April

10, 2000 GOVERNMENT

SERVICES COMMITTEE

The Committee met at 7:10 p.m. in the House of

Assembly.

Pursuant to Standing Order 87, Jim Walsh, MHA for

Conception Bay East & Bell Island, substitutes for Ralph Wiseman, MHA for

Topsail.

CHAIR (Mr. Hodder) : Order, please!

The Chair will be here shortly. In the meantime, we

will proceed.

I think the Chair is now coming; therefore we can

begin for the second time.

CHAIR (Mr. Joyce): Order, please!

MR. H. HODDER: Mr. Chairman, I move that the

minutes -

CHAIR: Just a note on the April 5 minutes, that

Wally Andersen was present for that meeting.

MR. H. HODDER: Mr. Chairman, I move, with the

addition of the hon. Member for Torngat Mountains, Wally Andersen, (inaudible)

that the minutes for April 5 and April 6 be adopted.

On motion, minutes adopted as circulated.

CHAIR: Thank you very much.

What we will do to open up is, I would like for

everybody to state their name so we will have on the record who is present.

MR. WALSH: Jim Walsh, MHA for Conception Bay East

& Bell Island.

MR. ANDERSEN: Wally Andersen, MHA for Torngat

Mountains.

MR. LUSH: Tom Lush, MHA for Terra Nova.

MR. J. BYRNE: Jack Byrne, MHA for Cape St.

Francis.

MR. H. HODDER: Harvey Hodder, MHA for Waterford

Valley.

MR. JOYCE: Eddie Joyce, MHA for Bay of Islands.

CHAIR: Minister, would you like to introduce

yourself and your staff please?

MR. MATTHEWS: Lloyd Matthews, Minister of Finance,

MHA for St. John's North.

MR. BENNETT: John Bennett, Assistant Deputy

Minister, Debt Management & Pensions.

MR. PADDON: Terry Paddon, Assistant Deputy

Minister, Taxation & Fiscal Policy.

MS RING: Mary Ring, Acting Manager, Financial

Administration, Executive Council.

CHAIR: The only request is that whoever is

answering a question, or speaks, that they identify themselves for the record.

We will have opening remarks from the minister.

MR. MATTHEWS: Thank you very much, Mr. Chairman.

I appreciate the opportunity to appear tonight, on

behalf of the Department of Finance, to discuss the Estimates of the department.

It is my first opportunity to do so as Finance Minister; however it is not, at

this point, a completely new experience, having done it in at least three other

government departments over the last six years.

The observation that I have made to myself since I

have been in the Department of Finance is that it is a department somewhat

different from other line departments of government in that it is a department

that is a rather overarching department, sort of a part of a central agency of

government, to the extent that it has different responsibilities than a line

department. In an operational sense, it has been a new and interesting

experience for myself.

In the last three or four months since I have been in

the department we have concentrated, obviously, most of our efforts - and for

the first three months much of my time - in both getting familiar with the areas

of responsibility that the department has as part of government. I am getting to

know the good staff who are there, and participating in the Budget preparation

that is now an exercise behind us for this year, having presented the Budget on

March 22, and now in the House discussing the Budget, debating the Budget,

defending the Budget, and certainly, on behalf of government, along with all of

my colleagues in the House and beyond, promoting the Budget as being what we

believe to be a very forward-looking, a very creative, a very appropriate Budget

in terms of addressing the needs of the Province within our fiscal capabilities.

The department has three or four major areas of

responsibility that have been referred to, to some extent tonight, by the

assistant deputies who are with me - the deputy, of course, being out of town

tonight and not being able to be here - the debt management, administration side

of the operation being under the ADM, John Bennett; Taxation and Fiscal Policy

under the direction of ADM, Terry Paddon; and the other area of responsibility

that was outlined in the general administrative side from our colleague on the

end.

There is another division of the department that is

not represented singularly here tonight by a deputy minister and assistant

deputy minister, and that is the economics and statistical branch of our

department. That is an area that responds in large measure not only to our own

direct needs - within the department, that is - but to other departments of

government in terms of preparing information, in terms of doing economic

analysis, statistical analysis, projections and various pieces of work on behalf

of various departments and agencies of government that call upon our services

from time to time.

As the minister, I found the department to be an

interesting place in that the stakeholders are significantly different than all

of the other line departments I have had. In a line department, I found that the

primary stakeholders that you deal with as a minister are in many ways external

stakeholders to government, the boards, the hospital boards, the municipal

councils and those sorts of agencies,

whereas the stakeholders in the Department

of Finance are in large measure the other departments of government that tie

into the department and to its activities as it functions as part of the central

agency of government.

I don't think I need to take much more time and

elaborate on the various areas that come under the department's responsibility.

If you have been doing the Department of Finance before, as a member of

Government Services Committee, you are already familiar with the various aspects

of the Department of Finance, so rather than me taking the time of the Committee

tonight to talk about the various areas and each of their responsibilities, I

would rather give the time to the members of the Committee to ask any question

of any area of the Budget that you have in front of you. Between myself and the

officials who are with me, I hope we can satisfy any questions or any queries

you might have regarding the Budget, the Estimates, and hopefully be as

informative as we can be in terms of adding anything new that might be of value

by way of information with respect to the line items in the Budget and the

Estimates under the various subheads in the department.

I think that is all I need to say, Mr. Chairman. I

think now it is as appropriate a time as any to ask you to move the rest of the

activities of the evening forward by having the Committee members engage in

their usual practice of commending the government - I am sure that is what your

practice has been - for such a sound, fiscal, responsible Budget that we have

just brought in. I know words of a laudatory nature won't come easily to you,

but I know that there are words that you are groping for in terms of wanting to

be gratuitous towards the government as a result of our good management of the

Province's affairs. So it is over to all of you to see what you have to say.

Thank you very much.

CHAIR: Thank you, Mr. Minister.

Mr. Byrne.

MR. J. BYRNE: Thank you.

Maybe when the minister is finished up in politics he

should become a standup comedian or something.

MR. MATTHEWS: It is an option.

MR. J. BYRNE: It is an option.

I have a few general questions before I get into the

Estimates themselves about the financial situation of the Province and the view

that the government is putting forward. I have a few notes here so I am going to

refer to them just to get your comments on them if I could.

The government often claims to be leading the country

in economic growth as measured by the GDP. We are the only province to show a

net loss of population. We lost 40,000 people in the past few years, which is 7

per cent of our population. With the loss of population, what impact do you see

that having on your budgets within the next few years?

MR. MATTHEWS: The impact that it would have had on

our budgets, I think, has already occurred in previous budgets.

MR. J. BYRNE: If that continues, though.

MR. MATTHEWS: I know there, over a two year

period, adjustments to our equalization transfer is possible. Essentially - and

don't take this in a political sense - we have always been conservative in

projecting our revenues and estimating our expenses. The net result of the very

sound and conservative fiscal approach that the officials have taken over the

years in helping other ministers and myself prepare budgets has always, it

seems, over the last few years given us a better position at the end of the year

than we had budgeted for.

That is in part because we have been doing things in a

prudent manner in terms of our revenue and expense projection, but I think it is

also a sign of our improved economy. I think the good news for us, in terms of

the population issue, is that in the last quarter - is it? - I believe for the

first time in some time we have seen a net gain in population. Not a lot of

people. I think I heard today, without having seen the figure, somewhere around

500 people represent the net gain we have had in our population figures. Having

budgeted prudently in the past and up till now, I think we are going to have

more good news than we had even projected ourselves at the end of this fiscal

year and beyond.

MR. J. BYRNE: The government, your government or

whatever, or the government you are a part of -

MR. MATTHEWS: Your government. We look after

everybody. We govern for all the Province.

MR. J. BYRNE: That could be argued, I can

guarantee you that.

You are always promoting the fact about the job

creation in the Province but in actual fact we are falling behind the rest of

Canada in job creation. In 1989 there was a gap of 8.3 percentage points between

the unemployment rate in this Province and the unemployment rate in the whole of

Canada, and that has widened today to 10.2 percentage points in the first month

of this year. What do you think of that?

