April 25, 1994

GOVERNMENT SERVICES ESTIMATES COMMITTEE

Pursuant to Standing Order 87, Kevin Aylward, M.H.A.

(Stephenville) substitutes for Walter Noel, M.H.A. (Pleasantville); and Neil

Windsor, M.H.A. (Mount Pearl) substitutes for Jack Byrne, M.H.A. (St. John's

East Extern)

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

Assembly.

MR. CHAIRMAN (Oldford): Order, please!

We will get our meeting under way. I welcome

everyone back to the Government Services Committee. We are here to look at the

estimates of the Department of Finance and the Public Service Commission. We

will start off by introducing our committee:

Mr. Roger Fitzgerald, the Member for Bonavista

South, Vice-Chair; Mr. Neil Windsor, the Member for Mount Pearl, sitting in for

Mr. Jack Byrne; Mr. Lloyd Matthews, the Member for St. John's North; Mr. Kevin

Aylward, the Member for Stephenville, sitting in for Mr. Walter Noel; and Mr.

John Crane, the Member for Harbour Grace.

I want to welcome the minister and his staff. The

ground rules were set at our last meeting, and I think it's the system of last

year, that we allow the minister a fifteen-minute opening statement to explain

his estimates. Then we will go the Vice-Chair for fifteen minutes and rotate the

questioning from there.

I will give you an opportunity to introduce your

staff, and I ask that they identify themselves each time they speak because we

are being recorded.

Without further ado I will call upon the minister

for his opening statement.

MR. BAKER: Thank you, Mr. Chairman.

The Department of Finance, as most people know, is

the branch of government that administers the tax system, the tax policy, does

the collection, handles pensions, and is involved with the bond markets in terms

of borrowing money as the need arises. So generally that's the function of the

Department of Finance.

As the Member for Mount Pearl, who knows as much

about the department as anybody else, realizes, it's one of the central agencies

whose profile is generally rather low because we simply provide the money for

government to operate, and try to provide it as efficiently and as effectively

as possible.

I have with me tonight Deputy Minister, Gilbert

Gill, whose function is to oversee the department as well as keep me informed

and advised on what's going on. Then we have three of the people who do all the

work, the two Bob's, Bob Clarke and Bob Vardy, the two ADMs that we have left in

the department, and Winston Morris, who is here representing the third ADM, who

has left, and that position is currently vacant.

I'm not going to say anything else about the

department. It's a department that most people recognize and they are familiar

with the functions and, Mr. Chairman, I think that's all I will say as an

introductory remark.

MR. CHAIRMAN: Okay. We will go to Mr. Windsor

for an opening statement or questions, whichever he would like to do.

MR. WINDSOR: Thank you, Mr. Chairman.

Thank you for the opportunity to be here tonight in

place of Mr. Byrne, who is unable to be here. It's always a pleasure to have an

opportunity to come to the committees, and particularly to deal with the

Department of Finance. The faces over there are all very familiar to me, and I

know some of their tricks. I've been waiting for an opportunity to get at them

for some time.

Seriously, a number of questions I wanted to deal

with, first of all there are some questions that are probably not directly

related to the estimates. There are a few items in the estimates that give rise

to a couple of questions, so I will just go through a couple of those first.

Pension Administration, on page 33 of the

Estimates, I noted that budgeted last year for a total cost of $41,800, your

revised was $26,700, nothing there this year. In other words, the provincial

revenue is exactly the same as the overall expenditure. Has something changed to

cause this to balance out such as that, or are you simply saying: Here's what

the cost will be and we will take that much from the pension plan. Has there

been some change to anything here?

MR. BAKER: Pension administration, you can

handle that, can you?

MR. GILL: I can do that.

MR. BAKER: Okay, go ahead, Gilbert.

MR. GILL: I say I can deal with it, in

mentioning to the minister, but I really can't in a definitive way. Pension

administration - all of the cost of pension administration, 100 per cent

generally, is paid for by the fund. There must have been some small item that

went through the pension administration last year which was not applicable to

the fund and therefore was not reimbursed. I can find out and be more specific

if the committee wishes, but it would be some relatively small item in there

that was paid for through the administration. It was a cost of the

administration division which was not chargeable to the pension fund.

MR. WINDSOR: That was my understanding, that

basically the fund paid for itself. That is why I wondered why we had budgeted

$42,000 last year. It just jumped out at me as being unusual.

Debt administration, 2.1.01. We are looking at

revenue this year of $180,000 from that source which is four times or more as

much as you budgeted last year. Is there a reason for that?

MR. GILL: The reason for that is that the

Credit Union Guarantee Corporation, which is a Crown corporation, has just been

amalgamated with the Registrar's

section in the debt management division and the

cost of all of the salaries and so on will go through the debt management

division but will be reimbursed at the end of the year by the Credit Union

Guarantee Corporation. That is the reimbursement for the cost of the employees.

MR. WINDSOR: So it is not an increase, just a

restructuring.

While we are on that the minister recently made a

statement that credit unions are now managing their own affairs with less

control by government. Maybe the minister or the deputy would like to simply

address that for a moment? It appears to me that the amount of protection to the

consumer, or the investor in those credit unions, may be somewhat diminished by

turning that kind of authority over to the credit unions themselves, to

basically administer themselves. Would you like to comment on that? Do you have

any fears that some controls and some security for investors may be gone as a

result of that change?

MR. BAKER: First of all, we guarantee the

deposits through the Deposit Guarantee Corporation. There have been some

attempts over the years to get our credit union movement allied with the

national credit union movement and so on. It is my understanding that these

changes were necessary so that they could take full advantage of the national

credit union arrangements, the cheque processing, and all this kind of thing

that occurs in conjunction with the other provinces. It is my understanding that

this will end up providing a better service.

The deposit guarantees are still there. We have a

set of regulations in place now that we believe prevents or lessens the risk for

new credit unions and lessens the risk in terms of what credit unions are

required to have before they start, the amount they must have on deposit and so

on, to lessen the risk in terms of credit unions. In fact that is what we have

done. We don't see, in the next short while, any great expansion of credit

unions until the existing credit unions get on a sound financial footing.

The whole attempt here with the Deposit Guarantee

Corporation as well as Credit Union Central, who are now working together, and

that is a good thing to see, the whole attempt is to make the credit unions more

viable and there will be less risk for depositors and less risk for government

in the whole situation. There have been some tremendous changes like that and

the consolidation is not seen as anything that would increase risk. It is seen

as the credit union movement growing a step, getting a bit older, a bit more

responsible, and they seem to be quite happy with it.

MR. WINDSOR: Thank you. I don't have a problem

with that. Does the minister have any concern that perhaps the taxpayers, the

public purse might be at a little greater risk? I appreciate the consumers

protected by the Credit Guarantee Corporation but do you see any greater risk of

default to the government now?

MR. BAKER: No, but I guess because we guarantee

deposits that the overall risk as the credit union movement grows, gets greater

and greater as more gets deposited. I guess the only way I can respond to that

is that as the overall risk increases, the amount that we are guaranteeing

increases, we must make sure that the proper regulations are in place so that

the percentage level of risk actually decreases.

MR. WINDSOR: I guess the benefits of keeping

our business in the Province increases, too, as that happens.

Crown Agencies - Recoveries, 2.2.01.02, Revenue -

Provincial: budgeted $1 million last year, actually picked up $1.5 million,

estimating nothing. In the lock-up I was told by your staff that was Computer

Services. You are estimating no revenue this year. That indicates to me that

Computer Services provided to government revenues after expenses last year of

$1.5 million. They were not projected because I assume the budget is based on a

privatized Computer Services. This tells me that we had $1.5 million revenue

coming from that source last year; I didn't have time to go back and check other

years. Would the minister like to tell us what he expects to get for Computer

Services in return for giving up the $1.5 million a year revenue?

MR. BAKER: Yes. The $1.5 million was a rather

good return last year.

Whereas their total level of business, I believe, was

down a bit their profit did increase, and that was a really good return. We

expected, I believe, only $1 million and we ended up getting $1.5 million. That

will disappear, of course, upon privatization in terms of share profit being

turned over to government.

However, as the privatization proceeds, and I hope

that it comes to a successful conclusion pretty soon, we will get an amount of

money. That amount of money, I guess, has not yet been finalized.

MR. WINDSOR: (Inaudible).

MR. BAKER: Yes, you would look at somewhere

between, I guess - depending on the total arrangements; it is a complicated

set-up. You would probably get between $7 million and $10 million depending on

the arrangements that are made in terms of the building. That building would be

rented and we would receive rental income from the building, this kind of thing.

Until the total package is put together, I can't give you exact numbers. It

would have to be a combination of a cash payment, in terms of purchasing the

building, plus agreement over the next number of years to pay certain amounts of

money for the use of the building.

MR. WINDSOR: It would be $7 million to $10

million for the business and the computer equipment, I assume. The building

itself, the structure -

MR. BAKER: The building itself will be rented.

MR. WINDSOR: - you are saying that could be

sold, as well?

MR. BAKER: The building itself will be leased

too, yes.

MR. WINDSOR: Are you contemplating selling the

building? Because that is a building in Pippy Park, and generally, we are not

divesting ourselves of those.

MR. BAKER: No. Right now we are not, simply

because it is not - because it is in Pippy Park it is not of intrinsic value to

anybody else, because it can only be used for specific functions and so on. You

probably wouldn't get the value of the structure if you did that.

I hesitate to talk a lot about it simply because we

are at a stage in negotiations where those matters are still under

consideration. That is why I gave you a range of $7 million to $10 million in

terms of payment. The key thing to what we are trying to negotiate is not the

money, that wasn't our focus. Our focus in terms of privatization of NLCS was an

economic development issue and not a privatization issue as such. What we are

looking for is the greatest possible return in terms of new business coming into

the Province and extra jobs created in the Province. That has been the driving

force behind the discussions with the privatization of NLCS. The amount of money

we get has not been, in our minds, the primary issue at all. We haven't been

concentrating on that side of it. It is an economic development issue.

It becomes even more complicated by the fact that

we want to ensure that the computer companies, the IT industry that already

exists in the Province, is not swamped by this big company, and that in fact

there is more business available for the other IT businesses in the Province, in

other words, that the new company will out-source a lot of its work to these

other local companies. So, it's a complex situation and that's why it's taking

so long to come to a final agreement.

MR. WINDSOR: Nevertheless, it would appear

we're going to lose $1.5 million a year revenue - $1 million to $1.5 million.

