LEGISLATIVE ASSEMBLY OF MANITOBA Monday, 9 June, 1980 Time - 8:00 p.m. CONCURRENT COMMITTEES OF SUPPLY SUPPLY - FINANCE MR. CHAIRMAN, Morris McGregor (Virden): I call the committee to order. We're on Resolution 62, 2.(a) - the Member for Lac du Bonnet. MR. SAM USKIW: Mr. Chairman, when we broke this afternoon, I believe I had addressed the Minister with a number of issues, one of which had to do with the operations of the Treasury Division and their input into the decision-making process with respect to provincial borrowings.

As I recall it, the Minister's response was that it's really a Ministerial decision ultimately, which we all understand, but that, yes, that is the division that provides the backup research and information necessary for the making of such a decision. Perhaps I might ask the Minister then whether he can give us some indication as to whether or not he would be in a position to prognosticate, in other words to predict the future, in which case he would not pay attention to his advisers but make his own decisions with respect to borrowings, especially in the foreign market .

In the Bu dget Speech, the Minister made much mention of the fact that he would not have entered the foreign market during that period of time, and I'm trying to determine from him, on what expertise he would make that decision if that is not the expertise within the department, that is recommending such. MR. CHAIRMAN: 2.(a)- pass; - the Member for Lac du Bonnet. MR. USKIW: Well, Mr. Chairman, then perhaps the Minister might explain one transaction which I dealt with in the Budget Debate but which he didn't respond to.

It has to do with Loan C10 or 10C, whether the Minister could explain why he did not exercise the option available to him in 19 78, to recall that loan, but he didn't do it until 1979. Can the Minister tell us why he chose not to exercise that option in 1978? This is the Swiss loan dating back to 1975, in which case he was able to recall that loan in June of 1978 but for some reason or other didn't do so. He could have done so at a considerable saving, some 3- 1/2 million as I understand. MR. CRAIK: Mr. Chairman, you don't recall all these various issues by their number.

When the member says that there were options, you obviously exercise the one that you decide at that time is in the best interest of the province, and in that case, the one that was exercised speaks for itself. The member also mentions the role the Treasury Branch. In the final analysis, the member's quite right in saying it's the responsibility of the Mini ster. It's more than just a respon sibility in terms of the idea of responsible government; in the final analysis, that's the way it works and the Minister or anybody else cannot duck that responsibility.

If I've been hard on some of his colleagues for their performance, it's because of the recognition of that. MR. USKIW: Well, Mr. Chairman, I appreciate the Minis ter has to answer for the act ions of his department but I at least am satisfied - at least if the Minister disagrees with me, he may correct me - but I am satisfied that he has confirmed that these decisions have to be based on the best advice and expertise available to him, which is within his department and outside his department. I presume that that particular function carries forward today, the same as it did over the last decade or two.

I don't believe that the Min ister has indicated any change in his operations with respect to that question. But getting back to the specific, Mr. Chairman, in 1975 there was some 100 million of Swiss francs at 8- 1/ 8 percent - that was a loan of 100 million in Swiss francs - and there was a recall option in 1978, at which time that could have been refinanced at 2 percent, quite a substantial reduction from 8- 1/8 percent.

Of course there was a penalty involved but when you net it all out, I believe had the Min ister exercised the option in 1978, he would have reduced Manitoba's debt by 3.5 million, if he applied that saving to debt reduction. I'm curious to know why that wasn't exercised in 1978 but was in 1979, a year later. We'll go with 3.5 million is the real question. MR. CRAIK: included? Is that the net of the penalt y MR. USKIW: Yes. That's my calculation that, had we exercised that option in 1978 that after paying a penalty of some several hundred thousand dollars, there would still be a net saving of 3.5 million. MR.

CRAIK: Out of how much? MR. USKIW: That's 100 million Swiss francs, the total loan. MR. CRAIK: Well, Mr. Chairman, I think if the member wants to get the full information on the loan, tha t can probably be achieved either through question or through Order for Return but that has to be established first. MR. USKIW: Mr. Chairman, I'm merely asking a question. I know the details of the loan, I have a copy of it here, but I want to know is why the Minister didn't exercise his rights in 19 78 which could have resulted in a saving of 3.5 million to the people of Manitoba . That's a straig htforward question.

Now there must be an answer, and if the department doesn't have it today, I'm not asking that the Minister answer today; I merely put the question on record because I did put the question to the Minister during the course of the Budget Debate but did not receive a response on that point, and perhaps the Minister might be ab le to ask the 4527

Monday, 9 June, 1980 department to furnish him with the answer to that question. MR. CRAIK: I suppose with regard to the Budget Debate, Mr. Chairman, it was probably put in the last three hours of the member's speech in the House, and that perhaps there wasn't enough time after that to find an answer for him.

With regard to whether or not you would pay out at a certain date, I think is perhaps a little less important than why you got into it in the first place, when you had options open to you in any number of markets, of course, including your own home market of Canada, or into the market in which you are exporting, which is the United States.

But whether or not you pay out on a certain date, given the fact that in that case the penalty for paying out two years early was greater than the penalty for paying out one year early, I think that is the issue that was paid out in 1979 and there was a clause in it where there was a one-year loan taken for the next twelve months and was ultimately to be paid and will be paid out next week, in June of 19 80. MR. CHAIRMAN: The Member for St. Johns. MR. SAUL M. CHERNIACK: Mr. Chairman, just on the same matter, the Minister did exercise the option in 1979, was it, and there was an advantage in doing it.

The Member for Lac du Bonnet says there is 3.5 million more advantage to have done it in the preceding year, and the Minister brushed that aside and said it is more important as to when the money was borrowed or why it was borrowed, then why the option was not taken advantage of. He obviously does not recall the details of this and the intricacies of it, and I think we should give him time to get them. We will be coming back, not only to his salary but rather to the public debt, and he can tell us then. But that was a question that was in my mind.

It clearly was advantageous to make that deal in 1979, and whether it was 3.5 million or .5 million the question that the member put is a valid question, which I don't think ought to be brushed aside. I think the Minister should undertake to give us that answer, not under an Order for Return. The Member for Lac du Bonnet has al ready given the answer as he knows it, so Orders for Return don't give reasons; they are supposed to give facts. If the Minister is ready now, by all means I will stop, but if he is not ready, then there is another point I would like to make. MR. CRAIK: Mr.

Chairman, I didn't hear everything that the Member for St. Johns mentioned here. I guess this was one of the loans that he was probably involved in, in taking out in the first instance, and he is probably suggesting here, why didn't we save 3 million when he had already lost 40 million on it, something like that. That year, among other things, happened to be a fairly heavy year of borrowing, and it would have meant some further decisions with regard to borrowing, in addition to that one.

That one had an option to get out of the mess two years earlier, or gamble on the fact that the mess may not be any greater a year later, and the penalty was higher at the two year early point that it was at the one-year point. So it was delayed until the next year. So there isn't an awful lot more research can be relayed to the Member for Lac du Bonnet, other than the fact that gradually we are working outselves ou1 of it. MR. CHAIRMAN: The Member for St. Johns. MR. CHERNIACK: Will the Minister confirm that taking advantage of the option in 1978 would have saved additional moneys? MR. CRAIK: Mr.

Chairman, I can't confirm that at this point, but I'll obtain the numbers on that. I'll obtain the numbers of the loan, as it was taken out initially, as it was finally paid out, what was done at the year one option, 12 months ahead of the call date on that option, and what it would have been at year two, and what it would have been at year one if we had not exercised then. As I recall, it turned out that by calling it the year early, which we did, on that call we saved a further amount. MR. CHERNIACK: That's right, Mr. Chairman.

The Member for Lac du Bonnet points out that had the Minister exercised that option a year earlier, he would have saved even more money. Now he says - I think he said - well, we were speculating that maybe if we wait a year, there would be a change. So now the Mini ster is speculating on foreign exhange. He also said that year was a heavy borrowing year, they might have had difficulty getting the money, and yet, when he is referring back to 1975, he says, Well, there was money available in other markets, even the local market.

Has the Minister confirmed, did he check to see whether money was available in 1975 on the local market and what the interest rate would have been? Has he done that? And if so, what were the chances then? MR. CRAIK: Mr. Chairman, there are options in markets when you are borrowing. I did read one release put out by the Member for St.

Johns in 1970 when he said that he borrowed units of account at nine because it was 9- 1/2 in Manitoba, or in Canada, or 9- 1/4, and for 1/4 to 1/2 percent, he found it useful, at that time, to have gone to units of account, and the final interest rate on that issue was 29 percent, and that was the one that we paid out. Now, he had options, because he stated the options in his press announcement, that if he had stayed in Canada to borrow, it would have been 1/4 to 1/2 higher. I can obtain that for him if he wants to, and I'm sure he may want to look at it himself, but options were open then.

Now, whether they were open in every case, I don't know. I haven't found it incumbent upon myself to go back and determine that, but I can tell him that in the one case that I did, his option was 1/4 to 1/2 difference and it would have been the difference between 9 and a fraction more in Canada. It ended up 10 years later that on the call date of March of this year, that the effective interest rate was - Mr. Chairman, I may be wrong at 29, it may have been 26, but it was one or the other. MR. CHERNIACK: Mr. Chairman, the Minister now says that he doesn't know what the options were in 1975.

He's drawing a comparison with 1970, but he 4528

Monday, 9 June, 1980 doesn't know what it was in 1975, and yet he's saying the money could have been borrowed locally. The Minister himself, I wish he would tell us how many loans he made since he was Minister, and how many were in foreign dollars, and then tell us why he didn't borrow locally for those which were in foreign. I don't know which they were. and I'm sure he'll tell us. I'm int erested in knowing that because he's talking about the past and, at the same time, he has yet to tell us why he didn't exercise an option in 1978 but implied it was because it would have been hard to get the money.

Now, was it hard? MR. CRAIK: Mr. Chairman, what I said was that in 1970 the then Mini ster, who is the Member for St. Johns ... MR. CHERNIACK: Mr. Chairman, I'm sorry. I was talking about 1978 and 1975. MR. CRAIK: I'm coming to that, Mr. Chairman. In 1970, the Mini ster at that time, who is now the Member for St. Johns, said in the announcement that he borrowed in the foreign market because it was half a percent lower than the Canadian market, and that was the reason stated. Now, if he wants me to go back and look at what was said in 1975, I can do that.

But unless it was stated by the government of the day at the time, there is no other way that anyone else could confirm what the options were of the Minister of Finance at that time. How else would you know it? But I simply say it because there were options. obviously at some points, because the Minister of the day found it necessary to put out a press release and say why. MR. CHERNIACK: Mr. Chairman, in 1975, according to the Minister, there was an option to borrow, even locally, I'm quoting him verbatim, I'm quite sure. Now, he says he doesn't know that that was the case. Is that correct? He doesn't know. MR.

CRAIK: Mr. Chairman, if there weren't option to borrow in 1975, there would be two moons in the sky. it's just a question of whether the Minister of the day put out a statement giving the reasons for borrowing offshore, which the Minister did in 1970. MR. CHERNIACK: Mr. Chairman, it depends on what earth you are on or what planet you are on, there are some that have many more than two moons.