MR. MATTHEWS: I think that whoever researches your

questions and comments is doing a fairly good job on your account.

MR. J. BYRNE: That is not accurate, you are

saying?

MR. MATTHEWS: The comment I would make is that our

numbers have come down but they have not come down as quickly as the overall

national rate has improved. Therefore, there is a gap between the real

unemployment rate in Canada today versus our unemployment rate. I think that is

the comparison you are making historically. We are heading in the right

direction. We have gained about three points over the last two to three years in

terms of reducing our unemployment numbers.

MR. J. BYRNE: The gap has widened.

MR. MATTHEWS: The good news is that a part of the

reason for the gap widening I guess -

MR. J. BYRNE: So you agree with those figures?

MR. MATTHEWS: - is that there are more people in

the job market. I don't argue with your figures but I would not want to validate

them without having seen them.

MR. J. BYRNE: Is that right? You can take it for

granted they are right.

Also, we are falling behind the rest of Canada in

export trade. In 1989 exports accounted for 30 per cent of the GDP and we were

the leading export province in the nation relative to the GDP. By 1998 we were

at 34 per cent of the GDP but all other provinces had gained much more. Three

provinces had vaulted ahead of us. Ontario's export trade went from 28 per cent

to 52 per cent and so on. What impact is this going to have, do you think, on

upcoming budgets? This is all leading somewhere, by the way.

MR. MATTHEWS: All I would say is that our exports

have increased substantially as well over the last five years that this

government has been in office.

MR. J. BYRNE: But not keeping up with the rest of

the country.

MR. MATTHEWS: You make that assertion. I haven't

seen those numbers in the context that you are presenting them. As I say, I

would be loathe to validate the numbers of somebody else without having seen

them, but I can tell you that we have been sufficiently pleased with and proud

of, I would offer, our own improvement in terms of our GDP growth, that we have

been making no hesitation in putting numbers forward in our Budget speeches and

in other places.

I guess the acid test, really, in terms of how we are

performing as a Province in economic growth is seen by the two upgrades we have

had in our credit ratings over the past two years and the positive adjustment in

commentary that we received by a third bond rating agency just last week. While

the rating did not change, the outlook changed to positive from average. So, we

are heading in the right direction and it is a question of whether or not we are

getting there as fast as we would like to. The answer to that is no, but are we

getting there at a fairly good rate of speed? Yes, we are making good progress.

MR. J. BYRNE: Thank you.

Child poverty has declined in every other province

since 1996 but has increased from 18 per cent in 1989 to 23 per cent a couple of

years ago. What is the Province doing about this? Are they planning on putting

any more money in to help alleviate that problem?

MR. MATTHEWS: I think we have, as you would

acknowledge, made a number of strategic investments in the area of social

programs. This year alone, by way of example, we have doubled our investment in

the provincial School Lunch Program, I believe it is, for the Department of

Education, in terms of the endowment that they are working with. We have engaged

in the Social Strategic Plan that has a number of initiatives in it for

children. We allowed people with children, particularly on lower incomes, to

benefit incrementally more from the positive adjustments to the Child Tax Credit

over the last couple of years than most provinces but not clawing back as much

as others and reinvesting it in certain areas, as other provinces have.

In the big picture, I think you would agree that we

are doing some very good strategic investments in our social planning through

the departments of government that have responsibility in those areas, primarily

the Department of Human Resources and Employment and the Department of Health

and Community Services as well as the Department of Education.

MR. J. BYRNE: Thank you.

In the Budget 2002-2001, you are saying that you are

going to have basically deficits of $35 million - $34.7 million I think it was,

or whatever - and had the Budget included a reasonable estimate of over

expenditure by the government's twelve health care boards, ten school boards,

forty-two Crown agencies, as the Auditor General pointed out in previous times,

the deficit actually would have been $165 million. What comments would you have

to that?

MR. MATTHEWS: That is a figure that is

substantially less than it would have been had we not made some end-of-year

investments back into areas such as health care. This year we put $16.5 million,

I think, from the flexibility that we had at the end of the year to address

health board deficits. I am not sure if it was two or three years ago, we

cleaned up all of the outstanding deficits of the school boards. Last year as

well, of course, we put I think it was an additional $16.5 million some time

during the year into the Department of Health's budget to address health care

deficits.

In total, the health care boards came to us about

mid-year last year and told us that they would have probably an accumulated

deficit amongst all of them, the eight of them I believe it is, of somewhere

between $60 million and $80 million as a result of our re-investments in health

care to help them with their debt as well as in other areas. Their accumulated

debt now seems to be in the $20 million range. We believe that is quite

manageable by the boards over the next couple of years and we are working with

them, with a special team that was announced in the Budget, to: (

a) Ensure that

they are maximizing on their efficiencies and planning and spending prudently

with the budgets that we have given them, as increased in this year's Budget.

MR. J. BYRNE: It really doesn't answer my question

but I will move on.

The revenue estimated this year includes $162 million

in one-time payments; $110 million from the Sinking Fund; $10 million one-time

drawdown from Newfoundland and Labrador Housing; and $42 million one-time draw

from the future federal grants with respect to the health care. Actually, I

thought there was more than that because the liquor board and Hydro also have

some there. What are your comments on that? Next year, this kind of money won't

be there. There is $162 million there now that will not be there next year

because of one-time drawdowns.

MR. MATTHEWS: Over the last couple of fiscal

years, and at the end of this year again, we have had more source revenues on

our own than we had budgeted for and we have been able to control our expenses.

We have had positive adjustments from transfer payments from Ottawa. These

things together have given us some flexibility at the end of each year, allowing

us to push forward dividends that we would otherwise have taken into our budget.

What you are saying is accurate in that we are pushing revenue into next year

that we could have taken into account last year, let's say, now, and we are

putting them into this year's revenue projections. We believe that the

three-year fiscal plan we have for the Province - which is not outlined, of

course, in the Budget; this is a one-year Budget - projects that we will be able

to maintain our budget whole on the basis of dividends that we are moving

forward and anticipate asking of the various Crown Corporations in future.

If you are asking me, do I see deficits as being the

order of the day beyond this budgetary year, the answer from the department's

prospective is clearly, no. We are not planning on going into deficit financing

to meet our program expenditure obligations. We believe that, with the revenue

streams we are projecting from Ottawa, from our own source revenues and from

dividends from Crown Corporations, we will be able to largely keep our budget

whole well into the future. That is our plan.

MR. J. BYRNE: You are saying this $162 million

that is revenue this year, you will have those revenues next year?

MR. MATTHEWS: I am saying that we will have

sufficient revenues in the next three years as we forecast within the

department, within our fiscal plan, to meet our budgetary expenditures. Whether

or not our total revenue picture will be made up of exactly the same revenue

items and exactly the same percentage portion as reflected in this year's

Budget, I wouldn't allege that. I would say that our fiscal framework indicates

we will keep our budget whole over the next three years based on what we project

will be our expenditures and based on what we project will be our revenues.

MR. J. BYRNE: This $10 million from Newfoundland

and Labrador Housing for this year, will Newfoundland and Labrador Housing have

to borrow that money to pay the government to help balance the (inaudible)?

MR. MATTHEWS: The dividends that we are asking of

Newfoundland and Labrador Housing and asking of the Liquor Corporation - it is

really asking of them to return some equity to the Province to help us with our

budgetary requirements as the major and as the only shareholder in those

corporations. We have, over the years, invested a lot of money in the

Newfoundland and Labrador Housing Corporation from previous budgets and from

other source revenues, some of which they generate within their own operation,

and the net impact on the Housing Corporation will not be negative, nor will it

be on the Liquor Corporation.