One million may be a good average. What guarantees do we have on the cost of

computer services to government? At the moment NLCS can provide services for

government. Provision is made in each departmental estimate for the cost of

that, a proportional share of that, I think. Do we have any guarantees that

those costs won't rise dramatically as a result of the sale?

MR. BAKER: Yes.

MR. WINDSOR: The other thing I was concerned

about, too, is - it gets back to the building again, and I'm pretty sure it was

in the news media here. I was concerned about it before and I didn't want to

bring it up in the House of Assembly because I am aware of the links between

that building and this one. They're actually fibre optic; there's a fibre optic

technology here which is susceptible.

Is it considered that when privatized the new

company might move the operation from that building? Is it possible for them to

do that? What impact would that have on security of that information flow and

access to information, and the possibility of it being intercepted by other

sources?

MR. BAKER: You have some very important issues.

First of all, the decision has been made to use that building. As a matter of

fact, the building will be expanded, so that will be the site, but the other

issue is more important. We've had such a very close link with NLCS, their

people come and go here as if they're employees of government departments.

MR. WINDSOR: That's right.

MR. BAKER: There's been that kind of extremely

close link.

It means that we will have to develop within

government, and there will have to be positions that are IT positions in

government, and we will perhaps have to hire extra personnel to deal with our

own internal IT policies and so on, and development, because we've been going to

them for advice and they've been giving the advice because they have been part

of government. So, as part of the privatization, there will be a cost to us in

terms of hiring experts ourselves, who can provide our needs. I think some of

that has already been done. I don't know if the officials have any other

information.

MR. WINDSOR: But it's a considerable amount in

last year's budget and this year's budget for information technology,

particularly in the capital side, for acquisition of new computers, computerized

equipment and so forth, all of which was done on the recommendation of NLCS,

it's all been standardized. I know, in the Opposition office they took out

fifteen or twenty perfectly good computer systems, some of them only weeks old,

and replaced them with fifteen of the same type of computers.

MR. BAKER: But they were compatible.

MR. WINDSOR: They are all compatible anyway.

Personal computer today are pretty well all compatible. I can take a disk out of

any computer and go down the hall and shove it in another one, as long as you're

using IBM compatible technology. I don't think there were any of them that

weren't IBM compatible.

You brought in fifteen brand new computers, all

identical, all brand new. I know of a couple of computers there that were not

two months old. There were parts of them that members had bought from their own

office vote, and they were replaced. And that's all well and good, but all of

this has a cost.

As you've just said, you're now going to need some

expertise in-house. Is that going to reduce the amount that you're paying to

Computer Services, or the new computer services corporation? Or are we saying

it's an extra cost added on top of the $1.5 million?

MR. BAKER: No, we will have some extra costs;

there's no doubt about that. As to what the cost of providing the service for us

is going to be, it would be comparably less because, obviously, part of that

cost was paying the salaries of those people, and the $1.5 million profit is

kind of a misleading figure. That means that we paid them $1.5 million more for

providing service to us than it really cost to pay, and we're paying ourselves

our own money.

I can only wait and see the final deal when it's

worked out, which will include some arrangements as to providing service for

government. There would have to be guarantees that our services will be met, but

we will have to have our own expertise in-house because it's now at arm's length

rather than part of government, our own expertise to insure that things are

being done properly.

MR. WINDSOR: But are you really paying

yourself? I mean NLCS does a lot of work for outside agencies, for MCP, for

Memorial University and others, all of which are government-funded, but

nevertheless, we will still be funding those agencies. And we are not going to

provide them with smaller grants simply because NLCS is no longer ours, and we

are not going to get $1.5 million back from NLCS; that $1.5 million may well

have been realized from other activities outside. NLCS does private work as long

as they are not in competition with other private agencies or such like. We may

well be losing a significant amount of money here and, I mean, what are the

benefits of privatizing NLCS? I don't have a problem with privatizing but I have

yet to see the benefits of it.

MR. BAKER: Well, first of all, the $1.5

million, as I indicated, showed a particularly good year; it is really

accumulated profits over a number of years -

MR. WINDSOR: So it's half-a-million dollars,

whatever? Principal.

MR. BAKER: Yes, I know, but it is an amount of

money, no doubt about it. The advantages to privatizing NLCS are that we will

then have a company. In this case we are negotiating with Anderson Consulting,

Bell Sigma and NewTel. We will create one company that will be significantly

larger than NLCS as we know it now, that will have a greater ability to get

national and international business, that can compete for instance, for federal

IT work which NLCS could not compete for; that will have an `in' in the

international marketplace. Anderson Consulting is perhaps the largest IT firm in

the world and it will have an automatic access to the international market, and

Bell Sigma provides the national market. So the advantage is, more job creation,

more high tech jobs in the Province, more money coming in from outside, whether

it be money from the rest of Canada or money from other countries in the world,

more money coming in to this Province, and certainly that's really the benefit.

MR. WINDSOR: Can you document that with a study

or any literature?

MR. BAKER: Well, that's going to be part of the

deal and that's why it is taking so long to work out. And if we reach agreement

with that consortium, which I hope we will, then the details will be all

available for everybody to see. It will, I can guarantee you, mean a rather

quick increase in the number of jobs and will mean an immediate increase in the

amount of business coming from the rest of Canada and some from the States. So

you just have to wait until we work out the details; but I will repeat again:

the stress in the whole negotiation has not been on the amount of money we

receive for the equipment over there because it may or may not be of any great

value to them. The great value is the expertise that has been built up there and

the stress has not been on money, it has been on job creation.

MR. WINDSOR: Mr. Chairman, I seek your guidance

here. I have lots more questions, I can carry on but I have taken about twenty

minutes. You may want to -

MR. CHAIRMAN: What I did was, I looked at the

time, which was 7:30. With the combination of the minister's opening address and

your questions, we still have five minutes to go.

MR. WINDSOR: Okay, thank you.

Pensions Policy, Professional Services $15,000 this

year; is that an actuarial study of some sort, additional actuarial studies is

that what that $15,000 for, it was budgeted at $5,000 last year? That is 2.3.01

.05. It also shows Revenue this year of $50,000 versus $87,300 last year for a

total cost of $55,000 to the Province this year.

MR. CHAIRMAN: Pension Policy - `Winst', would

you answer that?

MR. BAKER: No.

MR. CHAIRMAN: No, okay, I will get you around

again.

MR. BAKER: (Inaudible).

MR. CHAIRMAN: Okay. Go ahead Gilbert.

MR. GILL: Actually, Pensions Policy is now a

part of Treasury Board, part of personnel policy and what this really is here,

is the pension benefits standards and there is additional cost there this year,

in anticipation of work on a new pension benefits legislation. Whether or not it

will happen this year, certainly that's what the provision is there for.

MR. WINDSOR: What sort of legislation are you

talking now?

MR. GILL: The Pension Benefits Act.

MR. WINDSOR: Yes.

MR. GILL: Changes to that - changes to the

Pension Benefits Act to bring it up more in line with most of the legislation

across the country. It is something that we have been working on in the

department for some time, for the last several months.

MR. WINDSOR: So you are talking about changing

the benefits payable to present pensioners, future pensioners - is that what you

are talking about here?

MR. GILL: I'm sorry?

MR. WINDSOR: Are you talking about changing

benefits that will be payable to pensioners?

MR. GILL: This would cover pension payments for

all plans in the Province, not just the government plans. And it would be - I

don't have the details here now, but various changes to modernize, if you like,

the Pension Benefits Act.

MR. WINDSOR: Would the minister like to tell us

what is the status of the changes that were legislated last year to the Tobacco

Tax Act and the Gasoline Tax Act, and his proposal to do similar changes to the

Retail Sales Tax Act? Would you like to address that?

MR. BAKER: Which ones are you talking about

specifically?

MR. WINDSOR: The collection of retail sales

tax, tobacco tax and gasoline tax. Last year there were two pieces of

legislation put through the House which changed that, which you have not

proclaimed yet. We were dealing with the retail sales tax. I have asked the

minister questions in the House and he has been very quiet. That was over a year

ago. Would the minister like to tell us, has he finally decided that was not the

wise legislation? Is it left on the shelf never to be dusted off? Would he like

to have it rescinded?

MR. BAKER: It has not been put on the shelf at

this point in time. I am still having discussions with certain parts of the

industry as to the effects of that legislation. The best I can say about it at

this point in time is that the discussions have not yet been finalized, but you

are right. It is still active and as recently as the last week or so I received

another letter on it which I have to respond to.

MR. WINDSOR: Is it still government's intention

to proceed with changes to the Retail Sales Tax Act, somewhat in line with the

gasoline and tobacco tax?

MR. BAKER: That has not been dealt with as a

policy issue yet, although we have indicated we are looking at it.

MR. WINDSOR: While we are into that, would you

like to address the question, as I asked the minister in Question Period some

time ago, of changes dealing with services provided by veterinarians in this

Province? It appears that certain services which are not taxable in other

provinces of Canada, certain materials, goods, and so forth, used in the

provision of those veterinarian services are not taxable anywhere else in

Canada, but we have recently made changes to make them taxable here.

The veterinarians are not happy. I have several

hundred letters from dogs and cats.

MR. BAKER: The dogs, yes. I am getting them,

too, from dogs and cats.

I will give you a brief answer and then maybe Bob

Clarke could make a comment on that. What you call the changes that were made

recently -

MR. WINDSOR: More

interpretation than changes.

MR. BAKER: They were really things that were in

existence anyway yet we wanted to make it clearer. There is one further

legislative change we have to make to finish that process. It is not a matter of

saying these things are now going to be taxed. They have been, in our view,

taxable all along, but the vets have not applied for the RST number, and they

did not understand the situation, even though a bulletin was sent out to their

association quite some time ago, a couple of years ago. We are only now, I

guess, starting to enforce what we believe were provisions of the law all along.

I will let Bob continue.

MR. CLARKE: That is essentially the situation.

The minister has essentially said what the situation is. It has been there all

along but we are trying to clarify it and enforce it, currently.

MR. BAKER: We have been trying to do this in a

way that everybody has a fair chance. We have gone about now directly informing

individual vets, I believe, Bob, in terms of their responsibilities under the

RST act.

MR. CLARKE: Yes.

MR. BAKER: We hope to have that in place and/or

have it active and working well in the very near future, but there is great

resistance, as you know, tremendous resistance.