I just asked the Minister, I have heard him state that his policy - he stated his policy which was no different from that of any preceding government I ever heard of - was to borrow Canadian first, U.S. second, other foreign markets third. Now, that was always the policy of government as I know it. Now, on that basis, the Minister recognizes that there are occasions when one cannot borrow locally and has to take the second or third choice. Therefore, since the Minister so glibly says that in 1975 he had options, the options of course, have to be balanced against cost.

And I wanted to hear from the Minister what was available in 1975, at what cost. If he doesn't know, it's okay, just say so. But if he does know, tell us. MR. CRAIK: Mr. Chairman, what is the member talking about? There is only one person who knows what all of the options were at that time, and that is the Minister. Whether the market had options, the market always has options in it. MR. CHERNIACK: Mr. Chairman, I said, at what cost? What was the cost in 1975 for borrowing locally? MR. CRAIK: Mr.

Chairman, now the member is asking me to go back and find out what cost there was to a Minister of that day that was part of his government. Doesn't he have greater access to that person than I do? MR. CHERNIACK: Now we find, Mr. Chairman, that the Minister does not know the situation in 1975 but is yet prepared to criticize what happened then as if he did know the situation, but he didn't know it. MR. CRAIK: On a point of privilege, Mr. Chairman, the member says that I am at this point saying that I know at what cost. I never said that.

He is saying, trying to put words in my mouth to say that I know at what cost. No, Mr. Chairman, I said that the market always has options and the market always has options. And any option that was on the market, Mr. Chairman, would have been less than half the cost of the one that was exercised at that time, any option at all. MR. CHERNIACK: The point I am making, which is being confirmed, I think, by this Minister, is that he doesn't know what the options were in 1975, that there were options as probable; one could probably have borrowed from Kasser if one could have found him.

The fact is that there were options, but the cost of options, Mr. Chairman, is the thing that the Minister seems to know by hindsight. And yet, when the Member for Lac du Bonnet asked him why he had not p repared himself with his pre-knowledge, with his vision of the future, he didn't answer, and when the Member for Lac du Bonnet asked him why he didn't take advantage of an option in 1978, he doesn't know. And therefore, Mr.

Chaiman, what I am saying is that when you're looking back on what happened in the foreign exchange market or in the market on oil, the Minister is very knowledgeable when it comes to looking back, except that he doesn't even know what options were available in 1975. He just gli bly says that it could have been borrowed. So I will say to him, it couldn't have been borrowed. Because I will say to him further that we must have looked at all the possibilities, and we made a choice which seemed to be the logical at the time.

And I don't mind the Minister criticizing, he's doing it all along, and I will continue to debate it with him. but let him not make a statement without backing it up. And the statement he made was, he borrowed, was it Swiss, when he could have borrowed even locally. And I'm saying, at what cost, and he doesn't know at what cost. So it really takes away a good deal from the strength of his argument. But what I would not want this discussion to detract from is the answer to the question posed by the Member for Lac du Bonnet. Why did he not exercise the option in 1978? They 4529

Monday, 9 June, 1980 can talk all he likes about how the loan was set up, whether it should have been set up or not, the answer is a very precise one, within this Minister's term, not any other Minister's term, why did he not exercise that option, and I don't think he knows but I would hope that he will know by tomorrow. That's not an unreasonable expectation, is it? MR. CHAIRMAN: 2.(a)- pass - the Honourable Minister. MR. CRAIK: Mr. Chairman, let's not just leave that one for a minute.

The member, in his not unusual way, is trying to bail himself out of his own mistakes by somehow suggesting that an option that was in what he put there would have eliminated the mistake. MR. CHAIRMAN: The Member for St. Johns on a point of privilege. MR. CHERNIACK: Mr. Chairman, the first privilege I have, I'm not even demanding retraction, and that is the Minister's usual way of attacking by insult when he gets in uncertain terms; the other point is I never for a moment suggested that the mistake he may have made in 1978 would have recapped the loss in 1978. I never suggested that.

All I'm saying is that the Member for Lac du Bonnet stated that had the option been exercised in 1978, there would have been more money saved, or less money expended, than when he did it in 1979, and that's the question. MR. CRAIK: Mr. Chairman, on the same point, the Member for St. Johns has a valid point of privilege because even he would never have tried to suggest that we could ever have recouped by any decision the mistake that was made when the loan was taken out.

And it's obvious that if the difference between the decision in 1978 and 1979 was the amount that has been indicated, it is probably 10 percent of the losses that were incurred up to that point, and if it was 3 million, it was 9 percent of the losses then and 10 percent a year later. That is the difference that is being talked about here; it is at what point do you bail out of a bad deal, having known it's bad. The options that were available there in 19 78 were that the penalty was greater then than it would be in 1979. So the question was: Is the penalty going to exceed the amount of the increased loss?

The decision was made in 1979 to pay out the loan, take out another loan for the remaining 12 -month period in the same currency, and hope that one came out of it a year later winning. As it turned out, we did, a year later. Now, what is wanted to be known here is what was the loan when it was taken out; what was the loan when it was paid out; what would the loan have been in 1978 and what was it in 19 79. Those pieces of information can be provided, but the difference between 1978 and 1979, the payout of that loan, will be a very small amount.

The difference will be small in comparison to the total capital loss on the principal amount that was lost over the total life of the loan. That will be provided. MR. Cl:lj;RNIACK: Mr. Chairman, according to the Member fgr Lac du Bonnet, in 19 79 the Minister exercised the option to pay off a loan and pay a penalty and borrowed the same type of exchange, Swiss francs, at a much lower interest rate. MR. CRAIK: No, he didn't say that. MR. CHERNIACK: Exactly what I heard him say. What he said, Mr.

Chairman, was that the Minister borrowed money, Swiss dollars, at a much lower interest rate, repayable at the same time as the original loan fell due, and actually, by just simple calculation, was able to save money by borrowing at a lower rate than he was obligated to pay. The question that was posed was: Why didn't he do it in the prec eding year when, apparent ly, according to the Member for Lac du Bonnet, it would have been exactly the same thing, no speculation, borrowing in the same currency at a lower interest rate to pay off in two years rather than in one, and to pay a penalty.

Now, that was a calcul<1ble one, if the Member for Lac du Bonnet is right, and nobody has challenged his figures. If he was right, Mr. Chairman, it wasn't guessing or hoping or praying or expecting what apparently was the case in the previous loans that were made, where one could not predict the future, even though the Minister of Finance would like to pose as one who could, but this was an actual calculated saving that was made in 19 79, which could have been made in 1978, according to that. So that it's not, as I understand it, any kind of speculation whatsoever. That's why, Mr.

Chairman, it's a much more precise question with a much more precise answer than the brilliance of any person to foresee what would be the futur e in foreign exchange. That's why I think this question is rather important. I would guess, Mr. Chairman, that it just wasn't drawn to the Minister's attention in 1978 because, if it was, I think it could have been a simple calculation to do that. But if it was drawn to his attention, then surely there must be an explanation. MR. CRAIK: Mr. Chairman, in

part it will come back to the total requirements for borrowing at that time and it will come back to the difference between the penalty then and the interest rate then and the speculated interest rate at a time later than that, a year later. It will be left on those grounds. There will be no complete answer to it. It will be a question of when was the right time to bail out of a bad deal. MR. CHERNIACK: No, Mr. Chairman, it would appear that the Minister made a judgement and he was wrong, from what we are told. It would appear that in 1978 he decided to wait a year and history proved that he was wrong.

Now, the amount may be insignificant to him, but it was more than - well, it was more than a dollar and therefore he decided to speculate and accepts the fact that he did, in his calculation. Maybe the interest rate would have dropped even lower in 1979 and therefore he could have made a better deal in 1979, taking into account the penalty, the amount of penalty. Also, he started by saying it also depended on the amount required.

I want to tell the Minister, I'm sure it is no different now than it was then except the amounts that are being borrowed by this government are substantially less than in the past, because we were building for 4530

Monday, 9 June, 1980 the future and they are not doing that now, and therefore, when it was necessary to borrow money, according to our program, we borrowed substantial sums and before every borrowing that took place, just like must happen now, there is an assessment made of the moneys available and the costs against that. So that I'm sure that's a practice that is followed now, and is followed by all governments.

Therefore, I come back to asking the Minister - he was looking at some figures - whether there is something to show that the Member for Lac du Bonnet is correct in his calculation, at least, when he says 3.5 million. Is that figure correct? MR. CRAIK: Mr. Chairman, I have already said twice that we will get the numbers on what it would cost when the issue was taken out, when it was paid out, and what the options would have been at 12 months earlier or 24 months earlier. MR. CHERNIACK: Mr.

Chairman, it has nothing to do with when the loan was taken out; it has to do with what would have happened in 1978 and what did happen in 1979. According to the Member for Lac du Bonnet, his figures are 3.5 million more beneficial to the province had the option been exercised in 1978. That's what he said. The Minister, I think, has responded by saying, well, it depends on the demands for money in that year and the decision of whether or not to think that there would be a more beneficial deal later on if one waited.

So the fi rst was app arently a constraint on availability of money to borrow, and the second one was speculation on the future. If that's correct, then I'll let it go at that, Mr. Chairma n, that is an explanation which I understand. We could disagree with it, but I understand it. MR. CRAIK: Mr. Chairman, on the second part of it, I hope I haven't left the impression that there wasn't or isn't an element of speculation in all of this.

I don't want to suggest here that there wasn't an element of speculation as well, but it's more a question on the payout of these than it is on the assumption of them in the first place, as to what options you may have otherwise, and when you are in that deep, as the saying goes, you know, when you come up to your armpits in alli gators, it is not that easy to remember that you came to drain the swamp.

We are gradually, in the overall polic y, working these foreign borrowings back to a position where there is a greater balance in the portfolio, and that is the basic strategy as far as this government is concerned, but there are so many issues on the books that built up over a period of time, that were very highly dependent on the foreign borrowings and left us vulnerable to those borrowings, that we have been attempting to move our way back out of that position, and that is what were are in the midst of doing at the present time. MR. CHERNIACK: Mr. Chairman, that brings me to my next question.

Will the Minister spell out for us this latest tran sact ion that he has apparently completed with a varying interest rate related to bank prime, as I understand it, 1/4 percent below prime? The purpose of this is to pay off the Swiss loan, is that correct? Yes, he nodded his head. What I would like to know is what would be the current cost of borrowing in Swiss dollars, the same amount? What would the interest rate be? MR. CRAIK: When the member says what would be the current rate of borrowing, what is the real rate of borrowing, is it 29 or is it 26? MR. CHERNIACK: Mr .

Chairman, I believe the Minister is not bound to answer my question, but I am asking him if he can tell me what would be the cost of borrowing Swiss francs today. MR. CRAIK: Mr. Chairman, the member is not putting the question in the right context that it can be answered. He says what would _be the cost of the borrowing and the complete answer to that is that you don't know what the cost is of borrowing until you have paid out the loan. The last cost was 29 percent, the one before that was 26.