I was interested to read a press release today from

the Liquor Corporation outlining the basis of their product price increases that

you raised in the House as a question last week, suggesting it was a new form of

taxation because we had asked them to give us a dividend of $5 million or $10

million next year. The fact of the matter is that product pricing was not

impacted by the dividends we are asking of them but by other factors external to

that.

MR. J. BYRNE: Prices went up, though.

MR. MATTHEWS: Some went down according to the

press release that I saw.

MR. J. BYRNE: Yes, over 600 products went up.

MR. MATTHEWS: I'm sorry?

MR. J. BYRNE: Over 600 products went up,

increased.

MR. MATTHEWS: Yes, some went down.

MR. J. BYRNE: It wasn't too many of them.

With respect to Newfoundland Hydro, $9 million dollars

in extra guarantee and $76 million from dividends to go to your Budget this

year. Will Newfoundland Hydro have to borrow any of that money?

MR. MATTHEWS: Within their own operations?

MR. J. BYRNE: Because if they have to give you

guys $85 million, (inaudible) $9 million in guarantees and $76 million in direct

cash, I would imagine. I would just like to know where they are coming up with

$76 million to give to the Province to help balance the Budget without having to

borrow.

MR. MATTHEWS: There is an accumulation there of a

previous year's dividends that they had allowed for and that they have in fact

provided for in their own budget, and we have not taken it. Now if you are

asking me whether they operate on some kind of a line of credit over at the

Hydro Corporation, I can't tell you what their cash requirements are and how

they meet them on a day-to-day basis. All I can tell you is that they have

factored into their budgets all of the dividends that we have asked of them.

Even though we have not received them they are carrying them as an accrued

liability on their balance sheets. At what time they are required to pass them

over to us because we want them it won't cause them any difficulty. They may

have to go out and increase their borrowings at the bank, if in fact they are

borrowing at the bank, or they may have to dip into their cash reserves if they

have any cash reserves, at what point they have to pay them out, but these

dividends are all built into their fiscal plan. They have allowed for them, and

obviously they are not having a negative impact upon their operations. If they

were, then they would be in a position of having to ask for rate increases

beyond what they have, which has been very little over the past three years.

They have not been rendered in a circumstance of having to do that.

MR. J. BYRNE: So $76 million of that $85 million

is an extra expenditure for Newfoundland Hydro this year. If they are going to

be running that Crown corporation as they have done in the past, and maintained

the books that they had in the past, they are going to have to pass that rate on

to someone.

MR. MATTHEWS: They would have already passed it on

because they have already -

MR. J. BYRNE: That is only coming this year,

though. That is only projected for this year isn't it?

MR. MATTHEWS: There is $121 million in total that

we are estimating from Hydro. There are regular dividends of $14 million. There

is a recall of an additional $37 million available to us there. There are

special dividends of $60 million which they have provided for and then we are,

of course, picking up some dividends that comes from CF(L)Co as a pass through,

through the Hydro Corporation, totaling $10 million, $5 million of which has to

do with the guaranteed winter availability contract that we had some positive

adjustments to last year when we started negotiating with Hydro Quebec on the

Lower Churchill.

The $121 million had been provided for in Hydro's

budget and it has not negatively impacted their operation. They have not had to

look for extraordinary product increases on the power that they produce and sell

as a result of these dividends, no.

MR. J. BYRNE: Thank you.

This is the last year, I think, for the HST

transitional grant. I think it was a three year thing, $350 million to the

Province. No, since 1997 actually. What impact will not receiving that money

have on the budget next year?

MR. MATTHEWS: Not receiving the transitional

grant?

MR. J. BYRNE: The HST transitional grants, $350

million.

MR. MATTHEWS: The phase in period or the period on

which we took fixed revenue I think ends this July. Deputy?

MR. PADDON: Transitional assistance was paid to us

over a four year period and brought into our budget. It was $127 million for the

first two years, then it went down to $63 million and it is $31 million this

year. (Inaudible) phased down over the last three years.

MR. J. BYRNE: That $31 million will not be there

for the next budget?

MR. PADDON: This is the last year for (inaudible).

MR. MATTHEWS: Yes, this is the last year of that.

Now there will be possible adjustments - positive or negative, we are not sure

which - as a result of the HST agreement on a fixed revenue stream concluded. We

will know before this time next year to what extent we will get more or less out

of the HST arrangement we have entered into. You are right, the transitional

monies decreased over the four year arrangement that we went into and we have

factored all that into our next three year fiscal framework. We think we will

still be in a position, with the other revenues that we are projecting, to

maintain our budget hold. We have extraordinary increases in some sources of

revenue that were beyond what we projected.

MR. J. BYRNE : You are going to need them.

MR. MATTHEWS: Yes.

MR. J. BYRNE: Big time.

MR. MATTHEWS: You know some of the areas that I am

referring to, I think. I don't want to raise it, but you probably would anyhow.

I think we were way up over our projections on corporate income tax last year,

$30 million more than we had projected. I think it is a sign that our economy is

in the right direction. We received more money from the lotteries, the Atlantic

Lotto Corporation, as a result of extra activity in that corporation. We make

projections on budget revenues. We are not always spot on, but many times we

underestimate, and thankfully with an improving economy we have better

performance than we had projected. I can give you the list of them here, but I

don't think you want me to take the time to do that because you probably have

this in front of you. I'm not sure. I don't think you have this but there are

significant differences in some of our revenues year over year. We see further

improvements this year and beyond, quite frankly.

CHAIR: Mr. Byrne, can we let someone else get up?

MR. J. BYRNE: Sure, no problem.

CHAIR: We will come back to you. We won't leave

until you are finished.

Mr. Walsh?

MR. WALSH: No thank you, carry on.

CHAIR: Mr. Andersen.

MR. ANDERSEN: I just wanted to refer to the

comment made by the Member for Cape St. Francis when he said to the minister

that maybe after his political career was over that he could be a standup

comedian. I'm not sure if that was an invitation to join his party or an

invitation to join his firm, but I am sure that will be answered in due course.

Other than that I have no questions right now, Mr.

Chairman.

CHAIR: Mr. Lush.

MR. LUSH: Thank you, Mr. Chairman.

I don't know if I want to ask a question or give a

speech. I feel a speech coming on.

Now and again I dream, supposing I were in a position

of authority, how would I respond to people's concerns about putting more money

into health and more money into education, particularly. You know when I look at

the diagram of the Province's expenditures in the Budget, on page xiii, right in

the beginning of the Estimates, for those people following, which talks about

where we spend our money - I'm just rounding off the figures - 28 per cent on

health, that is just about $1 billion; education is 20 per cent, $700 million;

and then our third is financial expenses. If you wanted to take money out of

education I don't know what flexibility you have there. Nobody would want to

take money from education. I'm sure many educators would say that 20 per cent of

the gross expenditures of this Province is little enough to be spending on

education, so I don't see any flexibility there to take any money from there to

put into health.

The next one we have no choice on that one. That one

is paying our bills. We have to pay that one, $600 million, which is 14 per

cent. Then we get into our next highest one, social services, which is $500

million. There would be a lot of people who would say: We can't take anything

from that, people on social services now are not getting very much money. I look

at all of this and I say: What would I do? How can we satisfy those people who

want more money for health? A billion dollars is what we are now spending. How

can we satisfy those people who want more money for education? I look at the

other diagram on the other page which says where the money comes from.

I used to know a politician very well, back several

years ago, who, when he - I am giving away part of the identity; I may give it

all away in the next fifteen words - when he was praising Confederation, what a

great movement that was, and talking about what a great government we had, the

Province. He would look around and say: Out of all of those people here sitting

down, all of you MHAs, your salary is paid 50 per cent by the federal

government. The officials, the bureaucrats, 50 per cent of your salary is being

paid by the federal government.

I look now and I see it is down to 42 per cent. My

question is: What has that meant to us in dollars and cents, to be coming from

50 per cent back ten or twelve years ago to when the cutbacks really started?