MR. WINDSOR: There is great resistance but it

also puts us in a different category from other provinces of Canada again.

Quebec is the only one that taxes anything of this nature, as I recall. I had

the detailed information somewhere, whether I have it with me or not I'm not

sure.

AN HON. MEMBER: (Inaudible) the rest of Canada,

Bob.

MR. CLARKE: We haven't surveyed the rest of

Canada.

MR. WINDSOR: Pardon me?

MR. CLARKE: We haven't surveyed the rest of

Canada as to how they treat vets.

MR. BAKER: A pet.

MR. WINDSOR: I have a table which gives me all

of that information. I don't know where I got it from, probably from a

veterinarian.

MR. BAKER: I think the key - probably the vet,

yes. The key is, I believe, that a pet is considered tangible personal property.

MR. WINDSOR: A pet is also a living animal, a

creature. The concern that is being put forward -

MR. BAKER: Certainly. But we consider them as

tangible personal property.

MR. WINDSOR: - is that the care of these

animals is now not going to be as great. Because cost is going up, people - I

don't know how big a factor it is, but the argument that is being made is that

animals will not get the same care because the cost is now going up and people

will not spend the money. Tangible property, yes -

MR. BAKER: I've taken the (inaudible) -

MR. WINDSOR: It is still in the realm of

medicine and drugs and that kind of stuff. You are taking it out of the same

category as medical treatment and prescription drugs, saying: Because it is for

an animal we will treat it differently.

MR. BAKER: Yes.

MR. WINDSOR: That is their argument.

MR. BAKER: I know what their argument is, I've

heard it many times.

MR. WINDSOR: In today's world of humane

societies it is a strong argument.

MR. BAKER: Yes. It seems to me, having been a

pet owner for quite some time, and knowing a lot of people who have pets, that

the people who have pets and actually bring them to a vet when they get ill and

so on, are not overly worried about RST. They bring the pet to a vet simply

because it is ill and they care for it, you know.

MR. WINDSOR: That is not true in all cases.

MR. BAKER: I don't think that this great

disaster is going to happen where all of a sudden all these dogs and cats and

goldfish and everything else are going to all of a sudden die because the RST

has been imposed. I don't accept that argument.

MR. WINDSOR: I'm sure they won't, but

nevertheless it is an area of legitimate concern. Am I out of time, Mr.

Chairman? I will pass for now and come back again.

MR. CHAIRMAN: Mr. Matthews, you have ten

minutes.

MR. L. MATTHEWS: Thank you, Mr. Chairman. It

sounds to me, Mr. Minister, like things are going to the dogs over in your

department.

AN HON. MEMBER: (Inaudible).

MR. L. MATTHEWS: I think it set in a long time

before that, it is just accelerating. But I should take the opportunity in my

ten minutes to deliver a message to the minister from a - because I said yes, I

guess, as we've said many times to phone calls. I had a call last week from -

not a constituent - somebody who actually -he said: I live on Pleasant Street

and I want you to tell the minister that it is not fair what he is doing to the

cat and dog industry. I was away so I missed the whole debate and I didn't know

what he was talking about. He concluded by telling me - and I think he is making

connections similar to what some people are making in the Hydro debate, that

they are making arguments to make an argument. He said: I've never seen as many

dogs on garbage day as since you made that change about the vets having to

charge tax. It seems as though all the dogs that used to go to the vets on

Friday now go out on the street and play. That is the message from a fellow

unknown on Pleasant Street, Sir. Take it under advisement, but don't take it too

seriously because we need the revenue.

I was going to ask the minister one or two

questions. We have been hearing a lot and talking a lot in the Hydro debate

about what if our rating is changed, either up or down, at any given time?

Generally, when ratings are changed by the bond rating agencies it's a movement

in one direction or the other. You don't go down three notches, you usually go

down one notch. In that context, can I ask what the normal rate of change is in

debt charges? If our rate were to drop by one notch, what would be the likely

difference in the rate of interest that we would otherwise pay if it didn't

change? If we're at six per cent today would it be six-and-an-eighth,

six-and-a-quarter, six-and-a-half?

MR. BAKER: Yes, it's not something that you can

be definitive about. You go to the market and you get the best rates you can. I

stand to be corrected, that if - we still have an A minus rating with Standard

and Poor's, the other companies put us in the B level. There's some value to

retaining one A rating with the U.S. agency and that value is that it still

gives us access to a lot of the large pools of money that you have to access in

order to get your money from the market. If we were to drop out of the A level

we would immediately lose access to a lot of these large pools of money. That is

not to say we couldn't go and borrow money, we could, at a slightly higher rate

- under twenty-five basis points, is that reasonable, Gilbert?

MR. GILL: Yes, depending on the market

conditions at the time, but about a quarter of a percent.

MR. BAKER: Yes, it would fluctuate. Yes, so

about twenty-five basis points, probably, or thirty, thirty-five or twenty, you

know, but the big problem is losing access to the large pools of money. You have

a much smaller clientele out there to get to and there would be times, I

suppose, where if you have to go to the market within a two-or-three-month

period, then you may hit times when you just can't float the bond issue. You may

hit some of those times but looking at it, there's nothing definite. It's such a

fluctuating situation that I can't say if we lose our A rating we won't be able

to get money because that's crazy. We could get some money but perhaps smaller

amounts and perhaps there'll be times when we could not access the money. So it

would create tremendous logistics problems for us. if at a certain point in time

we needed money and couldn't get it, then what would we do? And there would be a

slightly increased rate.

MR. L. MATTHEWS: But it is fair to say that a

negative change in our credit rating would cause us probably to pay an extra

twenty-five basis points, at minimum, maybe, for any new borrowing that we would

want.

MR. BAKER: - or for any (inaudible) turnover,

yes.

MR. L. MATTHEWS: - or for any rollover that we

would want to do.

My next question - and probably a ball park figure

would satisfy me for now but if you can be specific that's fine - How much debt

will we be rolling over in the next ten years?

MR. BAKER: Probably in the vicinity of $2

billion in the next ten years. A lot of our stuff is thirty-year stuff, $5

billion out there, twenty-five year, down the road twenty year. In the next year

- we could find out, but it probably would be in the vicinity of $2 billion over

ten years, maybe $200 million a year, as a rough estimate.

MR. L. MATTHEWS: So approximately one-third of

our debt will probably have to be refinanced over the next probably ten years.

MR. BAKER: Ten years. So we could - but it is

fairly easy to figure out.

MR. L. MATTHEWS: Yes, I know. It is just a

matter of looking at the chart of what is coming due, that sort of thing. I know

I can do it, but I wanted to ask that question of you.

In the tobacco tax situation I want to - I think I

did in the House - I certainly want to commend you for not taking the approach

that the other provinces have taken, that is, in trying to fight what I call the

criminal element in our society by dropping taxes and letting them off the hook.

I certainly want to say that I think you are doing the right thing by holding

tough and sticking to your guns and leaving the tax where it is. I guess the

question or concern I have is with other large provinces falling in line with

what Quebec did, what the feds did, and what happened in Quebec and Ontario -

and I don't know if they've done it yet in New Brunswick or not, have they?

AN HON. MEMBER: Yes.

MR. L. MATTHEWS: They have, yes? Is that in any

sense - I know we are isolated because we are an island down here - insulating

us from pressure to do the same thing? Are the feds in any sense disappointed

that we didn't make a move on tobacco tax, or are they...?

MR. BAKER: They would obviously like to see

everybody fall in line. So far, B.C., Alberta, Saskatchewan and Manitoba, and

Newfoundland, have not. I guess the reason is obvious. There is an isolation as

you go from Ontario to Manitoba. There is not that much of a contiguous border

in terms of numbers of people there in Ontario and Manitoba. There are only a

couple of roads and that's it, and very few people at the border areas. Most of

the population of our Province is on the Island part of the Province, and again,

we are kind of isolated. I suspect that has made a difference.

The Federal Government would like everybody to fall

in line, no doubt about it. But we haven't had any undue pressure put on us

except they continue to issue press releases saying how great it is that these

other provinces have fallen in line. We don't intend to, unless - if you ever

reach the position where it doesn't matter. They were afraid they were getting

to the position in Quebec where the cheap cigarettes were all over the place,

and most of the province and most of the people buying cigarettes in the

province had access to the cheap cigarettes anyway.

I would rather they had gone to the enforcement

totally in Quebec. I would rather they had dealt with the problem where it

exists, which was at one reserve that straddled the Quebec-Ontario-New York

border. They chose not to and they had their reasons. We certainly have no

intentions of going along with it. We have stepped up the enforcement, we have

put more money into enforcement and I believe it is working. Only time will tell

how well the enforcement is working.

In terms of the revenues, Bob, our revenues have

been holding fairly well?

MR. VARDY: On the tobacco tax the last three or

four months has actually picked up a fair bit from the trend over a couple of

months. I don't know if it a combination of the weather on the South Coast of

Newfoundland but -

MR. BAKER: We would like to think that the

increased enforcement has something to do with it.

MR. VARDY: Enforcement, of course.

MR. BAKER: We are above our revised estimate

for that period, the last three months of the fiscal year or so. We would like

to think, of course, that has something to do with it - maybe not, it might be

the weather.

MR. VARDY: The reports we're getting back

through our contacts in the police force is that it is a fairly sizeable impact

with the extra presence, then, on the Burin Peninsula. There have been a few big

busts getting some publicity. I am sure it's scaring some people.

MR. L. MATTHEWS: That's all I have for the

moment, Mr. Minister.

MR. CHAIRMAN: Mr. Fitzgerald.

MR. FITZGERALD: Mr. Minister, speaking about

tobacco tax, I was talking to a little Kwik-Way store owner who lives directly

across from me out in Musgravetown the other day, and I asked him: `Have you

seen any difference in your tobacco sales since the reduction in the taxes by

the Federal Government?' He said: `No, the only difference I've seen is that I

am selling twice as many tubes' - you know, the tubes that people buy - `and no

more tobacco,' so it's a good indication that there's still a heck of a lot of

tobacco in town.

MR. BAKER: Oh, there is. Yes, I'm sure there

is.

MR. FITZGERALD: I think you're right. I don't

know what's happened.

MR. BAKER: Before this happened we estimated we

were losing $30 million to $40 million a year in tobacco tax through - that's

the loss. Instead of $70 million we should have been getting $100 million.

MR. FITZGERALD: Do you find that the problem is

greater in Labrador than it is on the Island?

