, a medium-sized business would be fairly characteristic. We like to call ourselves a common- interest group; we are not representi ng a group which benefits from government spending. A lot of the groups here tonight will be people who are paid for by taxpayers and they reside in the public sector. We are nonpartisan, we are nonprofit, and our overall objective is to promote the responsible and efficient use of tax dollars. One of our key priorities is an effective balanced budget law which protects taxpayers.

We believe that Bill 2 is a piece of legislation which basically meets what we would like to see in a balanced budget law. I have attached to this thing, at the very end of it, an evaluation from the Canada West Foundation which ranks the proposed legislation against the three other balanced budget laws which are in Canada You will see that the Canada West Foundation, which is a respected research organization, gives it an A-plus and says that it is a highly respectable piece of legislation. It will be an effective balanced budget law, and we will get into that in a bit.

I would like to talk to the topic of the challenge for Manitoba I think we need to have a very large reality check in parts of society here in Manitoba As we all know, we reached the high-water mark a fe w years ago probably in terms of public tolerance for government spending and taxation. In the immediate future, I think you are going to see a situation where the revenues available simply will not be there . It is very simplistic to expect that if you can raise taxes you will generate more tax revenue to pay for services.

Our position is that governments have ample revenue, that if you look over the long term , over the last 20 years, for exa mple, taxation has exploded, as has the size of the public sector, and in general-some folks here they like to use the term simplistic. They always talk about getting more reven ues. In fact, we believe strongly we have a spending problem-we do not have a revenue problem-that governm ents, in fact, use our money less effectively than they could.

We see the balanced budget law as a mechanism to start to force the system to make some changes, become more efficient and live within its means just like ordinary fam ilies do, ordinary people do. Provinces, governments-this is a thing that a lot of groups cann ot comprehend-are not in the position to go out and raise taxes. Again, you can raise the rates but you will not get the revenue and there are quite a fe w exa mples of that.

One I would like to cite is in our neighbouring province of Saskatchewan where sales taxes were raised and revenues did not go up and a lot of fm ancial treasury boards have consi stently overestimated what kind of revenues they can generate from higher taxes. So what is going on is some very big changes are happening. We are in a world where there is rapidly changing tech nology. We have free trade and we have tax competiti on.

If I can move my business 100 miles south or 200 miles south and save money by en joying lower taxes, I will certainly look at that and I think it is quite naive for certain groups to constantly expect to see taxes go up. If you look at how much the public sector, how much governments are consuming, it is between 40 to 50 percent, and what we would say is half of our incomes is plenty, thank you.

October 19, 1995 LEGISLATIVE ASSEMBLY OF MANITOBA 101 Let me talk about technology very quickly. We are in a time now where people can set up businesses, do work over the Internet, over computers. They can locate on the other side of the world and people will not exactly be easy to tax. I would suggest to governments that you are probably in a situation where your tax revenues will start to go down over the future simply because you cannot use technology to see what is happening. If I buy something over a computer system, you will not get the sales tax revenue.

If I do business on the Internet and say credit my account on the Internet and I do not report it to the government, you will not be able to tax it. So I think we have to seriously start looking at the spending side of the equation and not the simplistic revenue taxes and most of what I believe you will hear tonight from a lot of the groups here that come from the traditional public sector.

I think we have to look at the advantage of the balanced budget law in the sense that it is a very important signal to people, to residents, to taxpayers, to investors, that the government here have decided to put some restraints on the public sector which has tended to, over the years, expand relative to the private sector. We believe that the balanced budget law as proposed will go a long way towards stopping the spending dynamic that is in the public sector.

It simply is not sustainable and, again, I am going to read something specific to that point. * (211 0) A couple of other points, the law will protect taxpayers because, simply put, it is very difficult to convince people out there today that the government is operating so efficiently that all they need is some more revenues. In fact, most people would say, I do not believe the government is operating as efficiently as possible, and they will tend not to vote for tax increases.

We do not think that is necessarily bad because it will end the easy-revenue options which have driven the large expansion of the government over the last 30 years. Again, that spending dynamic simply is not sustainable. You can keep borrowing money. You can keep spending money. You can try to get more taxes. At the end of the day, we are now at the point where taxes probably will have to start going down in response to competition from other places. There is a moral dimension to the balanced budget law.

There is a basic immorality involved with old style Keynesian economics, where we run up large deficits and build up big debts and then dump it on our children. Effectively what is happening, those children do not have any say in that debt, and what is happening is that the present generations have been spending, borrowing from the future and then sending the bills to their kids.

I, for one-I have a young son-do not believe that it is fair for us to constantly borrow using some dated 1960s style of economics and come up and borrow and build up debts and then find out that we have rising interest payments, and we go into a vicious circle where those interest payments start driving higher taxes. The last point, again from a social justice perspective and the Taxpayers Association, we want the public services. A lot of people, a lot of groups, look at this very simplistically. We say that interest payments are a transfer to the rich, and, in fact, that they crowd out spending on services.

I cannot understand why the so called traditional left groups do not seem to see it that way. Now, I am going to quickly read something which we prepared last year. It is in your document, and I am going to talk about why there is a bias in our political system towards constantly increasing spending. I will start with the second paragraph here; I just want to read it into the record. Our spend-now, pay-later style of government is not sustainable. As bills on past borrowing come due, interest payments ruthlessly crowd out the government's ability to provide needed services. Taxes creep up. Investment falls.