If the member wants to ask what would be the stated rate then he would be getting a little closer to the mark, but he is certainly not if he asks what would be the cost, then literally the cost is what the cost is when you pay it out. MR. CHERNIACK: Mr. Chairman, we could also get into a discussion as to real dollars, real 1974 dollars, real 19 79 dollars, real 1985 dollars. I know I can discuss these theoretical things. All I wanted to know is the Minister now needs a certain number of Swiss francs, I would like to know what interest rate he would have to pay to borrow that same number of Swiss francs?

He must know; he must know. MR. CRAIK: Mr. Chairman, the member is wrong; I don't want Swiss francs, I want Canadian dollars. MR. CHERNIACK: Mr. Chairman, as I understand it, the Minister has a Swiss loan to pay off in Swiss francs - that is the impression that he gave - and ther efore he needs Swiss francs. Whether he borrows Canadian dollars and buys Swiss francs or borrows US dollars and buys Swiss francs, he still needs Swiss francs, as I understand it. If he doesn't, I wish to would clarify it. My im pression is that he has to pay off his Swiss franc loan in Swiss francs.

Apparently, he has borrowed Canadian dollars with which to buy Swiss francs, I understand that. If I am wrong, I wish he would correct me, interrupt me if necessary. All I am asking is, what would it cost him in interest rates to borrow the equilvalent amount of Swiss francs toda y? Tha t is a straightf orward question and I know he must have the answer. MR. CR AIK: Mr . Chairman, I know what the member is trying to ask, but he is not asking it. He is asking for an equivalent rate. Why doesn't he ask what the equivalent effective rate is over the total life of the loan? MR. CHERNIACK: Mr.

Chairman, the Mi nister is trying to make me ask him a question because he doesn't want to answer my question. I am sure he understands my question. My question is simply, 4531

Monday, 9 June, 1980 what is the interest rate chargeable today to borrow Swiss francs in Switzerland for one year, five years, ten years'? Now, he must know the answer and why he won't answer it, I don't appreciate, because I do believe he is trying to be helpful to this committee. MR. CRAIK: Mr. Chairman, the member is getting closer now to asking the right question. The question probably is what is the face rate, or whatever the proper term is, on a loan in any currency, and the loan in that case would have a face rate of probably 6 to 8 percent. The member knows that by phoning up his broker and asking it.

But what is the effective rate ... MR. CHERNIACK: I don't have a broker. MR. CRAIK: The member brokers for himself. What is the effective rate, the effective rate is anybody's guess, so that the face rate is really fairly meaningless if you use recent history, because recent history shows that it is otherwise. MR. CHERNIACK: Mr. Chairman, I am not sure that I know what prime rate is now, I believe it is somewhere around 14 percent. -(l nterjection)- 13 .75, I am told, which means that the Minister has now made a loan, a borrowing at 13 -1/ 2 percent, fluctuating with prime. I understand that.

He says he could have borrowed for 6 to 8 percent, so that if the exchange rate remained constant from now until the time the loan has to be paid off, the Minister would have saved substantial moneys had he borrowed Swiss francs. If the exchange rate became adverse, then there would be a certain cushion to the extent of the saving that would have taken place before it would be costly. If the exchange rate becomes favourable to Canada, then it would be even a greater saving to borrow Swiss francs.

Now all that, there are number of ifs involved in that, and the Minister obviously - no I shouldn't say obviously - I would ask the Minister did he weigh these various options and make his decision based on that or did he decide to borrow Canadian regardless of the differential in the options that would occur on the basis of borrowing Swiss? MR. CRAIK: Mr. Chairman, we followed the basic principle that we have been attempting to get across, that we would borrow as a first choice on the Canadian market, a second in the US, and after that offshore. Unlike the Member for St.

Johns, who says that was his principle too, we are exercising it and we are borrowing Canadian. MR. CHERNIACK: Mr. Chairman, I want to tell the Minister we always exercised and went through that exercise at all times. The only thing is that in those occasions when we borrowed outside of Canada, it seemed to be the second and third choice, but that is where we have disagreement. I just want to tell him that every time we borrowed money we did it on the basis of that very same principle of Canadian. It is so obvious, Mr. Chairman, we shouldn't even have to debate it.

So I tell him that it is obvious that one should and I tell him we did, and I don't care whether he believes it or not, Mr. Chairman. MR. CRAIK: The evidence speaks for itself. MR. CHERNIACK: He has got a Fina nce Department that will tell him what the history of borrowing was in the last 8 or 10 years. Mr. Chairman, I wish to move over to another matter ... MR. CRAIK: Mr. Chairman, if the member is going to change the topic, I just want to tell him that there is no speculation from my point of view.

If he wants to read his statement that he put out when he borrowed offshore at 9, when he could have borrowed for 9 1/4 to 9 1/2 in the Canadian market, there is a tremendous difference. He has just made the point that we've paid 1/4 under prime with prime at 13 3/4, and stayed in Canada as opposed to going offshore at 6 to 8, and that's a big difference. That's double, close to double, if not double the difference in the face value of the interest rate. So let's not try and say that we are doing one and the same thing. He stated that was the principle of the former government, he did not practise it. MR.

CHERNIACK: Mr. Chairman, I say that I did state that as a principle, I did practise it. It was my judgement, and I just let it go at that. It was my judgement, as the Member for Lac du Bonnet said, based on advice given, but I'm not leaning on anybody. I'm just saying, if he wants to put it that way, that is correct. I'm just telling him, we always looked at these options . . . MR. CRAIK: The numbers speak for themselves. MR. CHERNIACK: Mr. Chairman, I don't know whether the Member for Lac du Bonnet wants to pursue this; I want to go on to a different area altogether. MR. USKIW: Mr.

Chairman, what we have here is a situation where the Minister takes pride and boasts about the fact that he is much more efficient in his mo ney management operations than were his predecessors, and we find that - I don't know what the measure is of efficiency in money management, but we find that he allowed 3.5 million to slip by him in 1978. Now, I don't know whether that's good, bad or otherwise, Mr. Chairman. Maybe that's not a large amount of money to by-pass as Minister of Finance on behalf of the people of Manitoba. It seems to me, the only point I am making, Mr.

Chairman, is the fact that this is an example where the Minister wasn't quite on top of the situation, and allowed this to take place. Had he looked at in 1978, I think he would have seized on the opportunity in 19 78 to recall that loan, instead of waiting to 1979. But that's neither here nor there. What is interesting to me is that the Minister has made a tremendous amount of commentary, or indulged in a tremendous amount of commentary on past performance, and he's having the benefit of looking back in doing so.

I would like to know from him why he continued to borrow in the foreign market after 1977, since he is so wise in saying we should borrow Canada first and U.S. second and so on. He has borrowed substantial amounts of money outside of North America as well. Secondly, if he was truly as wise as he wants everyone to believe that he 4532

Monday, 9 June, 1980 is, then why didn't he refinance foreign loans at an earlier period in order to hedge against devaluation of the Canadian dollar. I mean, if you have that crystal ball, why did he deny the people of Manitoba that kind of expertise which he has. I'm sure that he cou ld have been a real hero in the eyes of Manitobans, had he been able to hedge the question of foreign exchange rates on behalf of the people of Manitoba, but either he chose not to do so, or he didn't have the wisdom, Mr. Chairman. If he chose not to do so, then I would question why he chose not to do so.

If he didn't have the wisdom, Mr. Chairman, I don't fault him. But he's making an awful lot of ado about nothing in terms of his contribution in the Budge t spe ech , and we find, on clos e examinati on, tha t his performance is somewhat lacking relative to the kind of commentary he's been making about past governments. MR. CHAIRMAN: 2. (a)- pass; 2. (b) - the Member for St. Johns. MR. CHERNIACK: I have the impression that I raised this with the Minister in question period some time ago. But I want to just confirm that I don't think I got a precise answer.

The Burns Insurance Review Com missio n, which I believe has been sort of discredited by the government's failure to act on the major recommendations, included the comment that there is no apparent direct cost to the Manitoba Publ ic Insurance Corporation for the management of its assets by the Department of Finance. At commercial rates, the value of this management is estimated to be 250,000 per year. I'm really sorry, in this case, apparently Mr. Burns presented this report to the public. I believe it was a press conference he called, to which he presented this report, and no one there asked him about this.

So I'm ask ing the Minister whether it is not correct to say that there was no point in making this statement, in that there is negligible, and I really mean negligible, cost to the Department of Finance to manage the assets, and indeed that it's an advantage to the department to manage these assets of the corporation in that it can distribute the lending power of the MPIC in directions which the Department of Finance consid ers socia lly valuable or economically justifiable. MR. CHAIRMAN: If I could interrupt, I think if we passed (b) - that is on (c), and I really hadn't called (c). It's maybe in order to ...

MR. CHERNIACK: Just a minute, Mr. Chairman. Let me just see what you mean by that. MR. CHAIRMAN: I called pass, but really didn't name 2. (a). MR. CHERNIACK: Mr. Chairman, you're still on 2. (a). I'm sorry. You said 2. (

a) and the Member for Rock Lake said pass, and I said, I'm sorry, Mr. Chairman, I called you back to it. We're still dealing with investment by government of Cr own corporations. So could the Minister respond to my statement? MR. CRAIK: Mr. Chairman, I can't comment on the Burns Report, that it would cost that for service, to have that kind of money management engaged from the private sector or wherever. I think it's difficult to put a dollar val ue on the contrib ution of the Department of Finance.

However, it's safe to say that if the MPIC account were not managed by the Department of Finance, it would be difficult to pinpoint what savings ther e would be in the Department of Finance as a reduction of the amount of work required in the department. MR. CHERNIACK: Mr. Chairman, would the Minister agree that he could not dispense with any one person in this item before us if he did not have the management of MPIC money? MR. CRAIK: Mr.

Chairman, I couldn't confirm that, because I think it would be kind of a useless study to decide exactly that, but I'd say it would be highly doubtful if there would be any significant change in the total staff requirements in the various agencies that are administered. MR. CHERNIACK: Mr. Chairman, the Burns Report criticizes, in my opinion, it criticizes the procedure whereby the Department of Finance manages the investments. Does the Minister have any proposal to change the investment procedures involving MP IC? MR. CRAIK: No, Mr.

Chairman, we don't have any plans to, at this point in time, and if we do as a government decide that ther e is some change required, it will be announced, but at this point in time there is no intention to change the management procedures that are now being followed. MR. CHER NIACK: Then, Mr. Chairman, the government obviously disag rees with the Burns recommendation in this respect as well as in other respects. Is that a fair statement? MR. CR AIK: I think a fairer stat ement , Mr.