MR. BAKER: Well, obviously, the situation in

Lab West and Lab South is difficult, but there's not a very great population

there; therefore, it doesn't affect our revenues that much. I don't know; have

you broken down what you get coming in from Lab West as opposed to any other

part of the Province?

MR. GILL: St. Pierre is the biggest problem.

MR. BAKER: The problem in terms of the amount

is St. Pierre. It's not Labrador, because we don't have the number of people up

there.

MR. FITZGERALD: One time, a prime way to ship

tobacco products, not to give away anybody's secrets, I suppose, but everybody

knows, it was through the mail; but did I read somewhere that there were some

rules and regulations being implemented where that could be cut off?

MR. BAKER: The Federal Government has been very

co-operative. There were people advertising in Newfoundland about the sale of

tobacco through the mail. Just send in your order and get all this tobacco, but

I think - and I stand to be corrected - that the Federal Government has

co-operated and has closed down a lot of that.

MR. FITZGERALD: One arm of government, and I

don't have too much information, that seems to be operating quite apart from

everything else - I never hear a question asked about it here in the House of

Assembly - is the Atlantic Loto Corporation. Can you explain to me the set-up of

the Atlantic Loto Corporation? Who is responsible for the administration? Is it

done by a board of directors and, if so, what representation do we have on that

board?

MR. BAKER: Okay. There's an Atlantic Lottery

Corporation headquarters. The administrative headquarters is in Moncton, and it

services the four Atlantic Provinces. There is a board of directors with equal

representation from each of the four provinces. We have two representatives from

this Province, the Deputy Minister of Finance and the Deputy Minister of Works,

Services and Transportation. These are the two people who sit on the board, and

they have regular meetings and so on. It's that type of a structure. We also

have people working in the corporation who are Newfoundlanders; is that right?

MR. GILL: Yes.

MR. BAKER: Yes. So it's operated out of

Moncton.

MR. FITZGERALD: Is there a budget that's

brought forward in your estimates here, or in your appropriation? Is there a

budget that shows us Atlantic Loto's -

MR. BAKER: No.

MR. FITZGERALD: There is not?

MR. BAKER: No.

MR. FITZGERALD: Is it possible to get that?

MR. BAKER: Oh, sure. They publish each year,

don't they, their financial statements?

MR. GILL: Yes.

MR. BAKER: Yes. You can get that.

MR. GILL: The financial statements come out

each year. It's a March year end, so it's usually around June or early July that

the financial statements -

MR. BAKER: We can provide you with the last

couple if you wanted them.

MR. FITZGERALD: It seemed quite strange because

I know a few years ago they had planned a big Christmas party up in Moncton, New

Brunswick, and I think they had something like $100,000 set aside for the

Christmas party, and all the employees from Newfoundland travelled up to

Moncton, but the news media got hold of the big party and it all had to be put

to rest. So it seems to me to be a lot of money - they are an arm of government

and we're living in bad times. I don't think there's any other government

department that would be able to come and take that much money out of operating

expenses or general revenue to put forward for a party although we all might

like to sometimes.

MR. WINDSOR: Except the university.

MR. BAKER: No, you're right. That was the

fifteenth anniversary of the lottery corporation and I believe they stopped

that, didn't they, Gilbert? They stopped the party?

MR. GILL: Yes, they downgraded it you might

say. They still went ahead with the meetings because what the press didn't say,

of course, was that there was a couple of days of meetings attached.

MR. BAKER: But the party aspect was removed.

Pardon?

AN HON. MEMBER: Spread it over a longer period.

MR. FITZGERALD: But it would be interesting to

see that. I wonder, Mr. Minister, if you could explain to me, too, because this

has been something, as a new member of the House of Assembly, that I've been

faced with on both occasions now being involved in the Government Services

Committee after the last budget after the election: Monies that are not spent

during the fiscal year, monies that have been approved and have not been spent

for one reason or another, when the budget is announced it's not shown and then

it seems like it takes a lot of time to find out if the money is there or if

it's not there. A lot of people are left wondering what happened to it or if

they're going to get it back. Why wasn't it there when they've been advised by

government not to go to tender and government have held off? I've been

successful, I suppose, on both times coming back with the money, but why put

people through this kind of situation where the money can be automatically shown

in the budget, or is that the normal way of doing things?

MR. BAKER: Okay, to set your mind at ease, any

money that's not spent is gone. There's no such thing as carrying over. Any

money that is not spent is gone. We start out with a new budget then and make

the commitments in that new budget. So the money that's not spent is essentially

gone and that's part of our savings. When the public accounts are printed the

expenditures are there and that's the time we should know exactly how much has

been spent in any given year, when the public accounts actually come out. So the

money is gone however, that's not to say that government doesn't make

commitments that it carries on from year to year but there always has to be

enough new money put in the next year's allocation to do it. So it's essentially

gone. I think the one you were worried about was the Bonavista -

MR. FITZGERALD: The Golden Heights Manor in

Bonavista, renovations.

MR. BAKER: Yes, that's going to be okay. I

don't know if you've -

MR. FITZGERALD: Yes.

MR. BAKER: But there was enough in this year's

budget to do that.

MR. FITZGERALD: The student grant portion of

the student loan - you've indicated that you're going to be taking another look

at that particular part of your budget. Is there any indication when the

students will know if the student grants are going to be available again or is

it a situation that's gone?

MR. BAKER: The student grants will not be

available again. The discussions that the Minister of Education is now having

with the representatives of the students, centres on the problems that other

provinces have had with their student loans - the problems of the banks having

control of the loan system, the problems of students not being able to obtain

loans in banks, the problems of the remission at the end and the fact that there

is, in our plan, a remission above, I believe $22,000, but that was specific to

a five-year program. What about remissions for three-year, four-year or

seven-year programs and so on? So all these details, which the students are very

concerned about, which largely related to access to money, whether they could

actually get access to the money - because what we were doing was providing them

access to more money and their concern was, was the access really there? Those

concerns are attempted to be straightened out now with the students. So, in

other words, can they really get the money from the banks, is the question.

The second thing they are concerned about was too

great a debt-load at the end, and that

part is also under discussion. But no,

the grants will not come back. If we have to bring the grants back, or if there

were something that happened that made us bring the grants back, then we would

have to cut way back on the students' access to money beyond what it is now.

Once you open up the access to the money if you bring the grants back you have

to close in the access to the money. And that was the biggest problem with the

student aid program, the access to the money.

The other problem, of course, was what parents were

required to contribute. Our position is that the parents should contribute as

much as they possibly can to avoid the students having debt load; but we found

there were all kinds of cases where low-income and middle-income families in the

Province were being required to pay amounts of money they simply could not

afford to pay to the education of students, and therefore the students could not

attend university. We sorted that out by not requiring as much from low-and

middle-income parents. We are not insisting they contribute so much towards the

education of their students, and allowing the students to access loans for the

full amount if necessary.

We straightened out some problems, and I agree

there were other problems created, but now we are try to sort out the other

problems that were created. I don't think anybody would want to go back to the

other system. The alternative to all that is to come up with $20 million or $30

million to throw in there and we don't have that, so we can't avail of that

possibility.

MR. FITZGERALD: The parental contribution was

certainly unfair, and I don't know how they arrived at the amount of money that

always came forward on your student loans. I have two daughters going to

university and I don't know where they could ever come up with the amount of

money that I should have always come up with every year in order to contribute

to that fund. Is there a cap on how much money a student can borrow now with the

student grants being done away with?

MR. BAKER: There is a cap. I'm not familiar

with what it is but it is quite considerably higher than it was before. Because

this is not a Finance matter. The Department of Education does all this. There

have been suggestions to us that as long as the students are on the hook and

sign notes that they are going to pay it back, why not let them borrow what they

need? There have been these suggestions.

It is not without substantial cost to us, to

governments generally, because governments have to pay the interest while the

students are going to university. That is a considerable amount of money anyway.

I guess there will never be, in any part of Canada, a totally open system,

simply because it is a tremendous cost to the provinces.

MR. CHAIRMAN: Mr. Aylward.

MR. AYLWARD: Thank you, Mr. Chairman. I've been

waiting for some time to get at the minister so I'm really looking forward to

this opportunity. I have just two or three questions with some comments that he

might want to make on a couple of subjects.

The idea of foreign trade zones, or trade

enhancement zones, the tax - just your thoughts on that idea for economic

development purposes, and whether or not we've done any evaluation of it. If we

have, what would be required? Is there a specific type of zone or trade zone

that might work in this Province? It has been talked about and discussed at

great length for some time. I know you've had some interest in it, and I've had

some interest in it. I just thought to see if you had had any further

discussions on it between the Province and the Federal Government, or with our

own provincial side. I know the Department of ITT has had some review of it but

the tax implications are pretty important to any provisions that would be made

for it to be put in place. Just any thoughts you might have on that one.

Also, on the investment tax credit idea. The

Federal Government have an investment tax credit, I think, of up to 35 per cent,

I think it is, or 40 per cent. I'm just wondering if we've ever - are we looking

at that idea? I know we are looking at legislation right now aimed at attracting

business to the Province, but are we looking at, specifically, an investment tax

credit idea or something similar? Those are the two things I have on my mind.

MR. BAKER: Okay. First of all, in terms of the

trade zones, as you know, I have been involved in that kind of thing that has

been spearheaded by IT and T. The reason that I have been involved is because I

have seen what happened at Shannon in Ireland with their trade zone, and after

looking at it - I mean, the United States has about 150, I guess, trade zones

that they use as an engine of growth in various sections of the United States.

In Canada, they are not allowed. The Federal Government has always resisted any

such idea and I am not sure as to why they have; perhaps they thought that if

they would allow in one area, they would spread to all areas and then, if there

were too many of them, they would fail to serve a purpose.

We, obviously, were interested here in this

Province, and we have suggested an airport and a seaport, but I don't know how

much headway ITT is making. I think the recent happenings in Argentia may have

given it some more impetus so they may at least be looking at a seaport,

however, I don't think they are looking at airports.

Our proposal was, that the free trade zones be

allowed in areas of the country that fit certain criteria and rather than asking

for Newfoundland to have free trade zones when no other part of Canada have

them, we did up a generic solution and presented it to the Federal Government,

and we did not receive a very positive response, so I don't really know where

that is right now.

I believe that some of these mechanisms can be used

to increase jobs and increase business, but until the Federal Government agree

to have a look at it then there is nothing we can do about it. I think, in

Stephenville, they have a - what is it they call it?