What has that meant to our budget in terms of what have we lost, in terms of

health money and education money in the last eight or ten years? What kind of an

effort has that been for the Province, to take up the slack of that loss in

federal expenditures, because we are spending more money in health so we have

had to take up the slack of the federal government not participating what they

participated to come up with, our money, and go beyond all of these areas of

health, education and social services?

My question, I guess, is: How much money have we lost?

Secondly: What are we going to do? Because there is no question that our health

services need to be improved, but when we look at that formula, where are we

going to get the money? Where are we going to take it from to improve our health

services? Are we going to take it from education? Are we going to take it from

social services? The answer obviously is that we cannot because all of these

areas are looking for more money. Education is looking for more. Social services

is looking for more. The answer obviously has to be to get back those federal

monies that we have lost. That is the speech I felt coming on.

I will finish there, Minister, and leave you to

comment.

MR. MATTHEWS: You were doing well in moving

towards articulating a question right up until the end, at which point you made

a statement. I assume from that, that the end of your speech was the conclusion

of anything you wanted to hear with respect to the issue; but if you have a

question I would be glad to answer it.

MR. LUSH: The question I wanted got lost in the

middle there somewhere. The question was: How much money have we lost in federal

monies in the last eight or ten years? What have we lost? Does anyone have a

figure on it? Has it been $700 million? A billion? What have we lost in the last

six or seven years?

MR. MATTHEWS: In the last six or seven years, I

don't have a figure off the top of my head. Maybe one of the officials might

have a figure if you are looking for a big figure.

MR. LUSH: Yes.

MR. MATTHEWS: I think maybe Terry you could

provide a big figure, but what we have lost is hundreds of millions of dollars,

probably into the billions of dollars, Terry?

MR. PADDON: Yes.

MR. MATTHEWS: Surprise all of us by giving us a

figure that will blow us away but also challenge us to run back to Ottawa and

seek redress to this serious issue that the member has outlined.

MR. PADDON: I will see what I can do now,

Minister.

The biggest change in federal transfers has come

through the adjustments that were made to the CHST back in the mid-1990s. Off

the top of my head, as a rough estimate, we have probably lost on an annual

basis to the CHST between $100 million and $150 million annually - just a rough

justice. So, over five years, you can see anywhere between a half a billion

dollars and three-quarters of a billion dollars. Of course, now, money has been

put back into the CHST through some increase in cash last year plus the

supplements that went in last year and this year. They are reflected now totally

in our current year's budget. There is obviously no guarantee of what we will

see or what we will get in the next year. That is obviously a question that is

open for negotiation and discussion in the coming year.

MR. MATTHEWS: Thank you, Terry.

I think it is fair to say, on the account of the

federal government, though, in the area of equalization we have not, in that

particular line item, been reduced year over year to the extent that we have for

the CHST. We have actually gained, I guess, under equalization because the

Canadian economy has been performing better and because equalization goes out to

seven provinces based on the economic performance of five provinces that go into

the base of making up the positive floor for equalization. On equalization we

have held our own and probably done better year over year than we would have

been, say, four or five years ago.

I guess the thing that has happened within government,

as we all know, is that government has had, provincially - this government and

previous governments through the 1990s - have had to seriously adjust our

priorities in terms of program expenditures. We have gotten out of areas of

spending money in places such as direct grants and loans assistance to

industries. We have reduced substantially that type of expenditure, which has

meant we have had some money or some flexibility to put money into our social

programs, particularly health.

The reality is that, as you say, after we pay our

interest on our debt and look after our social sector, we have less than 20 per

cent of our total budget for all of the other areas of government

responsibility. It means that our flexibility to do things in the area of

municipal capital works or highways expenditure, these areas have had to be

adjusted. It is no secret that Municipal Operating Grants have gone down from, I

do not know what the highest peak was, but certainly it was in the $40 million

plus - at one point in the $60 million range.

MR. J. BYRNE: It used to be up to $69 million.

MR. MATTHEWS: Sixty-nine million dollars was the

highest we have ever gone. Our Municipal Operating Grants now are at $21 million

plus. These are areas where we have had to make decisions and adjustments and

challenge our municipalities, for instance, to come to the table with more money

on their own account.

That is not all bad, I might say, because as people

have to pay a reasonable price for some services that they get, I think it gives

them a greater appreciation for those services and puts a greater onus and

responsibility on elected councils, as an example, to do what is right by their

citizens in terms of taxation rates, et cetera.

As long as big brother Ottawa is there piling the

money into us, we have greater flexibility. As long as we have that flexibility,

we have been passing it along to municipalities and other agencies; but when we

had to make cuts and make changes to maintain our social programs, we made, I

think, the right public policy decisions. Hence, we have not only been able to

maintain our social programs at increasingly higher levels of funding but we

have also been able to essentially bring in, over the last four or five years,

on average, a balanced budget.

You have been part of a very, very good, efficient and

responsible Liberal Administration, Mr. Lush, all of those years, pre-dating me

by many years, without making you in any sense appear to be prehistoric.

MR. LUSH: Excellent answer.

CHAIR: Mr. Hodder.

MR. H. HODDER: Thank you very much, Mr. Chairman.

I have to add to what has been said. In addition to

the changes in transfer payments, of course, we have also had dramatic changes

in other funds from the federal government that would be important to

Newfoundlanders and Labradorians, namely the EI benefits and other programs,

which in effect, of course, have taken away significant spending powers from

ordinary people. We have lost probably an equal amount of money in that

particular program as well, so that consequently not only the government does

not have as much money to spend but ordinary Newfoundlanders and Labradorians do

not have as much money to spend either.

I will read a statement from the Auditor General's

report. I am reading from the

summary document. It talks about the framework of

accountability. Now, last year we talked of this and the government at the time

introduced a piece of legislation that was designed to hold some of its public

bodies, namely hospital boards, school boards and regional health and community

centres, more accountable for their operations. However, our legislation on

accountability is significantly deficient.

That bill, say, expired and has not been reintroduced.

I am wondering about something, in view of the fact that the Auditor General has

said for example, on page 2 of the

summary of her report, that: "My review of

the Hansard of the House of Assembly has disclosed that of the $1.905 billion

paid to 63 Crown entities for government operating grants for the 1997-98 year,

the House of Assembly received reports on only 5 entities which had received" -

a mere, in this particular case, fraction of the total - "$163.5 million."

In other words, we do not have a very structured

framework of accountability. It does not compare with other provinces. I was

wondering what your comments on that might be in terms of you being the

financial administrator for the Province, and how you feel your government

should be and can be more accountable and more consistent with practices in

other jurisdictions.

MR. MATTHEWS: My short answer is this that in

terms of expenditure controls within government that is the singular

responsibility of the Treasury Board.

MR. HODDER: Yes.

MR. MATTHEWS: So the question would be more

appropriately put to the President of Treasury Board and her officials. As a

matter of fact, I think the accountability framework was legislation introduced

by the President of Treasury Board of the time.

MR. HODDER: Last year's bill was introduced, I do

believe, by the Minister of Finance.

MR. MATTHEWS: When he was President of the

Treasury Board.

MR. HODDER: Maybe in carrying both roles.

MR. MATTHEWS: I think so, yes.

The short answer is that the responsibility, in terms

of monitoring and controlling and approving changes in expenditure line items,

rests with the Treasury Board functions. Having said that, obviously we have

concerns about accountability through the various Crown corporations, hospital

and school boards that exist. If we did not have concerns we would not have

introduced some measures. While the legislation you are referring to did not

pass as introduced, some measures were taken outside of the necessity of

legislation to enhance the accountability features and onuses that we have put

upon the various boards and agencies of the Province.

We do a fair degree of monitoring. We have put a

special team in place to deal with the hospital boards in the next short period

of time in an effort to get their expenditures validated as being at the

absolute appropriate level if in fact they are, or to find efficiencies if any

exist. I think it can be said of our school boards that they have acted and

operated very responsibly since education reform has taken place. Their

requirement to live within their budgets has been taken seriously by them and

they are not running deficits of any significant amounts.