Chairman, would be that the government endorses the vast majority of the recommendations of the Burns Com mission Report if you take them on a one by one basis, and in fact most of them have been instituted. Therefore that's the answer. MR. CHERNIACK: Mr. Chairman, the question I asked was, is it confirmed that the government rejects this comment or proposal by the Burns Commi ssion, as it has others. Now he works it other ways. I just want him to agree with my statement th at the government has rejected this recommendation of Burns. MR. CRAIK: Well, it's obvious, Mr. Chairman.

If the government had accepted it, it would be common knowlege. Do we need to have that affirmed? MR. CHERNIACK: You see, Mr. Chairman, I asked the Minister whether the government has accepted it and he said we're not making any change; if there is a change, it will be indicated. I was asking the Minister to be more precise to the extent of whether he's rejected it or it's still under consideration. If it's not under consideration, then it's been rejected. Is it under consideration? 4533

Monday, 9 June, 1980 MR. CRAIK: The question has been answered, Mr. Chairman. MR. CHERNIACK: Mr. Chairman, I assume then it has been answered, that it has been rejected, it's not being considered. MR. CHAIRMAN: 2.(a)- pass; 2.(b)-p ass; 2.(c)- pass - the Member for Lac du Bonnet. MR. USKIW: 2.(c), yes, could the Mi nister explain that item, please? MR. CRAIK: Mr. Chairman, Insurance Premiums; this is mi scel laneous insu rance prem iu ms and blanket crime policy.

It covers all departments, insu res for emp loyees fideli ty, robberies, safe burglar y, theft, mi splacement of moneys and securiti es, acceptance of cou nterfeit cu rrency, forgery, etc. It also includes 50,000 for fire insurance previously charged to the Fire Insurance Reserve Fund. MR. USKIW: Mr. Chairman, I gather that there has been a change of policy there then. The Minister indicates that we now have a 50,000 premium wherein previously we had a reserve of 50,000 in the reserve fund to cover contingency. What is the basis for that change in policy, Mr. Chairman? MR. CRA IK: It was, Mr.

Chairman, previ ously charged to the Fire Insurance Reserve Fund. Now it's charged to the appropriation rather than that. MR. USKIW: Oh, I see, okay. MR. CHAIRMAN: 2.(c)- pass; 2.(d) - the Member for Seven Oaks. MR. SAUL A. MILLER: Mr. Chairman, would the Minister tell us whether the 750,000 was in fact spent last year? MR. CRAIK: Yes, that's the difference in the procedures now. The refunds show as a reduction in revenue now rather than . . . MR. MILLER: I know what's going to be. I'm asking was the 750,000 spent la st year? The amount indicated last year, was that spent or underspent?

I know this year there's nothing. It's going to be payable through revenue - spent, underspent, or overspent? Sorry I asked the question. MR. CRAIK: Mr. Chairman, the member for Seven Oaks is asking whether the estimate in fact was right, was there approximately that amount spent. I haven't got the answer directly. We can obtain that for him. MR. MILLER: Okay. MR. CHAIRMAN: The Member for St. Johns. MR. CHERNIACK: I'm just looking at the estimates of revenue and I don't see any reduction of anything by the refunds. Is it the intention not even to show tha t in the revenue estima tes?

My very vag ue impression is that it was undertaken that with the change there would be an indication in the estimates to show what the amount of refunds were. Am I just overlooking it? MR. CRAIK: Mr. Chairman, it shows as a breakout on the statements. It doesn't show as a breakout on the estimates. MR. CHER NIACK: accounts? Do you mean in public MR. CH AIRMAN: 2.(d)- pass; 2. (e)- pass. Resolved that there be granted to Her Majesty a sum not exceeding 57 4,300 for Finance - pass. Resolution 63, 3.(a) - the Member for Lac du Bonnet. MR. USKIW: Mr.

Chairman, can the Minister give us a quick overview of what's taking place in this area? As I understand it, this area covers a number of federal/provincial agreements and perhaps the Minis ter would want to indicate just what the government's intentions are in respect to those agreements. MR. CRAIK: The general development agreement with OREE is handled through the Department of Finance and comes under, in part, the Administration through the Comptroller's Division.

The federal/ provi ncial relations group are also su bstan tially involv ed in the negotiation of these and, as I indicated in the opening comments, we also keep 15 percent of the total of these agreements contained in a fund that allows more flexibility during the year. If one agreement moves ahead and another one moves back, we have the flexibility of moving the funds out of the common fund, that is about 15 percent of the total of the OREE agreement appropriations. In general, there isn't a day to day administration in terms of the programs, which is different possibly than the member may be familiar with.

With their not being the same procedures that were used by either the Mana gement Com mit tee or the Planning Priorities Committee, the Finance Department people act as a co-ordi nator and bring together departments for the regular reviews on the progress under the agreements. MR. CHAIRMAN: 3.(a) - the Member for Lac du Bonnet. MR. USKIW: Mr . Chairman, I raised the question in the knowlege that the Ma nitoba Northlands Agreement expires March 31s t of next year, so that in essence my question is what is the government going to do? Secondly .. . MR.

CHAIRMAN: I just wonder if that comes under 3.(d), as the member - Well really, to keep it in reasonable order though, if we went down and got to (

d) in the same resolution, we would stay within our The Mem ber for Lac du Bonnet. MR. USKIW: Mr. Chairman, we have the ARDA package and the Northlands package, and that's why I'm addressing the Minister on the first item. We have the Manitoba Northlands Agreement running out in March. We have the OREE Special ARDA, which is, as I understand it, running at a very low 4534

Monday, 9 June, 1980 level at the present time and likewise is the case with the general ARDA package. I'm not sure whether the province of Manitoba to date, has been able to handle, use, or whatever, all of the federal allocations that have been provided. My understanding is that if we don't make use of all of the funds available under these agreements, then the federal government has the option of reallocation; that is reallocating sums of money away from the province of Manitoba into other areas or other things or projects.

I would like to know from the Minister whether or not Manitoba is fully utilizing the OREE program or whether there are going to be sums of money not taken up by the province for lack of activity or lack of programming on the provincial government's part, and what are the arrangements for continuing beyond the end of the fiscal year?

Because with respect to most of these items, these programs are mainl y geared for areas in Ma nitoba of slow economic growth or regional problem areas and it would seem to me that we should have an idea of just what the government has in mind with respect to either su bstituting with new programs these agreements or extending these agreements or whether they are in fact utilizing these agreements to the fullest extent. MR. CRAIK: Mr.

Chairman, the OREE agreements seem to follow a pattern that they start off not rapidly with a smaller cash flow at the start of the agreements and a fuller cash flow towards the end and the Northlands probably, as indicated here, is a prime example of that. I think that they're up to their full rate in the last year of the agreement, and

whereas some of the newer agreements do not tend to be moving as rapidly at the start but start to accelerate as they go along the period of the normal five years of the agreement. The Northlands Agreement is currently under renegotiation with OREE and will be completed sometime before, I gather, the end of the summer, some time early fall, for the next fiscal year. There are a number of other agreements of course that are in here.

The most recent is the water agreement that was signed about 10 days ago, and the largest one is the industrial sub-agreement that was signed earlier, perhaps a year or 18 months ago, and the tourism agreement, and one other, I think, in the natural resource field, but I've forgotten the exact name of it, but smaller.

So there are now a total of about five or six agreements with OREE and of course there is the recent offer by OREE to enter into the three-way agreement on the core study in the city of Winnipeg, which is now being examined and which we'll have to now work with directly in resolving the terms and conditions of th at agreement. The OREE agreements now amount to a very large and significant part of the government's undertakings in the economic development area. Northlands is one and is curr ently being renegotiated. What the terms and conditions that will finally result from it are still unknown.

We just started to rediscuss it. MR. USKIW: I would like to know whether there will be any lapse of funds in any of these agreements because of the lack of program development, or whether there will be in fact reallocation of funds away from Ma nitoba as a result of lack of programming. MR. CRAIK: Mr. Chairman, I really can't answer that. It's not a common sort of an accepted concern, I don't think, that we approach the OREE grants on the basis that if we don't get one, somebody else will get the money. There is competition for it, I don't deny that.

There is a certain amount of that but we don't enter the agreements on the basis of doing it because we're concerned about somebody els e getting the money. MR. USKIW: But, Mr. Chairman, that poses a very interesting question. If the province is bypassing federal funds simply because it is not committed to program it, and at the same time we have massive economic problems in different regions of Manitoba, but in particular in the north, then it indicates that the government's attitude is that it is not prepared to spend even 50-cent dollars, if you like, or 40-cent dollars, in trying to deal with those problems.

That indicates a certain philosophy and approach on the part of the government to that region. I hope the Minister is in a position to say that that is not the case. But that is precisely why I put the question. If federal funding is avai lable for programming in special needs' areas, then it seems to me it's incumbent on the part of the province to make sure that it has its work done in order that these funds are utilized and that the necessary kind of assistance is provided to those communities that require it.

If we are short of that, then somebody is not doing his work, or else the policy of the government is to low­ key special project development in order to employ people, in order to retrain people, or whatever. MR. CHAIRMAN: The Member for St. Johns. MR. CHERNIACK: Mr. Chairman, I want to know who the comptroller is. MR. CRAIK: Perhaps if I can just finish that. Our usual problem has been with OREE, that they don't have the funds available to the level that we are after them for, and that has been the case.

Whether it is still the case with Northlands, on the renewal, remains to be seen, because it is too early in the renegotiation to look at that. The OREE Minister has indicated that there would be a minimum amount avai lable, as far as the federal government is concerned, for those renegotiations, which indicates that they are in recognition of the necessity to carry on with additional programming. MR. CHAIRMAN: 3.(a)- pass - the Honourable Minister. MR. CRAIK: I'm sorry. the Member for St. Johns had a further question.

Mel Anderson left, and what has happened !n the comptroller's division is that we found tha t the Deputy Min ister was lacking in opportunity and work, so he has been filling in until we have a replacement, as such. Other personnel have been shifted in the department to bolster the operations in the comptroller's division, but there is not an ADM or Comptroller, other than the Deputy Minister, Mr. Curtis. 4535

Monday, 9 June, 1980 MR. CHERNIACK: How long have we been without a comptroller, then? MR. CRAIK: Since January, Mr. Chairman. MR. CHERNIACK: Is the government seeking a comptroller? MR. CRAIK: Yes, Mr. Chairman. MR. CHERNIACK: Has it been bulletined? MR. CRAIK: It hasn't been publicly advertised. MR. CHERNIACK: Mr. Chairman, I always knew that the Deputy Minister had great capacity, but as I understand it, he is Deputy Miniter of Finance, he is Chairman of Hydro, I believe is Secretary to the Treasury Board, and now we find that he is doing the Comptroller job as well.