MR. AYLWARD: They call it an international

trade zone.

MR. BAKER: The Federal Government always says

that there are regulations like this in place, that a place for instance,

Stephenville has already accessed it, and using that, they can then go and

generate business. I am not so sure how effective it is.

MR. AYLWARD: Yes. It was existing tariff and

trade laws, I think, that they were doing. They use the existing law, basically,

to speed up the process, that's all.

MR. BAKER: In terms of the other part of your

question, we announced in the Throne Speech and we are now in the process of

developing legislation that has many aspects to it - legislation to stimulate

economic growth by trying to introduce new businesses or new ventures into the

Province and to stimulate businesses that are here into expansion. It covers a

whole gamut of things, as announced in the Throne Speech, but one of the things

that we are looking at very, very closely and will be part of that bill, is what

can be done through the tax system. And recently there have been a number of

papers prepared - I think, Bob, there was one that crossed my desk in the last

couple days, wasn't there, on tax alternatives and so on to make us part of that

bill. So we are actively examining the kind of thing you are talking about as a

development tool.

We were hoping the legislation would be ready

before the House closes, it still may, but at least, it will be done in the

Fall, and it includes a lot more other than tax incentives.

MR. AYLWARD: Yes. A couple other comments, if I

could.

The federal tax credit seems to be working pretty

well. I have talked to some business people who seemed - a lot of them aren't

even aware of it, so whatever we do, we should try to make people aware of it,

the business community, you know.

MR. BAKER: As far as I know, in the last budget

they cut them down, didn't they, from 35 per cent to 20 per cent, Bob, in

Atlantic Canada?

MR. VARDY: Some of the regional tax credits

were reduced in the last federal budget.

If I could make a couple of comments on tax

incentives for businesses. As the minister pointed out, one of the problems with

the corporate income tax system, it's administered in most jurisdictions in the

country by the Federal Government and they will not administer tax incentives

for a particular province that affects that province's competitive position

versus the other provinces.

Another problem - well, their philosophy in tax

policy, I guess over the last five years, at least, is that the best type of

business incentive you can provide through the tax system is a broad-based tax

with few exemptions and the lowest rate possible.

One of the problems with a province going with

investment tax credits is, a lot of the benefits would flow back to the Federal

Government. You have to look at the different delivery mechanisms, whether it's

investment tax credits versus refund of tax, or maybe even some grant

assistance, and tax treatment can vary considerably.

Nova Scotia got some R and D credits, where 70 per

cent of the benefits they provide flow directly to the Federal Government, and

30 per cent to the companies.

MR. AYLWARD: So you're reviewing different

options in the tax system that could be a way to help attract there, develop

business. Right now that's what we're looking at, basically, isn't it?

MR. BAKER: We're trying to find the best tools

within the tax system to encourage new business to come into the Province and to

encourage businesses here to expand, so whatever it happens to be.

MR. AYLWARD: A couple of other items. Credit

unions we talked about earlier. Are you having a look at, or is the Province

having a look at, expanding the types of services that they provide, i.e.,

commercial lending to businesses and so on? Are they having a look at that? I

know that there are some - we've given them... Have you looked at that in light

of the - I'm just thinking of the economic situation with the banks and so on in

the Province, and whether or not the banks are fulfilling their full role and

whether or not we're going to look at that.

MR. BAKER: Our credit union movement is quite

young and quite small. Newfoundland and Labrador Credit Union is the biggest one

and makes up most of our credit union movement, and they offer a whole range of

services. They offer, I guess, just about anything a bank can do. So they have

gotten into all kinds of things, but you can't allow the smaller ones to do that

simply because they don't have the volume to back them up. They have to be

viable on their own. So I think the mechanism is in place now for all credit

unions to get into the wide range of services; however, there are certain

restrictions, certain regulations that they have to meet, and a certain level of

funding they have to meet before they can offer it to the people.

With the exception of the Newfoundland and Labrador

Credit Union, I can't see any great strides being made there in the near future.

MR. CHAIRMAN: Thank you, Mr. Aylward.

Mr. Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

The minister indicated they are looking at ways and

means of attracting business through the tax system. Is he considering

eliminating the payroll tax?

MR. BAKER: Obviously, we are looking at all the

taxes, the whole tax system, and that's one of the things we're looking at,

certainly.

MR. WINDSOR: That, at least, gives us some

hope.

In that same light, would the minister like to tell

us where we are in tax harmonization now with the Federal Government? That's

been ongoing for some time. The Federal Government have indicated, in their

study of GST, that they hope to have something in place the end of 1995, the

beginning of 1996, to replace GST. Is the minister looking at some sort of tax

harmonization to tie in with that same timetable? Is that what we're talking?

MR. BAKER: We have to go through a step first.

We went through a couple of years ago, in consultation with the business

community, Chambers of Commerce and so on, and people around the Province, to

first of all, look at harmonization and whether or not to harmonize. The

decision was made that we would harmonize, and then the question became, to what

extent? Do we partially harmonize, fully harmonize, phase it in, or what? We

have completed those discussions now and we have made the decision to harmonize

as broadly as possible. Then we put it on hold.

Obviously, there was a federal election. One of the

parties was saying, we will do away with the GST. There was no point in us going

through the process until we saw what happened at the elections. Now, at that

point in time it wasn't obvious who was going to win. Well, we know what

happened and we know that the Federal Government have said they are going to do

away with the GST, but obviously, it has to be replaced with something, there

has to be a tax.

MR. WINDSOR: They neglected to say that, of

course, during the election.

MR. BAKER: Well, once you did away with the

manufacturers sales tax and brought in the GST, then you can't drop the GST and

have nothing, that is absolutely impossible; so they had to come up with

something and they are now going around the country. Whatever they come up with,

we really should harmonize with it for a number of reasons. We should do it to

make it more simple for businesses to respond to our tax demands. We should do

it because it would make it easier to avail of other services, co-operative

services that can be offered by the Federal Government.

We intend to harmonize but we don't know what we

are going to be harmonizing with. So until they can come up with their plan,

whatever it happens to be - we don't know what it is - I would indicate that the

input they have been getting has suggested to them that whatever they come up

with should be a very broad-based tax and that probably it should be included in

the pricing - another way of saying it is hidden, I suppose, because the shock

value of the GST at the cash register was such that it created almost a panic in

the country. Whatever is there should be broad-based and should not be a means

of generating more new revenue. It should, at this point in time, tax neutral,

and because it is broad-based, the amount should be as low as possible.

I think that is the advice they are getting and it

is going to be interesting to see what they come up with, but whatever it is, I

would suggest that we would probably proceed to harmonize with it. I think that

it the only way it could work in the country anyway, as the provinces get

onside.

MR. WINDSOR: Obviously, those sorts of

recommendations are coming from the business sector and you could expect them to

say that. The bottom line is, if there are some tax credits for business inputs,

then you're shifting, the same as GST did, the burden from business to the

consumer, to the taxpayer. So we can expect Boards of Trade, and Chambers of

Commerce, as the Mount Pearl Chamber of Commerce issued today, basically saying

all the things the minister said. You can expect them to say that. I am not at

all surprised - they would love to see that. Many of the items are quite

legitimate. Simplifying the tax system would be a great benefit. The tax system

is so complicated today that somebody in small business who doesn' have

professional accounting staff is hard pressed to keep up with all of the

requirements, the forms, and so forth, that have be done, and any way we can

simplify that would be very worthwhile.

Can the minister tell us: In these discussions with

getting some flexibility in their proposed harmonized tax system? Our big

concern, as the minister knows, in harmonizing, is that we lose control of our

tax system in our ability to use that for economic development purposes or for

social reasons. That has always been the stumbling-block in trying to find a

there shall be one system and that's it. Have we had any success in getting some

MR. BAKER: Our general position to start with

is that this whole situation has created a problem for the provinces. In other

words, it's encouraging the Federal Government into a provincial jurisdiction,

and it has cut down on our flexibility and so on, but now, recognizing that the

tax was in place with the previous government, we were ready to harmonize; there

will be a tax in place now with the current government and we will also be ready

to harmonize with that.

In theory, I guess, it works fine. What you do is

reduce the tax on businesses, increase the tax on the consumer, which is, in

essence, what you're doing, but in return, because the tax has been decreased on

the businesses, the businesses will then lower their cost of goods to the

consumer, and theoretically everything should work out all around. The net

result should be that our exports are cheaper, we can generate more jobs through

exports and so on. In actual practice, of course, as the member knows, the

theory is fine but it doesn't work that way because the tax relief given to the

businesses is not always passed on to the consumer, and there's a chance for

extra profits to be made and so on.

The way around that, I suppose, is to try to

compensate for the fact that a lot of these taxes may not be passed on to the

consumer in reduction in the cost of goods, by adjusting other business taxes to

try to compensate for the effect on the consumer, and therefore be able to then

lower the tax to the consumer a bit. So if you estimate that 40 per cent of the

tax benefit that should be passed on to the consumer is not being passed on to

the consumer, then you take up, again, 40 per cent of that tax and recover it

from the businesses. In other words, you force compliance.

It's not a simple situation, the net effect

probably is more stress on the consumer, but hopefully, because you increase

your exports, because you create more jobs, you should be able to generate more

revenue to give some tax relief then. Theories are fine. In actual practice, who

knows?

MR. WINDSOR: The theory works well in a general

sense, but in the case of Newfoundland, where certain items are tax-exempt at

the moment for social reasons, heating fuels, for example, things like that,

food, children's clothing, if you bring in a more harmonized system, it could be

much more regressive to Newfoundland, and it will benefit mostly those areas

that have a high percentage of manufacturing, which is Central Canada again. So

the bottom line is, you will transfer it from the business, but it will be the

Central Canadian business that gets the benefit. Our industries are basic

resource-based industries that are tax-exempt anyway, in most cases, so the real

benefits will be in Central Canada and the real cost will be to Newfoundlanders.

MR. BAKER: The hope is, number one, that we

generate some business here, although if we don't you're right, but it's my

belief that tax does not have to be as regressive, that what you can do to make

it more progressive is to use the tax system to give money back to the

lower-income people. In that way, you're putting more of the stress on the

higher wage earners, so there's a way of dealing with it, a combination of other

parts of the tax system, that you can build in a bit of `progressivity' to a tax

like that. There are people who would argue that it is more progressive than you

might think. The three-car family, for instance, would pay a lot more RST or

GST, whatever it happens to be, than the one-car family; therefore there is some

`progressivity' built into the spending habits of people, and then, if you

compensate with the low-income people by providing tax credits through the

income tax system, then perhaps you can make it more palatable.