New jobs decline. As the growth of the tax base stalls, the foundation that supports public programs begins to rot away, throwing established services into turmoil. Assorted groups, oblivious to the need for change, are now pushing the cause of flexibility to spend.

102 LEGISLATIVE ASSEMBLY OF MANITOBA October 19, 1995 Older-style politicians, concerned about losing their unfettered ability to spend other people's money, are sermonizing at length about our system of representative democracy. Delegating control of half our pocketbooks to a handful of elected officials has not worked out. We cannot blame the politicians. Some believe that they can protect taxpayer interests, but, as the dismal state of public finance in Canada demonstrates, they rarely succeed because a larger, much more pervasive dynamic in politics favours rising spending.

Fiscally respo nsible politicians eventually get chewed up and spit out by the system. More usually, they succumb to the immense pressures to expand the public sector, because at the end of the day it is always easier to go with the flow and spend. The phenomenon known as concentrated benefits versus dispersed costs is the most pressing defect pushing the relentless expansion of government spending, borrowing and taxation. The benefits of any given spending program normally are concentrated among a small number of people.

However, the costs of that same individual spending program are dispersed across a much larger class, the general taxpayer. Com petition between tax spenders and taxpayers is highly unequal. It simply is not as worthwhile fo r an individual taxpayer to spend much time and effort to save a few dollars in taxes as it is fo r interest groups to secure millions of dollars fo r themselves. There is a great concentrated payoff in spending thousands or even millions to manufacture studies and spring them onto an often unsuspecting or uncritical media to fan public emotions and put the politician on the hot seat.

Why not, when the payoff on relatively small investment is greatly increased public spending that benefits a lobby-happy few? Suppose a group wants to have the government fund a worthwhile activity that needs a million-dollar subsidy to operate every year. It goes to �e government and asks for a million dollars and m Manitoba, with about half a million taxpayers, that works out to about $2 per taxpayer. It is no big deal, but on the other hand you will have a group that is going to get very large subsidies and, of course, it is in their interest to spend. I am going to try and summarize a little bit here.

The second reason fo r the spending bias is the short-term horizon of politics. As we know, political benefits of spending now are immediate and highly visible; however, the long-run costs are somewhere in the future. They are not immediate and they are not visible upfront. The problem we have is that people w�t to be re-elected. Politicians, they want to be recogmzed and loved. They want media exposure so there is a bias in favour of high visibility spending projects.

Politicians look good by borrowing money to fund make-work projects, erect big buildings, bring in daycare programs, whatever, and at the end of the day few voters can see the connection between overspending and the debilitating effects of deficits, higher taxes and other things like high interest rates and the fall in the living standard. I am going to summ arize again. One of our big beefs at the Manitoba Taxpayers Association is that we believe the public sector simply has not modernized , that we have a situation where people or departments find it easier to expand spending.

Why is there a constant push to grow spending in the government, within the system itself? First of all, imagine trying to run the largest, most costly organizations in Manitoba this way. Pay your staff based on how big a staff and budget they can grow. If they are efficient and do not spend all their budget, deduct any surplus from next year's budget If they overspend, reward them by giving them a bigger budget next year. Have all services provided using department staff only.

Let them organize public services as a cost-plus monopoly so they can hold the public ransom for higher wages without regard fo r produ ctivity or performance. Do not have any systems for measuring the cost of delivery so no one has a clue how expensive the unit cost of service is, and �en discourage the use of talented people by underpaymg senior managers, and then burden them with lots of red tape and big central agencies. Given this archaic operating framework, need taxpayers wonder why the public sector is synonymous with low produ ctivity, special privileges fo r the few and ever more costly government.

Need taxpayers wonder why government spending has exploded, why

October 19, 19 95 LEGISLATIVE ASSEMBLY OF MANITOBA 103 public-sector salaries are way out of line with comparable job private-sector salaries, why the population of Manitoba is up by 14 percent in the last 25 years while the civil service has grown by 95 percent during the same time. Just for example. If Manitobans want to preserve the province's ability to provide high quality services, they must overcome the relentless spending dynamic in politics that pushes constant overspending, rising borrowing and excessive taxation.

This is why the people of Manitoba need protections against the concentrated benefits, dispersed cost problem, the short-term spending bias caused by the four-year electoral cycle, and the perverse spending orientation of old-style, spending-oriented department structures. We need to take the pressure off the politicians to constantly spend more. We need to force a renewal of the public sector by ending easy revenue options that now prop up inefficient and obsolete practices in government In short, we need to level the playing field for taxpayers.

We have heard about Proposition 13; I could comment on that one at length. The bottom line with Proposition 13 is that California had a fairly unprecedented boom in the early '80s, and it was because people had a lot of money in their pockets and they did not hand it over to bureaucrats and politicians to spend. The money still was spent, and you had great

Document details

Collection	Manitoba — Debates (Hansard)
Citation	36-1-ed4
Type	hansard
Volume / chapter	36th 1st hansardpdf ed4.pdf
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	790b6804cd2deddb661b7507dccdf3b4c5bd2223

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