Does the Minister feel then that since he has that capacity, there is any need t� search out a comptroller? MR. CRAIK: Mr. Chairman, we're not looking for another job for the Deputy Minister. We feel that he's pretty well at his work level now. MR. CHERNIACK: Mr. Chai rman, the Min ister knows, I've raised questions and I've had a little correspondence dealing with

Section 39 of The Financial Administration Act, and the fact that both last year and this year, in the Appropriations Bill, there has been a

section exempting the government from complying with

Section 39 of The Financial Administration Act. I asked the question of the Minister, who gave a reply that I didn't understand - I don't know if he did - and then I had some correspondence with the legislative counsel and with the provincial auditor, and I gather from the auditor that he was not impressed with the need for this, but rather that the legislative counsel thought it was useful, let me put it that way, I don't want to put words in his mouth. I want the Minister to explain why it is that we have a

section of the Act which restricts payment from the Consolidated Funds in certain respects, and that was brought in in 1979, and both in 19 79 and in 19 80, The Appropriations Act excludes

Section 39. My question to the Minister is, one or the other, why maintain

Section 39 if you are going to exclude yourself from the effect of it, and why not change 39, rather than every year, as has happened last year and this year, there is a special

section in The Appropriations Act which exempts the government from that? Can the Minister explain why that is? MR. CRAIK: Mr. Chairman, if the member would be willing to leave this until the Minister's Sal ary, I'll obtain

Section 39. I don't have ... MR. CHERNIACK: I have it here, but I don't want MR. CRAIK: Let me review it. MR. CHERNIACK: I'll leave it then until the Salar y of the Minister. In case I'm not here, I hope the Minister will put an explanation on the record. MR. CHAIRMAN: 3.(a)- pass; 3.(b)- pass; 3.(c)­ pass; 3.(d) (1) -p ass - the Mem ber for Lac du Bonnet. MR. USKIW: Mr. Chairman, perhaps the Minister is aware that the only Manitoba Cabinet Minister in the federal government has made some statements to the effect of perhaps diverting money towards the core area project here, from other agreements or other areas.

Is the Minister aware as to just what is taking place with respect to this whole Northlands Agreement, whether that is being reduced. Is that what the reference is all about, Mr. Chairman, or does the Minister know precisely what the federal people are thinking in terms of the next OREE package, or whatever replacement they have for it with regard to the regions in Manitoba? MR. CRAIK: I think the member , in his last sentence or two, made the point that in the next OREE package, there is no intention in this year's opera tio ns to divert money. It will not affect Northlands.

I think the Minister of Immigration and Employment was referring to perhaps renegotiation on the OREE agreement, as to whether or not the greater force shouldn't be placed on the core area of Winnipeg, rather than in the Northlands. I don't really take exception to that general approach. I think that, as a matter of attention, these agreements don't necessarily have to go on at an ever-escalating or constant level even, and that from time to time, I think the intent was that they would be redirected into areas that were regarded jointly to be of the greatest need.

I would think that, at this point in time, the core area work perhaps does take on a concern and a requirement that has to be placed very high. I don't say that the province at this point in time agrees with the cost sharing or the administrative procedures or the programs, because we have to examine them pretty closely. But I think that

whereas Northlands may have been a priority in the initial instance, there have been agreements that have gone on since then and it's probably fairly safe to say that the core area study at the present time should require a priority consideration. MR. USKIW: Mr. Chairman, I don't want to take a negative attitude with respect to the core area study, because I think, if anything, that's an area that has probably demanded a lot of attention, or should have demanded a lot of attention over the years, and that the situation, in my opinion at least, is a deteriorating one.

But I would hope that we're not just simply shifting our attention from problem area to another, on the basis that we have given some attention to the one area and not to the other, but rather that we continue to work on the foundation that has already been laid in northern Manitoba, and that we extend the OREE package to include the core area of Greater Winnipeg. You know, I don't believe that it should be a choice of one or the other; I believe there is a need for one to continue and the other one to be implemented. MR. CHAIRMAN: 3.(d)( 1) - pass; 3.(d)(2)-pass; 3.(d)(3)- pass.

Resolved that there be granted to Her 4536

Monday, 9 June, 1980 Ma jesty a sum not exceeding 1, 719 ,3 00 for Finance- pass. Resolution 64, 4.(a)(1) - the Member for Lac du Bonnet. MR. USKIW: would ask the Minister to give us some idea of the revenue changes that he expects from the change in the gasoline tax colle ction system, or that is, the new method of calculation. Surely the department must have some figure in mind, based on very reasonable assumptions. I'll leave it with that for a moment, then I want to discuss it further, Mr. Chairman.

What is the revenue item, from the change in the way in which gasoline taxes are to be applied for the balance of this year? MR. CRAIK: At the present levels of prices, the change in revenues is perhaps within 1 million or so of where it is now. MR. USKIW: At present prices? MR. CRAIK: At present prices. Now, what happens beyond that, we've included the projection on what we know, and what we know is what the prices are now.

If the federal government and the oil-producing provinces reach an agreement which puts the price up later on, the 1st of July even, or later on, then it will cause greater revenues for the province, but at this point in time, we don't know. But at the present price levels, they are very close to where they are now. MR. USKIW: Mr. Chairman, perhaps the Minister and his department have worked out what the change means with respect to every 1. 00 increase for a barrel of oil at the well head. Sur ely that is not something that hasn't been calculated.

Wha tever the decisions are going to be with respect to oil price increases, it wouldn't be difficult for us to determine what the impact is on a per dollar a barrel increase. Now, we can project from there. Does the Minister have an idea or a figure of what a dollar per barrel increase means in terms of revenues to the province of Manitoba for an annual period, for a 12 -month period? MR. CRAIK: If consumption stays constant, if you assume that consumption stays constant, 1. 00 a barrel has produced about 3 1 /2 cents per gallon differential in the price of gasoline.

So if you take 20 percent of that, you'd be getting pretty close. MR. USKIW: Three and a half dollars? MR. CRAIK: No, 3 1/2 cents per gallon. MR. USKIW: Mr. Chairman, I have to raise the question of philosophy or policy here. With respect to the hydro situation, which is one form of energy that Ma nitobans depend on so much, the government's decision was to shelter the Hydro authority from the fluctuations in the exchange rate and the dollar on Hydro borrowings, that is to offset the negative effects on Hydro borrowings from the negative exchange situation.

What I want to find out is, what is the government's thinking in trying to stabiliz e Hydro rates, while at the same time actually increasing gasoline taxes on top of increases in the price of oil. To me that is an inconsistent policy. If we are worried about energy costs, then why aren't we freezing all unnecessary added costs on energy, as opposed to freezing Hydro rates, but not freezing oil price increases to the extent that the province has power; not only not freezing, but adding injury to insult by adding taxation on top of increases. It is a compounding effect that we are imposing on the oil prices, Mr.

Chairman. It is absolutely opposite to the policy on Hydro rates, and how does the government justify that contradiction with respect to different forms of energy usage in Manitoba. MR. CRAIK: Mr. Chairman, about 20 percent or a little less of Manitoba's energy is electrical. A large portion of that is on individual meters in households used for domestic purposes, for heat and light, and all the basic ess enti als. Ab out 50 percent of Ma nitoba's energy is oil, and most of it is transportation. I think around 30 percent, in very rough terms, is natural gas.

For the next period of a couple of decades, I think it reasonable to assume that Manitoba should be able to enjoy fairly stable electric al supply at reasonable prices and they ought to be encouraged to use it. The government hasn't brought out a program that advocates and tells people or asks them to shift over to a given form of energy but, on the other hand, it is the most rational thing for people to do is to rely on their electrical supply.

From that point of view, the incentive offered through the pricing system is one that is, I think, probably adequate and more than justified in view of the use to which most of the Hydro supply is put. Natural gas, most of tha t again is used for domestic pu rposes, for heat, light, and other household purp oses, and in the consumption of oil, as I mentioned, the majority of that is for transportation and there are economies that can still be gained in transportation. It is still probably the most elastic of the energy supplies here, as far as effects of price are concerned.

It would not be a fair statement to say that energy consumption generally is really very responsive to the price system but, of those three, oil is more responsive to the pricing system than the others are.

So from that point of view and in view of the fact that it is also a non-renewable resource but that there is some oppor tunity to bring in the gasohols and the other synthetic fuels over a period of time as a result of the pricing system, that it is in the long-term interest to, at this point in time, provide the incentives on the electrical side and the disincentives to the traditional uses of the extractive carbon fuels. That is the rationale, Mr. Chairman, and I think it is one that will stand the test of time for the next period of Canadian history. MR. USKIW: Mr.

Chairman, I can't help but note that this same measure was introduced by another Conservative government in Ottawa in December or January of last year, and which was defeated in the House of Commons and which was defeated at the polls. I am wondering by what judgement the Minister believes that there has been such a change of attitude on the part of Manitobans on this issue 4537

Monday, 9 June, 1980 only since that time. The Crosbie Budget proposed a 18 cent a gallon excise tax, which was rejected by the peaple of Canada, in particular by those provinces which rely on imported oil; that is other than the non oil-producing provinces. Manitoba was no different; it followed that pattern in the election results. There was a definite reaction to the idea of imposing tax increases on increases in oil. prices, the compounding effect was not accept able to Canadians, which was evident in the course of the election campaign and the results bear that out.

Here we have a provincial government that is following the same idea, but only with the hope that by sneaking it in via the oil price increases that it will not be noticed by Manitobans and that it will result in some tens of millions of dollars accruing to the province over the next few years.

There is no doubt in my mind that the Department of Finance has looked at Canadian oil prices relative to world oil prices and has concluded that it is matter of time before there is a quite an evening out or a reduction in the differences of oil prices throughout the world and that Canada will be more conforming to world oil pricing mechanisms, and that the government, in essence, has calcula ted what that will mean to revenues if they were to change the basis of taxation on oil consumption in Manitoba. There is no doubt in my mind, Mr.

Chairman, that is probably an accurate assessment that Canadians will be moving closer to world oil prices and, as a result, the government of Manitoba will receive huge windfall revenue benefits from this kind of tax system. I don't believe that Manitobans should be subject to that, Mr. Chairman, because I believe -- it is a reality, it is not a matter of belief or opinion - that Manit obans are sparsely settled, a treme ndous amount of reliance on motoring to work and back.

We don't have public transportation in abundance or sufficient abundance to carry people from areas outside of the major urban centres to their work place and back, nor do I think it is in the cards to put those in place. So what this is going to do is impo se a real hardship on people who are commuting to work and back and an increased hardship each year as oil prices move up to world oil price levels. The Minis ter says, wel l, but this will have a conservation effect. I think he is right, but, Mr.

Chairman, it isn't that the poli cy will have a conservation effect as such, but rather that what he is really saying is that people on lower incomes will have to cease driving cars to work, that is what he is saying; that what we are going to do is have a means test application of his oil policy in Manitoba; that those can afford to drive will pay the increased prices and increased taxes and those that are unable to adjust their incomes will simpl y have to find solutions elsewhere, whether it is relocation of their residence or whatever it is, or moving closer to their jobs.

These are the kinds of things that seem to be in the mind of this Minister, Mr. Chairman. I believe it is not an equitable means of bringing about conservation measures, that if there is a need for conservation measures then there ought to be restrictions on use, and one can ill ustrate many many examples where energy is truly wasted in our society, Mr. Chairman, and this kind of measure will not reduce that waste. The Minister knows that there is no authority which determines or rules on the use of energy in Canada in the sense of restricting its use or in the sense of conservation, a rationing.