MR. WINDSOR: The minister is aware, I am sure,

that it is the average income earner today who is getting hit in cuts, in

salaries, in benefits, particularly public servants, and increases in taxation

is hitting them more. Anybody lower is generally exempt, anybody higher who can

better afford to pay, pays more but, nevertheless, is able to pay more.

MR. BAKER: Yes, and then, of course, it is all

relative because the middle-income earner in Newfoundland would be perhaps the

low wage income earner in B.C. - that's complicated, and the federal income tax

system, because of that, their categories, and so on, are perhaps not as

suitable to the Newfoundland situation as they are to situations in other

provinces and we are trying to get some flexibility in terms of that income tax

system, as well, to perhaps better suit the Newfoundland circumstances.

MR. WINDSOR: Well, that brings us to the heart

of the whole question, which is: Have we not reached the point of diminishing

returns in the tax system in this Province? We often hear about people saying

cut taxes and that will improve business and increase the amount of business

activity. Again, that is great in theory, but in fact in this Province today,

those people who drive the economy, which is again the middle-income earner, are

the people who really provide the expenditures that drive the economy in the

Province. Their disposable income has shrunken so dramatically, in the last five

years particularly, and I don't say that from a labour point of view but simply

from an economic point of view because of the recession and everything else, and

wages being frozen, that disposable income is not there; every business feels it

and it moves on through the system; Is it not time to look at that?

MR. BAKER: Inflation has been so very low at

the same time, it is not as drastic as you might think.

MR. WINDSOR: Well, inflation is low, but when

increases are zero and in fact you are actually getting real decreases -

MR. BAKER: (Inaudible) you are going back 2 per

cent a year but if inflation were 10 per cent and you were getting a 7 per cent

wage increase every year you would be falling back 3 per cent a year, so it is

all relative.

MR. WINDSOR: In the public service you got zero

increase but you also took $70 million which came out in other forms, it still

came out of their pockets. Many of the people -

MR. BAKER: And it still hurts.

MR. WINDSOR: Many of the people are buying back

the pension adjustment that you imposed last year which is down the road but

they are paying extra money. I have spoken with some people recently who are

paying something like $80 a month additional to ensure that their pension is

what they expect it would be at the time they expected it to be, so that's still

$80 out of their pockets any way you want to cut it.

MR. BAKER: Oh, it's money out of their pockets

or they have to work longer to get the same pension, or they have to take a cut

in pension twenty years down the road, it is still a cut.

MR. WINDSOR: Yes, and it is less money in the

economy today, to circulate the economy, so I guess the real question is, is it

not time for us to look at the whole situation and maybe it is time to start

decreasing taxes (inaudible).

MR. BAKER: Okay, but you have to start from

basic principles. You have to go to the people of the Province and you have to

ask: Look, what services are you willing to pay for?

MR. WINDSOR: Yes.

MR. BAKER: What services are you willing to pay

for? And there has to be some way to do that, because if the people insist on

having a whole range of services and ever-expanding services, then they have to

be willing to pay for it. Now if, on the other hand, the people say: Okay, we

are willing to do with a little less service here and a little service there,

then you could cut taxes. I don't know of any other way to do it. You can only -

we've been squeezing and squeezing for the past four years.

MR. WINDSOR: More than that.

MR. BAKER: Now, there comes a point where you

can't squeeze anymore, you know? At that point in time a decision has to be

made. It is not as simple as saying: Lower taxes. You have to say to the people:

What services do you want? If they insist on having the services, then you say:

On the other hand, here is how much you are going to have to pay for it.

I sometimes think, if in our medical system when a

person went to hospital and came out and went home that as they were leaving or

shortly after they left they got mailed to them a full itemization of how much

that hospital visit cost - even though they don't have to pay for it - maybe

they would get a better appreciation of what costs what, you know. There has got

to be a fundamental change happen, is my point.

MR. WINDSOR: I recommended that in 1986 or

1987, I think, and I was told what it was going to cost. It was a quarter of a

million dollars to produce those statements.

MR. BAKER: I think it would be worth it,

though.

MR. WINDSOR: How the heck do you justify it? It

may well be worth it, but how do you justify it? Thank you, Mr. Chairman.

MR. L. MATTHEWS: On that point, Mr. Minister, I

believe New Brunswick is contemplating or in fact doing something like that now,

aren't they?

MR. BAKER: I don't know.

MR. L. MATTHEWS: I was talking to a minister at

a CPA conference last Fall and that was the indication. They were re-registering

everybody under the Medicare system to get the Yanks who were in the system off

the New Brunswick system, and they were going to do that just to show people

what their costs were.

MR. BAKER: As a matter of fact, I heard a new

twist to that, if I may, a new twist to that concept. A doctor recently, made

the same point to me. He said: We should send people accounting of how their

money is spent and so on. His reason was this. He said: Then they will know that

a visit to a doctor only costs $18

whereas a visit to your dentist or your

plumber or something would cost you $50. He was doing it from the point of view

of showing people -

MR. L. MATTHEWS: Rather self-serving.

MR. BAKER: - how cheap it was to go see a

doctor.

MR. L. MATTHEWS: Did you want to say something,

Neil?

MR. WINDSOR: (Inaudible) the cost of providing

an invoice to everybody who goes to a doctor may be prohibitive. I was going to

suggest, in fact I have suggested, to the president of MCP, a personal friend of

mine, that we should look at sending invoices to those who pass a certain

threshold each year. They know, their computer can tell them, who is an habitual

visitor to doctors and may be abusing the system - let them know. I thank the

Member for Mount Scio - I'm sorry, St. John's North.

MR. L. MATTHEWS: Probably Mount Scio today, but

(inaudible).

MR. WINDSOR: You don't know where you are going

to be next time.

MR. L. MATTHEWS: A couple of comments and

questions, Mr. Minister. We are on record, certainly, as a government, in the

Throne Speech and by other indications, that we want to set on a fast track, if

you like, a course that will de-regularize as many of the agencies of government

as we can. From the businessman's point of view, I guess, because we are trying

to stimulate the private sector - we keep saying that and I think we are on the

right track in doing that - I can think of agencies like Workers' Compensation,

where it involves a separate accounting and remittance, if you like, every year

for a business person. We have retail sales tax, we have the payroll tax -

health and education payroll tax - and there are other fees - yearly

registrations for maintaining your incorporated status, that sort of thing.

There are all kinds of taxes and remittances that have to be made to the

Province on a yearly basis.

I am wondering, in accordance with our stated

objective to de-regularize and make government more user-friendly for business,

if the department has ever given, either in your day or in prior times, any

thought as to how at least these revenue remittance related-type activities

could be consolidated into at least one. So that at least the areas of

jurisdiction over which the government has control, if we can simplify at our

level - now, I know there are others. There is unemployment insurance, there is

income tax and there is CPP and then there is a whole batch of them on the

federal side, GST and the works. Can you comment on that, or is it too

altruistic to be realistic?

MR. BAKER: It's one heck of a big job, I mean

you have so many different agencies involved. You have the arm's length ones

like Workers' Compensation, you have the Federal Government and Provincial

Government. You have Municipal Governments who also have fee structures and

charges and everything else. It could be really nice if everybody would get

together and come up with some simplified system for not only businesses but

individuals. I don't know how much of that we can bite off at one chew, you

know.

Over the next couple of years, you're going to see

some major changes in a number of those areas. You are going to see, well, over

the next year-and-a-half, major changes in government regulations, as the system

kicks in - this is a tremendous undertaking that we have started and every week

we realize how big it is, and how much bigger than we had thought; but just

simply to set a deadline somewhere where all regulations cease to exist unless

they have been reverified or approved through a mechanism, it's a tremendous

task. But we're doing far more than that, we are going to really simplify - and

again this is for business and individuals I guess - access to government in

terms of permits and licenses and all this kind of thing. The delivery mechanism

is going to really tremendously simplify the process for individuals and

businesses. We are in the process of doing that now. We have had an internal

report done on it and we will start acting on it soon. It is going to involve

some major changes in the way government does things. So we are trying to deal

with it. I don't know if it can be done in as comprehensive a fashion as you

point out - with federal, provincial, municipal governments and arm's length

agencies all being involved, I think that's -

MR. L. MATTHEWS: No, I was just thinking of the

areas that the Provincial Government have control over or are related to - I

said Workers' Compensation, RST, payroll tax, these are the three that we have.

Now, on the municipal side of it, I realize that they have to deal with their

own situation, and the feds, too, to some extent. To me, it would be a start in

streamlining.

MR. BAKER: I don't know, maybe I'm naive, I'm

not so sure that there's - like we do RST and we do payroll tax - I'm not so

sure that could be simplified much more than it is, to be honest with you,

because we collect it here and it seems to be a pretty simple system in there.

Where it falls down is when you start looking at all of the other things that

have to be done. Now, just that straight collection of those two large amounts

of money, I'm not sure there's a problem, but when you look at everything else

that businesses have to do when they go to set up, when they go to move or when

they go to do something, all of the permits and licenses and all this kind of

stuff that they have to go through - they have to go through the Departments of

Health, Environment, Fisheries, Forestry and Agriculture, and Environment and

Lands and so on, all of those various parts of government, in order to move, to

do anything, to change anything, to increase the size of their building or

whatever, to move to a new location and all those things, the whole land use

situation in the Province; those are the things that cause the trouble and those

are the things that we're now trying to get at. But again, this is not an

initiative of the Department of Finance, it's a general government initiative.

MR. L. MATTHEWS: Is it appropriate at this time

to look the other areas you are responsible for? I'm thinking of the Public

Service Commission - or do we get into these on a -

MR. BAKER: Yes, except that Treasury Board, the

Executive Council thing is done in Committee of the Whole, in the House.

MR. L. MATTHEWS: Okay.

MR. WINDSOR: But the Public Service Commission,

certainly.

MR. L. MATTHEWS: Yes, okay. Just a comment, and

I -

MR. BAKER: I believe, Neil, the Public Service

Commission is done in the House, too, isn't it? Here, it's just Consolidated

Revenue Fund, Department of Finance.

MR. WINDSOR: I don't think so, the Public

Service Commission comes under Treasury Board, doesn't it?