We will continue to do close monitoring of all of the

expenditures of government through these departments or through these boards and

agencies, and if we think more is necessary to be done in terms of making them

more accountable we will do so. I would think that you would agree, as well as,

I think, most of the people in the Province, that the health care boards and our

school boards, including our university and College of the North Atlantic, those

major recipients of government money, are managing in their areas of

responsibility very well. Where there has been overruns in their budget it is

because they have had expenses by virtue of pressure to deliver services that as

government we were not satisfied to allow them to resist. The outcome has been

that we have accepted the fact that some level of extraordinary overruns have

been appropriate. That is why we have been funding them as they have been

occurring.

We have not funded them necessarily within the year

that they have had these overruns but we have done it as we have had the ability

to do so. That is why the hospital boards now have a total deficit of, amongst

all of them, probably between $20 million to $30 million maximum as opposed to

$60 million to $80 million that they would have had by their own projections had

we not been able to respond with some extraordinary funding to them.

On the issue of whether or not they are providing an

appropriate level of yearly reporting by virtue of formal reports, if there is

an issue there that is of a more serious nature than I am aware of through the

AG's report than I would be interested to hear about it. The Auditor General

does have the responsibility, being an officer not of this government but of the

full House to ensure that these reports are forthcoming and that action is taken

on her account, or recommended to government to be taken by us on her account to

ensure that these reporting mechanisms are honoured and respected.

MR. HODDER: The Auditor General also makes note

that in 1998-1999 there were $136.1 million that was obtained by way of special

warrants. It is her opinion, on page 6 of the

summary of her report, "... that

$95 million of the $136.1 million... did not meet the requirements of the

Financial Administration Act in that they were not urgently required and

therefore should not have been issued." She further says in the same paragraph:

"If these special warrants had not been issued, and in my opinion they should

not have been, Government would have reported a cash surplus of $105.1 million

compared to the $10.1 million that was actually reported."

Why do we not follow the precise guidelines of the

Financial Administration Act? Why is this kind of comment pretty regular in

terms of the Auditor General? There was a similar comment last year that a high

percentage - I think last year it was 80-something per cent - which she said did

not meet the requirements of the Financial Administration Act.

MR. MATTHEWS: By virtue of the Auditor General's

definition of urgent, she is probably accurate in her commentary. However, we

have a responsibility to be prudent, as well as other considerations, in

providing governance to the Province. In our judgment as government, while the

expenditures in her judgment may not have been urgent, for our purposes and for

purposes of providing good governance and sustaining much appreciated social

programs, such as health, we deemed the expenditures that we have made by

special warrants at the end of each year to be very prudent expenditures. We

will continue to do so, to the extent that we believe they are the right things

to do for the greater good of the people of the Province. Obviously there is

nothing illegal or non-transparent. As a matter of fact, we make it a point in

our budgets, certainly last year and this year, at the outset of our budget

presentations, to very clearly point out, ourselves, what we are doing by way of

extraordinary year end expenditures through special warrants given the

flexibility that we have had fortunately available to us.

I think the evidence of the prudence of these types of

expenditures for us is more than validated by the public affirmation that these

expenditures are the right things to be doing, and they appear to have a high

level of support, as best we can judge. Certainly the Budget this year, with all

of these extra expenditures at year end by virtue of special warrants, was

applauded as opposed to questioned by all of the stakeholders that speak to the

Budget when it comes down. We make no apologies for the special warrant

activities at year end, given our pressures and our needs and our ability to

respond in a fiscally responsible manner.

MR. H. HODDER: Thank you. I have a couple of other

questions and then I will be finished for the evening.

On the issue of accounts and loans receivable, I am

wondering if you would be equally proud of this statement. She says,

"...Government's systems for recording, reporting and controlling accounts

receivable do not always provide timely and accurate information to users....Our

review of Government departments indicates that a significant portion of their

accounts receivable are in arrears and that their cash management program, which

includes the collection of these accounts, is not adequate."

In other words, government does not know at any one

point in time how much money is owed and why all of this is not totally the

responsibility of the Department of Finance. It should be the responsibility of

finance to make sure that all other line departments have systems in place that,

shall we say, further the objectives of good financial management.

What is your comment on this particular matter?

Certainly it does show a concern.

MR. MATTHEWS: I do not disagree with the Auditor

General's comments, that where systems are lacking they should be enhanced and

beefed up, and where systems are in place they should be followed more closely

and probably better collection activity could be going on. I do not disagree

with her at all. Nor do I disagree with your probable assertion that there are

areas where we have been less than 100 per cent on top of the situation in terms

of affecting receivables against loans that we have made or against security

that has had to be realized on in terms of the taxpayers' dollars being

protected.

I would simply acknowledge that we still have a ways

to go. I say that not so much on behalf, as you have said, the Department of

Finance because a lot of these comments were made with respect to activities in

various line departments and not directly as a result of activities happening in

the Department of Finance. At the end of the day, I guess, finance is optically

deemed to be responsible for all of the finances of the Province; and, to the

extent that exists, we take responsibility in finance for doing all we can to

make sure that every other department of government does its best to collect

revenues that they are responsible to collect - either revenues or a collection

of arrears of loans or whatever - because, to the extent that the public

Treasury is enhanced with revenue collections, tax collections, repayment of

loans collections, those sorts of things, it makes our job in finance easier to

manage the fiscal affairs of the Province.

I accept the Auditor General's commentary and I look

forward to her making similar comments in the future if, in fact, she finds

situations where those comments are appropriate and warranted, because it means

she is doing her job and it means that we are less than perfect, being creatures

of the earth and imperfect beings that we are. We will try and do better next

year.

MR. H. HODDER: You are really being philosophical

there.

You have been sitting next to the current Minister of

Health and Community Services for some weeks now, and I think he is into a bit

of a race. We are not quite sure which one of you can go the longest and say

nothing. I am very good on this side of the House, but....

I want to go to the government's sinking fund. It will

be my last question. As of the March 31, 1999, the Province had accumulated

$1.02 billion in sinking funds which was used to retire $5.6 billion in

debenture debt. Of the $1.02 billion, $571 million are mandatory, while $449

million are voluntary. The Province maintains these voluntary sinking funds even

though there is no legal requirement to do it. Government has not conducted any

cost-benefit analysis or other analysis to determine whether it is making the

optimal use of its cash resources by maintaining $449 million in voluntary

sinking funds. Then the Auditor General says: This raises the issue of whether

this is the most efficient use of cash, given the Province's borrowing

requirements.

We are not saying here that we should not be using

these sinking funds, because we know that if we don't need them to retire the

debt then this year's Budget shows $116 million which we are going to transfer

over, which is fine. In fact, there was legislation passed last spring for that.

However, when she says that, of the$1.02 billion in sinking funds, $571 million

are mandatory and $449 million are voluntary, on what basis do we make that

decision? Is it that we feel that not using our own money is to our advantage or

must be to an advantage for us to still access the money through the

marketplace? What is the rationale for that particular arrangement?

MR. MATTHEWS: John Bennett, the assistant deputy

minister responsible for that area, will comment on that; but, in a general

sense, we made decisions in terms of taking into revenue in any given year

portions of the non-mandatory sinking funds on the basis of our fiscal

requirements. I suppose we could take it all in any one year - as an example,

this year - and have a very extraordinary spending program. We don't think that

would be prudent when we don't need to do that, because we believe that we are

maintaining spending in the various areas of social activity and program

delivery at an appropriate level. Once we are satisfied that our expenditures

are at the right level in our areas of service responsibility, we look at our

revenues and rather than borrow money on the market we have chosen to take

certain amounts into our budget from our sinking funds. That is, in a very

general sense, how we have rationalized how much we are taking in.

John, if you want to add to that certainly I would

appreciate it.