The Minister knows that there are tradeoffs as between different forms of energy and their uses. It seems obvious to me that where one has the wherewithal, one has the right to abuse the energy shortage; where one doesn't have the wherewithal, one hasn't the privilege to drive to work. That is the policy that is emanating from this Minister, Mr. Chairman, and I believe that is truly inequitable and I don't believe that Manitobans will want to support that kind of policy, based on the idea that somehow conservation is a motherhood thing and it will be accepted. Mr. Chairman, I can't accept it in this form.

There is no doubt in my mind that this will result in somewhere in the order of 50 mil lion or 60 million of added revenues to the province of Manitoba by about the fourth year. There is no question that is going to happen if the expectations on Canadian oil prices are met, and that is that they will move much closer to world oil prices. I think this is what we are really looking at, Mr. Chairman, is a massive revenue thrust on the part of this Minister, slipping in a tax without calling it a new tax, based just on a change of collection and formula. Mr.

Chairman, I don't believe that this is going to be accepted by the people of Manitoba. MR. CRAIK: Mr. Chairman, I just want to correct one technicality. The Member earlier in his remarks claimed it was patterned after the moves of the former Conservative government in Ottawa. I want to straighten him out and point out that it is patterned after - I take no satisfaction in it - but if it patterned after anybody, it is patterned after the current government in Ottawa who moved this ad valorem type of rate. It has also been adopted by two other provinces before Manitoba looked at it as well.

I guess my final sort of comment was, after all those remarks from the Member for Lac du Bonnet, can I assume that he is going to ind icate that he would change it back again? MR. USKIW: Mr. Chairman, I don't know what will be changed back, but let me assure the Minister that we believe that there has to be a degree of fairness in equity with respect to the av ailability of transportation to all sectors in society, and what this policy does is simply remove a greater number of people from the area of the motoring public.

Unless these people can adjust their incomes to afford the change in costs, they are going to be commuters by way of other means, but certainly not by way of their own vehicles. This is the kind of impact this policy will have. There is no queston about that. So what we are really talking about is it is very much akin to his other tax policy where the cigars aren't taxed but the cigarettes are, and this is really what is happening with oil prices, Mr. Chairman. The elite will drive and the rest will have to walk. MR. CRAIK: Mr.

Chairman, on the other hand, we are going to get more money out of Lincolns than we are out of Datsuns, and the member doesn't drive a Datsun. 4538

Monday, 9 June, 1980 MR. CHAIRMAN: The Member for Brandon East. MR. LEONARD S. EVANS: On the matter of the possible revenue from an increase in tax on oil products, specifically gasoline, the Minister has indicated that the rate will now be 20 percent, but I gather from the Min ister's earlier statement, one barrel of oil is roughly equivalent to 3 1/2 cents at the pump; in other words, 1 increase on a barrel of oil translates into 3 1/2 cents a gallon, and if you take 20 percent of that, you've got 7/10 of a cent.

But then, of course, that 20 percent is applied after the federal sales tax, so it's actually a little higher than 7/10 of a cent. Surely the Minister's staff has some idea of the consumption of gasoline by Manitobans and surely they have an estimate for the Minister, and therefore the members of the Legislature, as to what revenue would accrue to the Crown from a potential increase of let's say 1 per barrel.

From that, of course, then we can make our estimates as to what it will mean if we have a 4 per barrel increase by agreement between Ottawa and Alberta sometime later this year, or whatever the increase might be. But surely you must have some estimate available, some even rough estimate of what 1 increase at the wellhead will net the province of Manitoba on this new basis. MR. CRAIK: The only way you can arrive at that is to make some assumptions.

One of the assumptions you would have to make is that there is constant - or if you want to use that basis - constant consumption from here on in over the period of price change. If you do that, of course, you can rapidly work out what the relationship is, and you can multiply this pretty fast and find out what it is. But the assumption that you make of the constant consumption may change. There are some signs of it changing now with more use of smaller cars.

Large cars are not being purchased in the same way that they were before, and you can see the trend now taking place to smaller cars where consumption in the transportation sector will, in fact, decline. And that's likely the first result you'll see of the incre ases: For awhile, you'll see consumption actually fall off. Now, how much it falls off, that's the part that's open to pure speculation. I don't think we know that. lt is expected that it will fall off for a period and then it will probably flatten out again, as the move takes place to smaller cars. But the rest of it is fairly straightforward.

You can just take roughly the formula that I have indicated here, and indicate it. MR. EVANS: lt would seem, Mr.

Chairman, that when the staff of the Department of Finance carry out government's instructions as to, attacks policy changes, there has to be some estimate made by the staff as to what the revenue implications are, and I would say surely someone in your department must have made some estimate, assuming, let's say, take the year 1979, if you want, and as the Minister said, I suppose you could easily calculate it, how much gasoline was consumed in Manitoba in 1979, and you could multiply that by this tax. it's more than 7 I 10 of a cent per 1 per barrel increase, but surely there must be some estimate available.

MR. CRAIK: Mr. Chairman. it's open to such wide speculation that you really boil down to your own rough calculations on where you're going to end up, because you don't know exactly, but if you assume a constant consumption, at 4 per year per barrel, that would yield you, by that formula, somewhere around three cents tax, and the present tax is 18 cents a gallon. Eighteen cents a gallon yields you, what's in your revenue estimates, then three over 18 times that will give you your change. But that's as close as you can get if you want to use that . . . MR.

EVANS: Eighteen cents gives you 61 million revenue, I don't know whether I heard that? - (Interjection)- That's making a lot of great assumptions, I appreciate that, and the Minister is right, there is a move toward smaller cars. We don't know to what extent the cars sales are falling off, the ownership of cars are falling off. There has been quite a rapid increase over the years in automobile ownership and so on; you know the move to two cars per family and that sort of thing, so there is all that. But if I understand the Minister correctly, then 18 cent tax is giving the Crown 61 million worth of revenue.

Is that right? MR. CRAIK: Yes. MR. EVANS: Eighteen cents gives you 61 million. MR. CRAIK: Eighteen cents a gallon. MR. USKIW: That's 19 million of motive fuel taxes. MR. EVANS: I'm just talking about gasoline for the moment, and I presume that's only for gasoline. Another way you can do it is ... Well, this gets it for you; the other way of doing it is to get the volume of consumption in the province and look at the trends in consumption and simply multiply that by your tax rate. MR. USKIW: Mr. Chairman, I think that my analysis is fairly accurate.

Eighteen cents yields, according to the Minister's estimates, some 61 ,500,000.00. The original target, by the Crosbie Budget and by the Clark government and not far away as far as the Trudeau government is concerned, on oil price increases, was two shots a year, July and January, of about 4 a barrel each time. Now, if that was to be followed through in the course of the next three years, the Minister would realize 36 cents a gallon, given his own figures, 18 plus a new 18. Three cents for every 4.00. 11 would be more than that.

So that he's looking at another 60 million at least, in about three or four years time, Mr. Chairman. - (Interjection)- The Minister is shaking his head. Pardon me? Three cents each 4 increase. If you get two 4 increases in one year, you've got six cents; three years of that gives you 18 cents a gallon, Mr. Chairman. That was the blueprint for Canadian oil price incr eases, as envisaged by the Clark government. 11 will be close to that as envisaged by the Trudeau government. Mr. Chairman, world oil prices are not remaining static.

They are moving upward, and there will never be an end to the argument that we have to keep adjusting to move to some level, some relationship 4539

Monday, 9 June, 1980 within wqrld oil prices. We can't talk about a fixed oil price. Th!!! Y're talking about a relationship. The figure of 85 percent of world oil prices has been the one that's been used. Now, if we're going to follow that pattern, Mr. Chairman, there's no doubt in my mind that this Minister will realize . . . Well, this Minister won't but by the third or fourth year we're going to have, instead of 60 million of revenue, we will have 12 0. There's no question about that, Mr. Chairman. Now, that doesn't say anything about motive fuel taxes.

I want to ask the Minister whether this also applies on motive fuel tax. I presume it does. Can the Minister confirm whether this system of taxation is also applicable on motive fuel? MR. CRAIK: I'll deal with that when you're finished. MR. US!(IW: If it does, Mr. Chairman, then we have IC)·. add additional amounts of revenue, as a result of the change in taxing, oil consumption or gasoline consumption. So that in essence this is, indeed, the big sleeper in the government's revenue policy, Mr. Chairman.

The tax on gasoline is going to be the moneymaker for the government of Manitoba, based on the belief that there will be dramatic oil price iflcr eases every year until the catch-up or near catch-up to world oil prices, and then following that pattern, as oil prices adjust worldwide. This is sort of a bonanza deal for the Minister of Finance, Mr. Chairman, but he hasn't been willing to admit it. MR. CRAIK: Mr. Chairman, a couple of things. One, that's the first I've heard any suggestion that there has been any political party, unless it's the NOP, that's been advocating two 4 jumps a year. MR.

USKIW: No, that's been the formula, that was the old proposal. MR. CRAIK: Never. MR. USKIW: Yes. July and January. MR. CRAIK: I don't know where the member is coming up with his figur es; nobody has been advocating that kind of an escalation. That's the first I've ever heard of it. I've seen a lot of the speculation, and I think it was put very clearly before the last federal election what had been negotiated between Ottawa and the producing provinces, and it was 4 roughly per year, not 4 twice a year, so I think we'd better straighten that out.

So the member is out by 100 percent on his projection of revenues right there. The second question was on the motive fuel tax. The current rate of taxation on motive fuels, on a percentage basis, is around 25 or 26 percent. That will shrink down to 20 if the price goes up, and it will not go up until it exceeded the absolute level that would bring the percentage level at 20 into focus. So it's a little different picture. Mr. Chairman, I point out that all of these will be in the taxation bills that will be in the House very shortly anyway, and the member can get the complete picture then. MR.

CHAIRMAN: The Member for Ste. Rose. MR. A. R. (Pete) ADAM: On that point, Mr. Chairman, about the price of oil, I just recently received information from an oil company and in this documentation they give a breakdown of the value that they are going to place on their reserves. From year to year, as price quota goes up, they place a value on their net worth, the value of the stuff that's in the ground, in other words.

I don't have it before me here because I took it home over the week-end, but they show the breakdown two years from now, four years from now and so on, and the last price they have a few years dC)Wn the way is over 60 a barrel. They give you an estimate of what their reserves are going to be worth a few years down the way, and they're talking about over 60 a barrel on the value of those reserves in the ground, looking at those estimates, and this is documentation, this is the real stuff.

I give the Member for Lac du Bonnet a few minutes to figure out how much money you're going to be collecting on the basis of 20 percent on those increases. The only thing is that this Minister won't be around. He won't be here that long with that policy. MR. CHAIRMAN: 4.( a)( 1)-p ass; 4.(a) (2)- pass; 4.(b)(1)- pass; 4.(b)(2)- pass; 4.(c)(1)- pass - the Member for Brandon East. MR. EVANS: Would the Minister care to comment about any trends in mine tax revenue . . .