MR. BAKER: Yes, it comes under the Executive

Council side, which is done in the House.

MR. L. MATTHEWS: So we don't talk about that

tonight? Or the other ones that have your name on them - Legislature, that sort

of thing.

MR. BAKER: No.

MR. L. MATTHEWS: Okay.

MR. BAKER: It is just really the Department of

Finance and Consolidated Revenue Fund.

MR. L. MATTHEWS: Yes. I guess the program that

I was thinking of was the Open Doors program. That is under the Public Service

Commission.

MR. BAKER: Public Service Commission, yes,

which we have extended this year, but I can get into that in the House.

MR. L. MATTHEWS: This is a program I've had

more calls on, people trying to access funding under `disabled people', than I

have on anything else, for some reason. It seems to me it is an area where we

could use some good money, some more money.

MR. BAKER: We put extra money in this year and

we've gone the next step in the Open Doors program.

MR. L. MATTHEWS: Have we?

MR. BAKER: Yes, absolutely.

MR. L. MATTHEWS: Yes, yes.

MR. BAKER: I don't know if it is Phase III or

IV now - it is just the next step. We agreed to go the next step through the

Public Service Commission.

MR. L. MATTHEWS: I had some questions in those

areas but they are there to be addressed to the House and we will save them for

then. I was going to ask you some questions about your presentation to the

committee from the Federal Government last week with respect to GST, but I

think, Neil, you've basically asked those questions and that will save us a few

minutes. Is there a hockey game on tonight?

AN HON. MEMBER: Yes.

MR. L. MATTHEWS: Well, I will dedicate it to

the Canadians or whoever. I will pass.

MR. CHAIRMAN: Mr. Fitzgerald.

MR. FITZGERALD: Just a couple of brief

comments, Mr. Chairman. I think the hon. minister - there was a couple of

questions put forward here or some concerns about reducing taxes. You mentioned

paying for services.

There is one thing that I've always had a problem

with and I don't know why we do it. I suppose everybody kind of looks at a

doctor as a professional person and somebody who is very dear to us. We put a

lot of trust in them. I've always had a real problem with going to a doctor,

giving him an MCP number, and never having to show the card again. I suppose it

is my dirty mind or whatever, but I'm sure that all doctors are the same as all

politicians. That there are some people who may be a little bit dishonest out

there.

What is so wrong about having to have your card and

have it to go through the same thing as when you buy gasoline or whatever every

time you visit a doctor? Has that ever been thought about being implemented? I

have a feeling that was probably the idea when the card was introduced in the

first place.

MR. BAKER: I have asked that question, too. I

have wondered about that. I'm told that adequate audit procedures are in place

and that they do random checks and so on. They have audit procedures in place at

MCP and where they find those things are happening, the doctors are charged and

so on. So they do the audit procedures check. They will do random calls to

people to see if in fact visits were made and so on. They have audit procedures

in place to try to prevent that. I asked the same question. That was the answer

I was given.

MR. FITZGERALD: I don't think it is degrading

to expect a doctor to do that, I don't think you are belittling him. Most

doctors have staff on hand and it shouldn't be too much to ask.

Permits and licences is something the speaker

before me brought up. There must be a lot of those areas where we are charging

now for permits and licences that it must cost more to administer the area than

the revenue that we derive from it. I was faced with a problem there some time

ago, and it was certainly an inconvenience that I faced, when I happened to

forget about renewing my automobile licence. Then I had to go and get an `in

transit' sticker in order to move it to the garage. I went to the Department of

Works, Services and Transportation to pay for it and they wouldn't accept cash,

they wanted a cheque. I went and tracked my wife down and got a cheque and took

it back. They wouldn't accept a personal cheque, it had to be a certified

cheque. I had the choice of either going to the bank and getting a certified

cheque or going to the post office to get a money order in order to pay for a

transit sticker - you know?

MR. BAKER: Yes, I know.

AN HON. MEMBER: (Inaudible).

MR. FITZGERALD: No, but those are some of the

rules and regulations in there that if we are looking at doing away with

government red tape and all the inconveniences there to make the system work

better, these are some of the things we can look at.

Debt Administration, Information Technology, 2.1.01

- I notice in 1993 there was a sum of $49,400 budgeted, the revised amount was

$80,700 and this year it is down to $13,200. It just caught my eye because most

of your figures are pretty well right on with last year.

MR. BAKER: Which one?

MR. FITZGERALD: Debt Administration,

Information Technology, 2.1.01.

MR. BAKER: Yes, we have an explanation.

Gilbert, would you just go over that for me, please.

MR. GILL: Up until this past year, we looked

after all the bond administration work, the bond registration and so on, in the

Department of Finance. That has been removed from the Department of Finance and

is now being done publicly by a firm based in Toronto and that's the big

difference between this year and last year; it is basically less cost in our

bond administration vote on the administration area. The $13,000 that is left

there, all we are doing now, at this point is, we are looking after the

administration of Enterprise Newfoundland and Labrador, what is left of their

development bonds, which were sold. We are getting down now towards the end of

that as well, so in the next year or the year after that, it will become zero.

MR. FITZGERALD: Compliance and Audit - Tax

Administration, 3.1.01.03 - the estimates for Transportation and Communications

from $518,400 in the revised budget of 1993-1994 to $602,100 this year.

MR. BAKER: 3.1.01 .03 - Transportation and

Communications?

MR. FITZGERALD: Yes.

MR. BAKER: Okay - that's travel expenses of 133

employees, the main portion of the travel cost for the staff engaged in audit

collection and inspection activity and school tax collection.

MR. FITZGERALD: Would that be due to the extra

people who were hired in tax collection or tax audit?

MR. BAKER: Well, they would be involved here,

some of them, certainly, in terms of travel, whatever travel they do, but this

is their travelling within and without the Province. We have to send auditors to

Ontario and to other parts of Canada as well, to do audits, so that's the total

transportation costs. There is $110,000 in there for postage; there is $363,700

for the travel I talked about, and for telephone expenses, $128,400 and that

makes up the total amount. Last year we didn't spend as much as we budgeted.

MR. FITZGERALD: Item .04 on Supplies, would

that be the same explanation for the $25,000 to the $68,100?

MR. BAKER: The .04 is Supplies, and of that

amount $50,000 relates to school tax - supplies necessary for the administration

of school tax collections; $11,800 for gasoline and so on for a fleet of twelve

vehicles and $6,300 for miscellaneous office supplies. There was a tremendous

drop from the original budget last year to the revised and I am not so sure why

that drop was there.

MR. FITZGERALD: Would you have an estimated

figure of how much school taxes have been written off as a bad debt or

non-collectible?

MR. BAKER: We haven't written off any at this

point in time. We have determined - and I don't know the amount, and I guess Bob

probably couldn't tell me either - that some of the people who were clients on

the list, and it was indicated they owed money, in fact have not owed money. We

have had quite a number who, because their circumstances fitted, they didn't

really owe the money, and they happen to be on our original list for school tax.

So a lot of that has disappeared. Now, I don't know how much - I don't know if

you know that number, Bob.

AN OFFICIAL: We don't have the figure here.

MR. BAKER: You don't have the figure, okay. We

could find out. There's a fair amount of it that people simply didn't owe, for

one reason or another. It was problems with the record-keeping, and the records

that were given us. So a lot of that has disappeared, but we haven't written off

anything yet. We will probably have to eventually - we're just trying to collect

it right now.

MR. FITZGERALD: Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Crane.

MR. CRANE: Thank you, Mr. Chairman.

I don't have a question after listening to all of

those questions, but I do have a statement I would like to make. I take

exception to Mr. Matthews referring to tobacco as the criminal element in

society. He might think it's the criminal element, but I think very highly of

tobacco smokers.

MR. L. MATTHEWS: I don't think it was smokers,

John - smugglers.

MR. CRANE: I wasn't sure, whether you put under

smokers, or smugglers, those whom you considered criminal, but I certainly think

that what you're doing to the honest local smoker is you are discriminating

against him, because it's only the honest person who is not going out and buying

the smuggled cigarettes. And you're kidding yourself if you think you're getting

the same revenue from cigarettes as you were getting before, because I am

telling you, right here in St. John's, this place is alive with cigarettes from

St. Pierre. If you want to, you can pick them up on any corner, and I think at

the end of the year you'll find out the only people you really hurt, and the

government really hurt, was the honest smoker. I hope that includes you, too,

Mr. Minister.

MR. BAKER: All I can say is we're still

collecting our $5 million-a-month, or thereabouts, and if we were to give up

that $70 million worth of revenue, where in your district would you like us to

remove some services?

MR. CRANE: I have nothing to remove except the

Social Services office.

AN HON. MEMBER: Well, that's one of them.

MR. CRANE: If you took the social services -

AN HON. MEMBER: Medical costs, social service

cost, roads, the whole lot of it.

MR. CRANE: Listen, the only thing I have in my

district is the Social Services office.

MR. L. MATTHEWS: With respect to my colleague's

remarks, I want the record to show that I was not referring to smokers as being

the criminal element in our society. I realize we are in Hansard - we are being

recorded.

AN HON. MEMBER: Do you withdraw?

MR. L. MATTHEWS: Oh, yes, unequivocally - I was

not referring to anybody who puffs as being dishonest. I could call them foolish

or ill-advised, or something of that nature, but not dishonest. I was referring

to those who smuggle tobacco products for sale on a basis that is illegal in

accordance with our laws. Thank you.

MR. CHAIRMAN: Thank you, Mr. Crane.

Mr. Windsor.

MR. WINDSOR: Thank you, Mr. Chairman.

It's the tax on cigarettes that's criminal, I

suspect. I don't smoke, so I'm not going to get too upset.

I have just a couple of quick questions, Mr.

Chairman, because I have another commitment that was long-standing before I was

aware of this committee meeting, and I have to get out of here shortly.

The debt management area: Can the minister tell us,

has he completed a borrowing program - I'm sure he has completed a borrowing

program for last year; how much did he actually borrow, and which markets? I

know the figure is in the budget of what he actually borrowed - I assume it is.

Where did he borrow it? How much was borrowed in Canadian money, and what sorts

of rates did we get? Is it long-term money or short-term borrowings? Do you have

those figures available? If not, you can give them to me tomorrow.

MR. BAKER: No, it's readily available. I don't

know how much we did in T-bills. Do you know offhand, Gilbert?