MR. BENNETT: I guess normally the public issues of

any duration, twenty-five or thirty year loans, especially in the U.S. and in

the Canadian public markets, the assurance of a sinking fund, which means an

allocation is put together each year, put into a special fund for (inaudible)

retirement, has been a good selling feature in this Province, but not as big as

the Province of, for example, Ontario, which is almost into the market on a

regular basis. Every ten days or something they float a Treasury bill issue, a

special warrant or a particular debt issue. We don't have quite the liquidity in

Newfoundland securities, which means we don't have the abilities to trade them

to the same extent or frequency as the larger provinces, so this is a feature.

In certain instances, basically with what was

of the past were a prime example - the Canada Pension Plan, up until quite

recently, was always considered by a lot of people as being part of the

in the last three or four years. In those situations, that is a voluntary

sinking fund. Everybody had the right to borrow in accordance with a formula

that they had designed from the Canada Pension Plan. In those cases we were the

only Province in Canada, I think, that actually set up a sinking fund. Quite

recently, with the changes in the Canada Pension Plan, we can roll that debt

over for a further twenty-year period, so the sinking funds that we had there

for the maturity of the debt are not necessary. We can roll the debt over and

start the process again, if we see sit. They are the voluntary ones we are

basically talking about.

MR. MATTHEWS: In a perfect world, I suppose, we

would like to have full provision made for full retirement of our debt through

sinking fund activities; but the reality is, as the Auditor General pointed out,

it is not the best use of our money. That is why we are moving some of our

sinking fund monies into current year revenues to meet our budgetary

requirements as opposed to either deficit financing or reducing our expenditures

on programs.

We set the appropriate level of expenditure on

programs and then we match our revenues against it and, where we needed to take

some sinking fund monies in, we have done that. We are quite open and quite

prepared to defend that, as sort of suggested by the Auditor General we should

be doing it in any event

MR. H. HODDER: I think the point we are making is

that - in fact, I tend to agree that when the sinking funds are there, and there

is excess money, that you have a choice. You can either leave it there and I

guess potentially invest it, or you can access it to do ordinary things that you

want to do, which is what the government has chosen to do. I think that is

logical.

I think, though, what the Auditor General is talking

about is that there has not been any real cost-benefit analysis done to show

whether or not what you are doing now is the best thing to do or whether some

other approach might be the best strategy. It is not to say that what you are

doing now is wrong but that it has not been tested by a proper financial

analysis. You may disagree with that, too, but I am merely quoting her, as the

Auditor General for the Province, saying that that test and that study has not

been completed.

MR. MATTHEWS: John or Terry may be able to comment

on it but my judgment is that we are taking into revenues sinking funds money

that is costing us less than borrowing a like amount. In other words, we are

earning less on what we have by way of investment in those funds than we would

pay if we borrowed those monies on the open market. Obviously if that was not

the case then it would not be cost-effective to be using our sinking fund money.

I think that is the rationale that causes us to be comfortable with using

sinking fund monies as opposed to borrowing money for operations. John, that is

what we do, isn't it?

MR. BENNETT: Yes.

MR. MATTHEWS: If there is a study that we should

be doing that we have not done, for a higher level of comfort between now and

next year, probably we can undertake to get that done so that Harvey will know

it is coming and will not lose any sleep this year, wondering whether or not our

prudence is at the highest level.

MR. H. HODDER: Harvey is primarily interested in

making sure that the taxpayers' of this Province and their monies is well

accounted for, follows proper procedures, and that it is all done in the wisest

manner possible. Therefore, when the Auditor General points out certain things

and says that a cost-benefit analysis has not been done, I think it is incumbent

upon all servants of this House to ask why it has not been done, and that is the

question. Whether or not Harvey loses sleep or not is immaterial.

MR. MATTHEWS: It is a good question and it is an

important question. John is there an issue outstanding with respect to a

cost-benefit analysis that we have committed ourselves to, or that we feel we

should have undertaken and have not? Or have we, in fact, done sufficient due

diligence that we are comfortable with defending...?

MR. BENNETT: Yes, if I can -

MR. MATTHEWS: Yes, on taking sinking funds in.

MR. BENNETT: I can probably be an excellent

bureaucrat at this stage and say we can defend it either way. The truth of the

situation is that the contributions made to a sinking fund, if you just added up

the contributions, would not be sufficient to retire the debt. You are only

contributing about one-third of your debt repayment in contributions. The other

two-thirds will be garnered from accumulated earnings on those investments over

the life of the issue.

While the Auditor General has taken a particular

stance with the voluntary ones, we certainly agree with it. In those issues that

require sinking funds, it is a selling tool. You can really argue both ways

because what you have to do at the beginning of the piece is turn around and

say: What type of contribution at this assumed interest rate - we will give you

this particular large amount to retire the debt at the particular end of the

issue, versus saying: Well, we won't worry about the interest rate now. What we

will do is, at the time that the issue becomes due, we will go out, if we have

to, and borrow the full amount again.

In the case of these sinking funds we have time to

rebuild them, if we decide to go that way, because the issues related to these

sinking funds have been re-opened for a further twenty-year period. It is not a

case of us looking around now and saying: Something comes due tomorrow morning

but we are going to take the sinking fund today and then go out in the markets

and make sure we will borrow it. We have a time to rebuild, using the existing

strategy, so we are not always in favour of what the Auditor General said.

We have done, by the way, studies but certainly have

not gone to Cabinet in my years and formulated the strategy and said: Cabinet,

this is a strategy we should do with regard to voluntary sinking funds. That has

not been done. She is absolutely right there.

MR. H. HODDER: Thank you very much.

MR. MATTHEWS: Thank you, John.

CHAIR: Mr. Byrne.

MR. J. BYRNE: Thank you, Mr. Chairman.

Back to the special warrants. It is my view that the

government really is using and abusing their authority with respect to the

special warrants, and I will tell you why. In the Auditor General's review here

it says, "There were 14 special warrants totally $136.1 million issued in the

1998-99 fiscal year..." Of course, we can use these special warrants to either

have a surplus or a deficit. "...of which $123.8 million were issued in March

1999." So, in the last month of the year it seems more than passing strange that

$124 million out of $136 million would have been issued in the last month of the

year. I do not know what views you have on that, or what comments you have, but

obviously they are being utilized in a way that they were not really meant to be

utilized. I think that is the statement of the Auditor General also.

MR. MATTHEWS: I agree with -

MR. J. BYRNE: I know you answered that somewhat

with respect to Harvey, but....

MR. MATTHEWS: I know that is 1998-1999, which is

not the fiscal year just passed.

MR. J. BYRNE: I know.

MR. MATTHEWS: It is the year that would have been

discussed by the previous minister when he was here this time last year, but the

principle that you are referring to is spot on. They are used in March month

because that is the end of the year. We know with pretty clear certainty what

fiscal flexibility we have, and that is the point at which we make choices about

whether or not we are going to spend some of that flexibility or whether or not

we are going to apply it to debt reduction and have a surplus that otherwise was

not budgeted for. My comment is that we are using but we are definitely not

abusing, within our political responsibility and within sound fiscal management

principles, the use of special warrants.

The Auditor General raises the point that special

warrants are being used probably more extensively in recent years because we

have been managing fiscally better and have had more flexibility at the end of

the year than they had been historically, because historically significant

amounts of positive flexibility were not always the circumstance. Many times the

budget came in with bigger deficits than was being projected and, of course,

that did not cause special warrants to be used. On the contrary, it meant that

our debt load was increasing beyond what was being projected.

We will continue to use special warrants if we think

it is the right thing to do year over year but, having said all of that, we are

conscious of the basic concept that gave rise to a government's ability to use

special warrants. We are cognizant of the fact that abuse is not something that

we would countenance or the public would appreciate, but proper usage of the

tool is something that the public does accept and we have no difficulty in

announcing when we do it, outlining them in our budgets and defending them

before the House in the context of the Auditor General's comments, whether they

are made or not.