Just to repeat, I note in the preface under this division that it advises on taxation policy matters, including the Metallic Minerals Royalty Act, the Mineral Taxation Act, the Mining Royalty and Tax Act, among other things. I'm just wondering is there any indication as to what the pattern may be in additional revenue from the mining industry. I believe the production for mining is up in some areas. We know certainly the tax method has been changed, but is there any evidence of any upsurge in revenue in this area? MR. CRAIK: Mr.

Chairman, the revenue estimates show an increase on metallic minerals tax from 15 million to 22.5 mill ion, so there's an increase of about 7.5 mill ion expected this coming year on revenue from mineral taxation. MR. EVANS: Could the Minister indicate, what is the basis of that estimate? How is that arrived at? Wha t are the basic as sumptions made in that estimate? l\ll R. CRAIK: Two things, Mr. Chairman. There's increased production and there have been better prices in the last while than there was a year ago, although there is some falling off in those right at the current time.

But at the time the estimates of reve nue were drawn, it was based on the assumptions at that time. MR. EVANS: Mr. Chairman, it would seem to me that this area, and I guess it applies to many revenue estimates, but this is one area that is rather difficult to forecast, because it is very much dependent upon international makets affecting the demand for the output of the mines in Thompson, Flin Flon, Lynn Lake and so on, and also, of course, as the Minister says, the price changes. So this, to me, would seem to be very much dependent on the crystal ball that one has on the international mineral markets. That 4540

Monday, 9 June, 1980 would be much more difficult to predict, it would seem to me, than even the gasoline tax, because while there may be some changing consumption patterns, they will change in a more stable way than the international mineral market. Simi larly, with retail sales, it seems to me there is more stability to that, and much easier to predict that than it would be to predict this particular item. So this is assuming that the market is going to hold fairly strongly, I would gather, because it shows a 50 percent increase in the revenue of metallic minerals tax, from that particular tax.

Wha t is the difference between the · metallic minerals tax (e) - the Member for Lac du Bonnet has now handed me the estimates of revenue, which I didn't have - I had last year's here. What is the difference between (

e) and (h)? One is called Metallic Minerals Tax; (

h) is called the Minerals Tax, which is worth 9.5 million, or may be worth that amount next year. MR. CRAIK: Mr. Chairman, (

h) is oil. MR. EVANS: Strictly oil? MR. CRAIK: Yes. MR. EVANS: This is a detail, a minor point, but (

g) Mineral Tax, showing zero; is that some taxation that is being phased out? MR. CRAIK: That's the old Royalty Tax that was phased out. MR. EVANS: I see. What about (

j) then, Mining Royalty Tax; that's another Royalty Tax? MR. CRAIK: The one is the two-tiered tax system that was in, where it was phased out under the old Royalty Tax; the other one has been one that was rolled in with the Metallic Minerals Royalty Tax that is now in force, which is the 22 million. One is now included and the other one is ph ased out. MR. EVANS: It looks like (j), then, is on its way out too? MR. CRAIK: Yes, they are both phased out. MR. EVANS: Just one other question: Regarding the 9.5 million estimate under (

g) Mineral Tax, which I believe the Minister said was from oil solely, is that estimate based on the best guess we have on increased values of oil at the well head, and therefore the tax that might have come from that? Is it based on some estimate of increased production, or is there any estimate of increased volume of production? MR. CRAIK: Mr. Chairman, there is no increase in production included here. They are increases that have taken place in the price of oil up to date, since last year's estimates. MR. EVANS: Therefore, based on that answer, Mr.

Chairman, I gather that the government doesn't feel that it can look forward to any further significant volume increases in the next year or two? That's implicit in . . . MR. CRAIK: We are not looking for increased production. It could be increased well head prices if the agreement goes through with the producing provinces, which would put that up. MR. EVANS: I had a couple of other questions on oil production, but I think we'll wait until the Department of Mines . . . MR. CH AIRMAN: 4. (c)( 1)- pa ss; (c)(2)- pass; 4.(d)(1)- pass; (d)(2)- pass; 4.(e)(1) - the Member for St. Johns. MR. CHERNIACK: Mr.

Chairman, the proposal to change the minimum taxable corporations, that is, the tax employed from 500,000 to 750,000, is estimated to cost 500,000 in a full year. Would the Minister tell us whether he has statistics available for the amount of tax paid by corporations in the different categories of employed capital, or taxable capital, or whether he could make those available to us? MR. CRAIK: Mr. Chairman, there is an Order for Return in the Legislature ight now that has been accepted from the Member for Fort Rouge, I think, and basically all of the same questions that the Member for St.

Johns is addressing here - I think that's available pretty well for tabling now, and I think may well contain that kind of information. MR. CHERNIACK: I wonder, then, if the Minister could try and have it tabled before we deal with the revenue estimates, at which time it would be useful to have this information. Could the Minis ter indicate now how many corporations are affected by the change that he is proposing? MR. CRAIK: The information I am provided with, Mr. Chairman, is that about 400, it would be in that range, would be excluded between 500 and 750. MR.

CHERNIACK: Does the Min ister have as readily available the number of corporations that were exempted up to the 500,000, in other words, the total corporations exempted? MR. CRAIK: I don't have it offhand, Mr. Chairman. I think it is contained in that Order for Return, but I don't ... MR. CHAIRMAN: 4.(e)(1) -pa ss; 4.(e)(2)- pass - the Member for Brandon East. MR. EVANS: ... on that Corporation Capital Tax Branch, and I'm looking at the report that the Minister, I guess, tabled in the House, Provincial Tax Com parison July 19 79. I am looking at the comparison of income tax rates as shown on Page 24.

I gather that we have a two-tier corporate tax arrangement in Ma nitoba, as in some other provinces, where we distinguish between so-called small corporations and other corporations. I am just wondering, what is the definition of a small corporation? As I understand it from this table, we have an 11 percent tax effective for small corporations on a so-called federal basis, and 15 percent for all other corporations. 4541

Monday, 9 June, 1980 So my question is: What is the definition of a small corporation? MR. CRAIK: Mr. Chairman, it's the definition of the federal tax laws, the federal corporation tax. It's taxable income, as I recall, of 15 0,000 a year to a maximum accumulated of 750,000, and any company qualif ying for that is defined as a.n exempt corpora tion, which is usually called a small corporation. What you are reading in that tax book doesn't affect your capital tax; it's your corporation tax. MR. EVANS: This is the capital tax. Oh, I see. The corporate capital tax is expected to go up by 800,000.00.

What is the basis of that estimate? You show here in your estimates of revenue going up from 13.5 to 14.3. Is that simply inflation, or is there some change here? MR. CRAIK: It's just the natural growth. The actual figure for 197 9-80 is higher than the 13.5 that's printed, and the estimate for this coming year is less than the actual is from last year. The estimated for last year was 13.5; the actual turned out to be higher than 14, and the estimate for this coming year is not more than it was last year. In fact, it's less. MR. EVANS: What is the basis for being less? Changing the criteria? MR.

CRAIK: The exemption goes up from 500,000 to 750,000.00. MR. CHAIRMAN: 4.(eX2) - the Member for St. Johns. MR. CHERNIACK: Is the Minister implying that there is about 375,0 00 less revenue expected because of the change? Is he saying that the 19 80 revenue was about 14,6 00,000.00? MR. CRAIK: I didn't give an actual figure, but I may be able to. It is 14, 350,000 is our estimate for the act ual for 19 79-80, and tha t's the norma l inflation growth minus the additional exemption; we are estimating that it will be 14, 300,000. MR. CHERNIACK: Mr.

Chairman, that implies an expectation that without a change in the exemption the revenue would be expected to be about 300,000 more than is shown, 14.6, 14.7, something like that. Does the Minister say that is inflation growth? What factor was used there? I can't calculate it rapidly, but it seems to be very low. MR. CRAIK: The arithmetic, Mr. Chairman, I guess would indicate that if we had made no change that it would have been roughly 850,000 higher than what is indicated. The actual came in at 14,3 50. MR.

CHERNIACK: Yes, I see that, but the Minister said that - in the Budget Speech he said that he is giving up 375,000.00. Well, if he is giving up 375, then it would imply th at the - other wise the estimate for this current year would be 14 ,675,000, which seems to me to be, well, which is only 325,000 more than the 19 80 year, and that really. can't take into account the inflation factor. MR. CRAIK: Mr. Chairman, apparently I suppose that in its rationale, the explanation is that the capital doesn't grow at the rate of inflation; it is the book value capital, I presume, and it doesn't change as rapidly.

The growth of it at 350,000 is lower than the rate of inflation, but probably reflects the growth in the book value of the capital involved. MR. CHERNIACK: It is not really book value, it is capital employed, which includes borrowed capital, and I would think that any business, because of inflation, would need more money to operate than it did in the previous year because of inflation, and your stock costs more, although you may not be selling more. Therefore, your -(I nterjection)- The Minister of Fitness says you cut back on stock, but presumably they did that last year too. MR.

BANMAN: Higher interest rates this last year. MR. CHERNIACK: Mr. Chairman, that is the very point, that since there was higher interest rates last year they would cut back on stock last year, and yet the revenue was much greater than the estimate. This year, with interest rates being lower, I would expect that inflation at 9 percent, 10 percent, would drive up the need to invest more money into any enterprise. And I don't see how you can cut back on stock twice; you can't really do that and still maintain business.

What it seems to me is a pretty pessimistic approach to the economy for the next year if this were an indication.

I suppose we will discuss this at greater length when we deal with revenue, but it seems really that this being a figure which has to be calculated on the provincial level, I assume the income tax collection figure was provided by the federal government, but this is one which, much like sales tax, would be an indication of the government's expectation of the economy and the im pact of inflation.· Since there is hardly anything shown for inflation, then does that imply a pessimistic view on the economy for the next year? MR. CR AIK: I think on the one point, Mr.

Chairman, it doesn't reflect in the same way that retail sales tax growth reflects the economic activity. While it does involve borrowed capital and inventory and so on that does grow with inflation, it doesn't reflect it entirely. The rate of growth of capital is assessed under this tax, so the estimate that is shown is substantially under the inflation rate. MR. CHERNIACK: Sub stantially what? MR. CR AIK: The est im ate that is shown is substantially under the inflation rate,

whereas you find the retail sales tax wou ld be closer to the inflation rate. MR. CHERNIACK: Yes, still very conservative, okay. MR. CHAIRMAN: 4.(cX2)- pass - the Member for Brandon East. MR. EVANS: What has been the rationale for changing the exemption limits, raising the exemption limits to 500 or 750? I know generally it is to help small business, but has there been any study done? 4542

Monday, 9 June, 1980 Why not 800,000; why not 900,000; why not a million; why not go from 500,000 to a million? What is the rationale of 750, why that limit? Was there any study done as to the possible impact on the growth of small business? MR. CRAIK: would have to say, Mr. Chairman, that the rationale is because we couldn't afford to go to the whole distance and eliminate it. lt would be our desire to get rid of it completely, but it is a first order problem tax. MR. CHAIRMAN: 4.(c) - the Member for Brandon East. MR. EVANS: I guess it is shown in here.