MR. GILL: Well, T-bills, we do $286 million -

$22 million per week, whatever that multiplies - $286 million. I think I will

defer to Winst here.

MR. BAKER: We did two issues. Was it two

borrowings last year?

MR. GILL: We did a U.S. issue, $200 million

U.S., and we did a Euro issue, $150 million.

MR. BAKER: Euro-Canadian.

MR. GILL: Euro-Canadian, $150 million.

MR. WINDSOR: So you are protected there?

MR. BAKER: Yes.

MR. WINDSOR: What kind of rates were we paying

on that?

MR. GILL: I will have that in a second. The

rates were quite a bit lower last year at this time than they are right now -

8.75 per cent, the Euro-Canadian, $150 million; and the U.S. would be 7.32 per

cent.

MR. WINDSOR: Has any of the older debt been

renegotiated at the lower rates of today? I know we paid quite a bit higher than

that in some areas.

MR. GILL: Particularly a year or two ago we

paid out quite a considerable amount of debt as soon as we could, whenever we

were able to under early retirement provisions - and removed a lot of the real

high-paying debt. There hasn't been as much that we've been able to do in the

last year. We just didn't have that much there that we could pay out earlier.

MR. WINDSOR: Can I ask the minister - an issue

relating to strikes in the Province. It is not a Treasury Board issue, it is a

Finance issue, the financial implications of a potential strike in most, if not

all, of the public sector unions in the next month. What would be the

implications and what provision does he have here for it other than clapping his

hands in glee?

MR. BAKER: I haven't done the calculations of

the Public Service, simply because if there is, like a general strike, there are

some things that have to be kept open. You have to keep your hospitals open,

your nursing homes. There are some things you have to keep open and in some

cases that would incur you even greater cost, and you probably end up having to

send people out of the Province to get medical care, in some instances, and to

get tests done and so on, which would increase your costs tremendously. I don't

know about the savings there. I know, in terms of the education system we would

probably save about - I'm talking now about the primary, elementary and

secondary schools - $10 million a week.

MR. WINDSOR: So there is no provision in the

budget. Obviously, you do your budget based on (inaudible) and you can't predict

that.

MR. BAKER: No. I'm hoping that we won't see

such an eventuality.

MR. WINDSOR: I'm hoping to win the Lotto, too.

MR. BAKER: That would be nice.

MR. WINDSOR: Another issue that is not

budgeted, and again, I realize it can't be budgeted, is the potential impact of

privatizing Hydro. There are a number of things in there, particularly, we know

for a fact that the rate adjustment fund is going to cost $15 million. I assume

all this sort of thing will come from special warrants of some nature. Forty

million dollars contribution to the pension fund to bring that one up to being

fully funded before it is taken over by a private corporation. The loss of the

$10 million guarantee fee from Hydro, for example, and the loss of the -

MR. BAKER: A lot of those things you are

mentioning come out of the proceeds. They are one-shot expenditures.

MR. WINDSOR: Some of them.

MR. BAKER: In terms of the pension fund, what

we are proposing is, I think - I would have to go back and check and be sure -

but I think it is making commitments that can change depending upon what happens

in the rest of the Public Service. That particular commitment should be the same

as a commitment that we would make or have made to the rest of the Public

Service, in terms of the unfunded liability that we are going to cover. So

whatever happened - you know, the commitment is there.

MR. WINDSOR: The commitment is there that we

will honour it, but not that we will cough up $40 million this year. It would be

a heck of a lot more if we had to cough up $40 million.

MR. BAKER: Some of the other things, the rate

adjustment fund and so on, I believe that is coming out of proceeds.

MR. WINDSOR: Is it?

MR. BAKER: Yes - which is still a cost to us.

MR. WINDSOR: I don't think it is. The minister

may be right - I'm not sure it is, but that is right, it is still a cost to us.

MR. BAKER: It is still costing us. (Inaudible)

MR. WINDSOR: You are losing the guarantee fee,

your $10 million in your guarantee fee, that no doubt is budgeted at the moment.

The PUITTA or whatever you want to call that, the revenues from that as it

relates to Newfoundland Light and Power, I think is around $9 million, $9.5

million or something you collected on that. You will lose that if the

privatization goes through and you make the changes under the privatization

bill. That is $20 million there just in those two items. There is no provision

for that in the budget.

MR. BAKER: No, none whatsoever. The assumption

in the budget is that Hydro will be exactly the same at the end of the year as

at the beginning.

MR. WINDSOR: How could you assume that?

MR. BAKER: Because there was no indication that

the privatization would be done. When I did the budget up we simply did it

assuming the status quo.

MR. WINDSOR: Just a couple of other very quick

items, basically arising from comments from my friend, the Member for Bonavista

South.

Student loans, one problem - I mentioned it in the

debate in the House a little while ago, the impact on rural Newfoundland of the

cost of educating a student. If you come from rural Newfoundland it is quite a

bit different from somebody who is living in St. John's.

MR. BAKER: Oh, yes.

MR. WINDSOR: The tuition fee is a small part of

it. It is the living expenses and providing accommodation and transportation

that are the big costs of education when you live in rural Newfoundland. Also,

the means test, as I understand it, doesn't really make provision for the fact

that there may be any number of children from that family. It is based on the

gross family income. The fact that that family might have three or four children

attending university at the same time is not taken into account, nor are other

personal factors such as if you have unusual medical expenses in a family or

other issues that may be outstanding.

MR. BAKER: In the provincial one that we are

proposing, those things would be taken into account, but the other part of it,

the major part, that is a federal - the other

part is the federal part. I'm not

so sure what changes they've made. They were supposed to have done an

announcement a couple of weeks ago. I don't know if they have or not, I haven't

seen anything.

MR. WINDSOR: A final, very quick one, as it

relates to Atlantic Lotto. I appreciate the answers the minister gave. There is

a very small percentage of the employees at Atlantic Lotto actually in

Newfoundland. Has the minister made any effort to try to decentralize Atlantic

Lotto a little bit to get some real benefits, some employment benefit? It is a

tremendous employer.

MR. BAKER: Yes. We have the headquarters for

Marine Atlantic in Moncton, and maybe we should all move to Moncton - right?

MR. WINDSOR: I'm just saying, we all contribute

equally. I know there are certain things that we have co-operated on. The

veterinarian college went to PEI and so forth. I haven't seen anything except

the taxation centre here, I suppose, federal government. But from a provincial

co-operative point of view, I don't recall anything that was built in

Newfoundland which generates employment and economic activity and is jointly

being shared by the Atlantic Provinces. The School for the Blind, I guess, is in

Halifax, the Holland College is in Prince Edward Island. You can go on around

the circle, you know. We lost the great frigate program to St. John, New

Brunswick a few years ago, and Marystown could have very well benefitted from

it. In the case of Atlantic Lotto, have any efforts been made -

MR. BAKER: Yes.

MR. WINDSOR: - to get some of that action down

here? Because we get a very small percentage of it and we buy a fair share of

tickets.

MR. BAKER: Also, we cut off the advertising

down here, too, so that is money not spent down here. That was a conscious

decision by government because of the lifestyle advertising we didn't

particularly like.

MR. WINDSOR: Yes, but I mean, the advertising -

MR. BAKER: I would think -

MR. WINDSOR: Now, Atlantic Lotto is advertising

in other Atlantic Provinces but our local businesses are not getting any of it.

MR. BAKER: That's right.

MR. WINDSOR: And that is cutting off your nose

to spite your face.

MR. BAKER: That's right. I agree with your

analysis of it, although I would point out that maybe as a compensating factor

in Atlantic Lotto, a higher proportion of the earnings, of the winnings, comes

to Newfoundland - that was the last information I had.

MR. WINDSOR: The Minister of Industry, Trade

and Technology being the chief.

MR. BAKER: Relating to the number of tickets

bought, a higher percentage of the winnings comes to Newfoundland.

MR. WINDSOR: That is true.

MR. BAKER: Maybe there is divine intervention

there somewhere.

AN HON. MEMBER: The luck of the draw.

MR. WINDSOR: Nevertheless, I think there is

(inaudible).

MR. BAKER: No, you are absolutely right. This

has been mentioned at the meetings with the other Atlantic Provinces. I have

been to a couple of them myself in terms of this co-operative effort with the

Maritime Provinces, and that is always brought up, the fact that we need a

bigger piece of the action. It is also brought up with the Federal Government in

terms of defence spending, where we get an extremely small proportion of defence

spending. I think they tried to compensate for that in the closedowns and they

didn't do as much proportionately in Newfoundland as they did in the other areas

of the country but still our defense spending is very low per capita and these

are areas that we will have to keep working on, that's all.

MR. WINDSOR: If we had our proportionate share

it would be, I think, the fourth largest industry in Newfoundland -

MR. BAKER: Yes.

MR. WINDSOR: - if I remember the numbers

correctly. I remember dealing with that a number of years ago, and I think it

would be the fourth largest industry if we had our proportionate share in

relation to the rest of Canada.

MR. BAKER: That's right.

MR. WINDSOR: Thank you, Sir. Thank you, Mr.

Chairman.

MR. CHAIRMAN: Have you any questions, Mr.

Crane? Mr. Aylward? Mr. Matthews? Mr. Fitzgerald?

CLERK (MS. E. MURPHY): 1.1.01 to 3.1.02,

inclusive.

On motion, subheads for the Department of Finance,

totalling $38,043,500, carried without amendment.

MR. CHAIRMAN: Thank you. First of all, I will

remind the committee that we are here at nine o'clock tomorrow morning to do

Work, Services and Transportation and the Public Service Commission.

AN HON. MEMBER: (Inaudible).

MR. CHAIRMAN: Municipal and Provincial Affairs

tomorrow morning; Works, Services and Transportation on Thursday morning. Okay,

I'm sorry about that.

Would somebody move the minutes of our -

AN HON. MEMBER: (Inaudible).

MR. CHAIRMAN: We are here tomorrow morning with

Municipal and Provincial Affairs.

AN HON. MEMBER: Okay.

MR. CHAIRMAN: And Thursday morning it will be

Works, Services and Transportation and the Public Service Commission.

Will somebody move the minutes of the April 22nd

meeting?

On motion, minutes adopted as circulated.

MR. CHAIRMAN: Thank you, Mr. Minister, and I

thank you, staff.

AN HON. MEMBER: We'll have a more interesting

time when we get Treasury Board in the House, eh?

MR. CHAIRMAN: Thank you, Elizabeth.

The meeting adjourned.