MR. J. BYRNE: Would you agree with respect to

special warrants that the definition that is supposed to be used or utilized

would be an urgent situation? I believe there was one, from memory now, that was

in municipal affairs that was issued some time in March and was not utilized up

until September some time. You are looking at five or six months, so how urgent

was it in the first place to have to utilize (inaudible)?

MR. MATTHEWS: I missed that point.

MR. J. BYRNE: As an example, municipal affairs -

MR. MATTHEWS: Yes.

MR. J. BYRNE: - a special warrant was issued, I

think it was in March, before the year end, and was not utilized in municipal

affairs until some time in September or October. Why would that not have been in

the regular budget?

MR. MATTHEWS: The usage of the term urgent, for

me, has not only to be considered in the context of the usage for which you use

special warrants but it has to be viewed in the context of the time frame

available to you to use them. The last week of the year, the last week in March

month when we make certain decisions, renders the use of the warrants urgent;

because if we do not use them before the end of the year we lose the flexibility

of accessing that money and it causes a different financial picture at the end

of the year than would otherwise have been.

MR. J. BYRNE: Exactly. You could end up having a

surplus instead of a deficit.

MR. MATTHEWS: Urgent, while you would think it

might only apply to the usage, the purpose for which the money is allocated,

urgency also, I think, has to be considered in the context of the time frame

within which you have the ability to use them for certain expenditures.

MR. J. BYRNE: Really what you are saying, then, is

that you agree with me that the special warrants, towards the end of the year,

if you have that kind of flexibility, instead of ending up with a deficit at the

end of the year you could have easily had a $100 million surplus.

MR. MATTHEWS: Yes, but -

MR. J. BYRNE: But you would not want people to see

that, especially when people are looking for raises, like nurses and civil

servants and what have you. We would not want to see a surplus, would we?

MR. MATTHEWS: I think they would probably

appreciate seeing surpluses if we had them available to us, but our first

responsibility is to meet the program demands that we have as government, and I

think primarily of health and education. Where we have had ongoing pressure on

us, particularly from health, to fund deficits that have been run outside of

what has been budgeted for, it is pretty obvious and it has been pretty obvious

to us that we had one or two choices: to either have surpluses at the end of a

given year and reduce our debt and then go out, having to borrow money - having

reduced the debt, go out and re-borrow to pay off some hospital debt - or to use

our flexibility to do it straight up. We have chosen the special warrants route

and I do not think there is anything - nobody believes for a minute that

anything inappropriate is happening. It is a question of ability, fiscal

flexibility, and making prudent judgments about how to spend it. The only way to

spend it, because these extraordinary expenditures have not been voted in the

previous year's budget on a line item basis, is to access it in terms of

expenditure by virtue of executing special warrants. We are quite comfortable

with how we are using special warrants. If we had any tinge of non-comfort then

we would express that, but we do not quite frankly. We are using them advisedly.

MR. J. BYRNE: With respect to the Roads for Rail

Agreement, over the past decade there has been some - what? - 90 per cent of the

money spent on roads in the Province that has come from the Roads for Rail

Agreement and I believe that is due to expire some time within the next year or

two.

MR. MATTHEWS: In the year 2003.

MR. J. BYRNE: In the year 2003.

MR. MATTHEWS: With a mop-up year in 2004.

MR. J. BYRNE: So you have another few years yet

with that.

MR. MATTHEWS: We have three years left.

MR. J. BYRNE: Because I was concerned how that

would impact upon - what would we be doing when that runs out with respect to

(inaudible).

MR. MATTHEWS: In three year's time?

MR. J. BYRNE: Well, it will be our problem them so

there in no need to answer that.

MR. MATTHEWS: Your problem?

MR. J. BYRNE: Yes.

MR. MATTHEWS: Jack, I wish you well in your

wishful thinking.

MR. J. BYRNE: Thank you.

Government has already spent $350 million payment in

1997-1998 from the federal government for taking over the Coast of Labrador, the

ferry system in Labrador, $350 million. What are your plans to deal with that

when that money runs out?

MR. MATTHEWS: The Labrador Transportation

Initiative is what you are talking about?

MR. J. BYRNE: Yes.

MR. MATTHEWS: There is $347 million, I believe,

that came from Ottawa on that. The concept broadly behind the usage of that was

to spend X number of dollars to create new roads in Labrador and leave a residue

or a balance in that account that would forever more be able to service or to,

by way of interest earnings, service the future marine requirements on the Coast

of Labrador where no roads would probably ever reasonably connect all the

communities. Your colleague for Torngat Mountains would understand this better

than any of us.

I think there will be $192 million left in that

account at the end of the current announced Trans-Labrador Highway expenditures.

That amount will be more than sufficient, by all projections, to in perpetuity

provide for the marine services on a reduced basis that will be required for the

foreseeable future. That fund will sustain the Labrador marine services.

MR. J. BYRNE: You did basically the same thing on

the South Coast, didn't you, with the ferry system down there? Did you take $50

million or $100 million and spend it outright? Now you do not have -

MR. MATTHEWS: We took it into revenue the year we

received it and used it, you are right. The responsibility then falls to

government year over year to find revenues in its annual budgets to operate the

ferry services on the South Coast. These are much smaller operations, of course,

than the marine Coast of Labrador service, but you are right.

The Labrador Transportation Initiative was required to

have been set aside and managed on a basis that would, in perpetuity, provide an

earnings throw-off to run the marine services in Labrador.

We looked at that fund and we have seen - because we

have had most of the expenditure occur now on the Trans-Labrador Highway. This

year, we determined that we could access some money from that fund beyond what

we had originally planned to do some road work on the Coast of Labrador. It is

within the mandate of the fund to do that, and some road work was announced in

the Budget this year that would be funded out of that Labrador Transportation

Initiative to build roads in communities on the North Coast of Labrador, and

very appropriately so.

MR. J. BYRNE: With respect to the $100 million

government took from Term 29 - the $8 million a year forever - that money now

has been spent, so that $8 million that we would be receiving in future years

will not be received. How are you going to address that concern?

MR. MATTHEWS: We cashed in, to some degree, our

Term 29 money. We took it (inaudible) three or four years ago. We will find

money from our own source revenues to offset that.

I think the important thing for all of us to

acknowledge is that even though we have less money coming into the Province by

virtue of UI payments to people out there than we have had historically, even

though we have lost the benefit of the TAGS money we had for quite a number of

years - four, five or six years - even though these revenues have come out of

the economy, the fact of the matter is that the economy is doing better now than

ever it has done in many years, simply because the private sector is growing and

the new revenue streams are coming on. An increase in corporate income taxes,

increase in lotto revenues, increase in royalties and taxes from our natural

resources such as Hibernia and those areas, are ramping up to a point where we

are continuing to meet our needs.

MR. J. BYRNE: With respect to the Estimates

themselves, on page 33 of the Estimates -

MR. MATTHEWS: Now you are going to get down to

work.

MR. J. BYRNE: Under subhead 1.1.01., Minister's

Office, we see there that you had Purchased Services estimated at $23,000, you

only spent $10,000, and it is back up to $23,000 this year. Why would you not

just put $10,000 there for this year, if you only spent $10,000 last year?

MR. MATTHEWS: Well, $23,000 is the amount that we

have been carrying there for awhile and, while we didn't spend all of it last

year, there may be some additional expenditures this year. I know there have

been some expenditures this year already in that area that probably should have

been made last year.

MR. J. BYRNE: Under subhead 1.2.01., Executive

Support, 01., Salaries, last year you had budgeted $587,600, you only spent

$479,800, and it is back up to $500,300 this year.

MR. MATTHEWS: I am sorry. That is under subhead

1.2.01?

MR. J. BYRNE: Subhead 1.2.01.01., Executive

Support, Salaries.

What was going on there?

MR. MATTHEWS: The savings resulted from the

assistant deputy minister position, the tax administration and secretarial

position being abolished. There was a retirement there. We did away with one

position so there was a savings in that area as a result of that.

MR. J. BYRNE: Under the same subhead, 03.,

Transportation and Communications, normally if you see an increase in Salaries,

you would see an increase in Transportation and Communications. Here we saw a

cut in Salaries but Transportation and Communications went up by $33,000. Why

would that be?

MR. MATTHEWS: Last year there were additional

expenditures in that area. There was a fair bit of travel with respect to the

work of the federal-provincial tax committee dealing with HST matters, and there

was simply more need for officials to be traveling and dealing with Ottawa on

some of the issues that we have between us. You will notice this year that the

estimate is held at $59,100 because we believe this year the level of activity

under Transportation and Communications will return to a more traditional level.

MR. J. BYRNE: Under subhead 1.2.02.,

Administrative Support, 03., Transportation and Communications, you had budgeted

$204,500. That went down to $145,000 and now it is back to $204,500. If what you

were saying earlier with respect to the other subhead, with respect to

Transportation and Communications, that went up and yet this one went down some

$60,000. Why is that? It seems one is contradicting the other.

MR. MATTHEWS: The simple answer that I had been

provided with is this: That the savings resulted in part from the increased use

of e-mail and fax machines as opposed to regular postage type expenditures, and

while there has been a revised budget downward last year, we are carrying the

same amount this year because we are not sure that will follow through at that

level. Rather than be underbudgeted there, we budgeted the same as the previous

year.

I would think that if we continue to experience a

positive decrease in those expenses we will, in future years, carry a lower line

item.

MR. J. BYRNE: Thank you.

MR. MATTHEWS: We don't want to be using special

warrants inappropriately or lightly. We want to make sure our budget has the

capacity to handle these types of expenditures. Where we under expend in these

areas, we create some flexibility that allows us to use special warrants to do

some good things at the end of each year.

MR. J. BYRNE: Special warrants, I think you are a

bit touchy on that one.

With respect to

section 1.3.01.01., Salaries,

Government Personnel Costs, you had budgeted $4,222,900, spent $4,416,600, and

this year it is up to $5,028,500, over half a million dollars more.

MR. MATTHEWS: Yes.

MR. J. BYRNE: Why is that?

MR. MATTHEWS: It is due to the increased

requirement to met pay equity settlements on the salary scales that are becoming

due. Pay equity is a level of additional compensation that is kicking in year

over year as a result of how pay equity has been awarded and over the time

frames that it has to be implemented. As time goes on, until full implementation

of pay equity occurs, we will have to make additional provisions for it year

over year. I am not sure when the pay equity thing settles out.

WITNESS: Each agreement is separately negotiated

(inaudible).

MR. MATTHEWS: So it is tied more to future and

current contract agreements?

WITNESS: Yes.

MR. MATTHEWS: Okay, I was not sure about that so I

wanted to check -

MR. J. BYRNE: Under the same subhead,

section 02.,

Employee Benefits, it is going from $30,065,500 up to $34,361,800.

MR. MATTHEWS: Where are you now, brother?

MR. J. BYRNE: 1.3.01.02., Employee Benefits.

MR. MATTHEWS: Subhead 1.3.01.02. Yes, I have it

right in front of me.

MR. J. BYRNE: Over $4 million more - $4,300,000.

MR. MATTHEWS: You are asking, why the increase?

MR. J. BYRNE: Yes.

MR. MATTHEWS: It is due to the anticipated

additional costs in the area of CPP, rate increases, group insurance. There is

also a block of funding for increases to Labrador benefits as part of the

collective bargaining. The Province has agreed to provide additional funding for

Labrador benefits. Once the affected employees have been identified, the fund

will be redistributed essentially to the departments of government that are the

on-line departments that have to pay out these Labrador benefits. This provision

we have made here includes, if you like, some, in a sense, block funding that

will eventually be redistributed to the appropriate departments to meet the

Labrador benefits issue.

One area where Labrador benefits, of course, has been

topical for the last number of months, the area of certain groups of nursing

professions on the Coast of Labrador. While we have been dealing with the issue,

we have not finally resolved implementation because we are waiting on the

nurses' union to come to terms on how we should implement it. So, we have made

provision for the cost of it and we will distribute it to the appropriate

departments when we can.

MR. J. BYRNE: You just put something in my mind

when you mentioned Canada Pension, and that has to do with the insurance we have

with the government with respect to Blue Cross. I do not know if you have been

receiving any complaints about the cost of that, because it has recently gone

up, with respect to the services that you can receive from Blue Cross. When is

the contract for Blue Cross up? Do you normally go out to tender for those

products? Because I heard people compare it to the previous agent or company or

whatever and they thought the previous one was a lot better.

MR. MATTHEWS: I am not sure when we tender,

whether it is on a yearly basis or what, because that is an issue -

WITNESS: Five years.

MR. MATTHEWS: Five years, is it?

WITNESS: I think it is five years.

MR. MATTHEWS: That is an issue that really comes

under the responsibility of Treasury Board. That is on the expenditure side of

financial matters within government, and they are the ones who could best answer

that. I am sure the deputy minister in Treasury Board, Peter Kennedy, would be

happy to provide that information to you.

The fact of the matter is that utilization drives

costs and inflation drives costs. Blue Cross, I think, will continue to go up -

or whoever carries our insurance coverage - and we will continue to see

increases by virtue of these two factors alone.

MR. J. BYRNE: Thank you.

Under 2.l.05.10., Grants and Subsidies, there was none

budgeted last year, you spent $8,060,000, and there is none budgeted this year.

MR. MATTHEWS: Under 2.1.05?

MR. J. BYRNE: Under 2.1.05.10., Grants and

Subsidies.

MR. MATTHEWS: Under 2.1.05.10. My goodness, Jack,

you are traveling at unprecedented speeds here. Okay, I have it right here.

Under 2.1.05., Financial Assistance to Crown Corporations?

MR. J. BYRNE: Yes, that is right.

MR. MATTHEWS: Okay. What was your question?

MR. J. BYRNE: There was none budgeted last year,

you spent $8,060,000, and there is none budgeted this year. What was the $8

million for?

MR. MATTHEWS: We provided $5 million to the

Newfoundland Municipal Financial Corporation to enable them to provide grant

funding on the issue of municipal debt restructuring. I think we allowed for

that through a special warrant.

MR. J. BYRNE: That is the five I must have been

thinking about.

MR. MATTHEWS: We also made a provision there of

$3,060,000 to enable the Marble Mountain Development Corporation to repay

finances and borrowing connected with the condominium project in Marble

Mountain. Essentially, we have taken care of that debt together with providing

$5 million to NMFC at the end of the year by way of special warrants. They

showed up on the special warrants tabling that I provided in the Legislature

last week.

MR. J. BYRNE: I am just skimming through my notes

here now.

CHAIR: Don't rush, Mr. Byrne, there is lots of

time.

MR. J. BYRNE: Oh, we have lots of time.

MR. MATTHEWS: It is getting close to my bedtime,

if that is worth anything.

MR. J. BYRNE: Under 2.3.01.01., Economics and

Statistics, Salaries, $703,700. It went up. You spent $803,600 and now it is

$819,000, so you went up $100,000.

MR. MATTHEWS: Yes. The additional funding there

has been as a result of having to allocate some additional supports in support

of the Strategic Social Plan that we have developed and that we are implementing

on a gradual basis throughout the Province. Every now and then there is an

announcement to do with further projects under the Strategic Social Plan and the

social audit aspect of the Strategic Social Plan. These are additional new costs

as a result of these efforts. If you want to be very specific, it provides for

two directors and sixteen permanent and temporary positions under that subhead.

MR. J. BYRNE: That is all for me.

Thank you.

CHAIR: Are there any other questions?

WITNESS: (Inaudible) subheads.

On motion, subheads 1.1.01. through 2.3.01. carried.

On motion, Department of Finance, total heads,

carried.

CHAIR: Thank you very much, Mr. Minister and your

staff.

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

Committee members, for your attention to business, for your courtesy, and for

not being inordinately difficult for me to handle.

On motion, the Committee adjourned.