What you have estimated is that you Jose 375,000 in the year 1980-81 with the raising of this level, and 500,000 in . . lt is obvious that it lightens the tax burden but is there any evidence of the benefits in terms of the provincial economy? Has anyone done a cost benefit in the department? MR. CHAIRMAN: One speaker at a time. When it gets late everybody seems to . . . the Member for Brandon East. MR. EVANS: Thank you, Mr. Chairman. I was wondering if the department has done any cost benefit analysis. By benefit, I mean in terms of stimulus to the small business sector.

Is there any evidence that this has caused more capital to be put in place? Has this caused more investment to occur than would otherwise, because of this type of move this year and previous years? Surely, that is one of the intentions. I mean it is not simply a matter of providing relief to the small business sector. Surely, included in there must be the rationale that you will have more investment hopefully take place in that sector. I am wondering whether there has been any study in that respect. MR. CRAIK: Mr.

Chairman, I don't think it is possible to do a cost benefit study with any regular sort of approach that would bring you a result that you could put any confidence in. lt is strictly a value judgement. lt is a corporation capital tax and the sales tax on production equipment are the two thorniest taxes that are levied by the province and if it were possible to do away with them both it would be a very good move, particularly in the manufacturing sector. The reason for reducing the tax is that it is the government's objective to get rid of it.

What it does do is it reduces in number the smaller corporations that normally would have to get tied up with professional accounting advice on whether they had a tax payable or not, and by putting the 500,000 limit it eliminated - I've forgotten the number, but well over half of those that were subject to the tax before, and this raises it again. That is strictly the rationale behind it. lt is, in the opinion of the government, a poor tax; it is not a good tax. it is a very unpopular tax. it is a very difficult tax, particularly for those that don't have professional accounting advice. MR. EVANS: Mr.

Chairman, I don't have the spot in the book, I imagine it in this blue book here, comparing taxes, and I haven't studied this particular item. What other provinces have such a corporation capital tax? I guess your staff would know that. In other words, are we the only province in Canada that has a corporation capital tax item? Do all provinces have the corporation capital tax or do the significant provinces - by significant, I mean the larger provinces - have a corporation capital tax? How do we rate? MR. CRAIK: No, Mr. Chairman, there are a number. lt is in that book that the member has there. MR.

EVANS: Which page is it? MR. CRAIK: Ontario, Quebec and British Columbia. MR. EVANS: Ontario, Quebec . . . MR. CRAIK: And now Saskatchewan has. MR. EVANS: Saskatchewan. MR. CRAIK: In Saskatchewan they don't tax co- ops, credit unions or family farms. MR. EVANS: Thank you, Mr. Chairman. How does our tax rate compare with these other provinces: Ontario, Quebec, B.C., Saskatchewan? MR. CRAIK: Ontario is 3/10 of 1 percent; Quebec is 3/10; British Columbia is 1/5 of 1 percent, which is what ours is. MR. EVANS: What is Saskatchewan? MR. CRAIK: Saskatchewan is 3/10. MR. EVANS: What is Manitoba? MR. CRAIK� 2/10. MR.

EVANS: 2/10. MR. CRAIK: Saskatchewan charged 4/5 to chartered banks and loan and trust companies. Does that give you some ideas? MR. CHAIRMAN: The Member for St. Johns. Or is the Member for Brandon East finished? The Member for St. Johns. MR. CHERNIACK: Mr. Chairman, just on this point. The minimum or the exemption, of course, is a variable which is judgemental, and I suppose if one looks at inflation one should take that into mind.

But just to put it in perspective, there are 400 companies apparently whose working capital is between .5 million and .75 million dollars, and the maximum that any of those would have had to pay would have been 1, 500.00. That is the saving. I am just trying to point to the Member for Brandon East that if he wants to look at any incentives, that is the disincentive of operating in Manitoba for a company of 3/4 million was 1, 500.00. In Ontario, of course, it was what? 2,250.00. it still is, 2,250, but that is the impact and there are 400 companies affected and that is where this 375,000, 4543

Monday, 9 June, 1980 act ually 500,000 is estima ted. Wh at they are estimating Is almost all of them as being in the upper bracket, closer to 314 of a million obviously, because if they were all 3/4 of a million, the tax cost would have been 600,000, so this is 5/6 of that. So that is really the impact. The fact is the Minister says that he doesn't like the tax, he would like to eliminate it, but couldn't afford to eliminate it. That is the way he put it. That is in his priorities as compared with income tax, say. MR. CRAIK: Yes. MR. CHAIRMAN: The Member for Brandon East. MR.

EVANS: Does the department have any idea of how much of this tax is received from the agricultural sector as opposed to the rest of the economy. Do you not have any idea what percentage of this estimate of 14.3 million would be contributed by the agricultural sector? MR. CRAIK: Family farm corporations are exempt from it. MR. EVANS: What I was getting at, Mr. Chairman, is what type of industries would be mostly affected by this tax? I can im agine a number of manufactu ring concerns, but I was wondering whether you'd see more of it in one sector rather than another. So the farms are not included; they're exempt.

I would imagine it's mainly manufacturing, although it could include small forestry operations . . . finance and real estate, all kinds of commercial operations in the province, I would imagine. MR. CHAIRMAN: 4.(e) (2)- pass. Resolved that there be granted to Her Ma jesty a Sum not exceeding 4,121 ,900 for Finance - pass. Resolution 65, 5.(a)(1)-p ass; 5.(a)(2)- pass - the Member for Lac du Bonnet. MR. USKIW: Mr. Chairman, I thought you would at least take a deep breath between resolutions. MR. CH AIRMAN : I don't take any breaths if nobody's got his hand up. MR. USKIW: Mr.

Chairman, would the Mi nister explain what he has in mind with respect to research under this provision? What kind of research is he talking about? MR. CRAIK: Prim arily econom ic research, Mr. Chairman. Your negotiations with the federal government on all your taxes that they place every year involve this branch. MR. USKIW: That's all in-house, is it? MR. CRAIK: That's all in-house and done in this department. They involved any number of projects, other than the economic research studies in the pure tax sharing agreements and those sorts of things. The OREE agreements get involved here.

These people become involv ed in really all of our agreements with the federal government at the negotiation stage, and to a certain extent in the administration stage. They've also been involved very heavily in the development of the tax credit scheme, the white paper and so on that has been developed over the last while. MR. USKIW: Mr. Chairman, perhaps the Minister is in a position now to indicate just where he is at with the federal government with respect to his budget adjustments in the tax credit field.

I recall that he qualified some of his remarks with the comment that it would require federal endorsation or concurrence. Has the Minister received that, or is his department still working on that aspect of it? MR. CRAIK: It's still unresolved, Mr. Chairman. There was a direct discussion with the federal Minister, who was in Winnipeg the week before last, and who I gather was in Europe all of last week. We haven't yet got a final decision from them as a result of our discussion, so it's still unresolved. MR. USKIW: Mr. Chairman, just what is the nature of the impasse at the moment, or is there an impasse?

Is there reluctance on the part of the government of Canada to accept the proposals from Manitoba, or is it just a matter of sitting down with them and working them out? Is there a polic y difference, a difference of opinion? MR. CRAIK: I presume there is somewhat of a pol icy problem perhaps, although it's rather unexplained from the point of view of the federal government. The concept that is in question is the use of the same

definitions as they presently use in the tax forms, and on the definition of family income under the child tax credit. MR. USKIW: Could the Minister indicate whether that is the only area of conflict with federal policy, or is it the whole package that's ... ? MR. CR AIK: The only matter open to some question is the use of their definition that they already use. The difficulty that has been encountered as far as we're concerned, is that there was an indication from the federal government, that anything that they used would be available for the provinces to use provided there was the same basic principle involved.

But they seemed in the final analysis to have some second thoughts about it, and I guess they'll have to let us know within the next few weeks. MR. CHAIRMAN: The Member for St. Johns. MR. CHERNIACK: The reason the Minister says two weeks, does that mean that there must be legislation by the province to make the change, and that the change can't be made unless you know that the federal people will agree? MR. CRAIK: I said a few weeks, Mr.

Chairman, because basically they need it for the purposes of getting their income tax forms printed, which is a problem every year with them, because they need to know about nine months ahead of schedule. So they require it in the very near future. We require it from an administrative point of view, and we need it to get our programs finalized. 4544

Monday, 9 June, 1980 MR. CHERNIACK: Does the Minister require a change in legislation? MR. CRAIK: The cost of living tax credit as it stands now, is statutory, so it will require a change. MR. CHERNIACK: Will the Mi nister be able to bring forth change unless he has federal concurrence to the change? MR. CRAIK: Sorry. MR. CHERNIACK: Will you be able to bring in the change in legislation without concurrence from the federal government to making the change? MR. CRAIK: From a practical point of view, no, I don't think so. So it does put that stricture on it too, while this Legislature is in session. MR.

CHERNIACK: That means that if the Minister cannot work out the arrangements with the federal government, that he can't go ahead with the proposal in the white paper in this respect. MR. CRAIK: Wha tever we did will require a legislative change, I believe, whether it's this or whatever else we do. MR. CHERNIACK: Is the Minister saying, whatever else we do? Does that mean there could be a different program other than as announced in the white paper? MR. CRAIK: There would have to be a different program if the federal government doesn't agree to the program as ind icated. Mr.

Chairman, I fully believe that they will agree with it in their own sweet time, but that hasn't occurred yet. MR. CHERNIACK: lt is clear that if you don't get concurrence, then you can't go ahead with the legislation. MR. CRAIK: Yes, that's essentially true. MR. CHERNIACK: So that before the session ends we'd have to know where we're at, unless you want to call a special session just for that. But then, you say your tax forms must be printed before that, or soon. MR. CRAIK: Our deadlines, from all practical purposes, are both the same, so it has to be resolved while this session is sitting, anyway. MR.

CHERNIACK: Mr. Chairman, I have more questions. I didn't know the Member for Lac du Bonnet was finished. Mr. Chairman, this division has been involved in the white paper. Is it also involved in the development of the programs of the other departments referred to in the white paper, that is, I suppose, the community services and the Minister of Housing? Who is working on those programs? MR. CRAIK: Mr. Chairman, there is an interdepartmental committee of finance, community services and MHRC. MR. CHERNIACK: When will that be completed? What is your target date for completion of the programs? MR.

CRAIK: The initial application of the programs is the first of October of this year. MR. CHERNIACK: What is the target date for the completion of the brochure which is being advertised currently in the newspapers? MR. CRAIK: Mr. Chairman, it's in the final stages at the present time. MR. CHERNIACK: completed fairly soon. So the brochure will be MR. CRAIK: The brochure, Mr. Chairman, yes, should be completed very soon, within a couple of weeks. MR. CHERNIACK: Does that mean that the brochure will not spell out the program in specifics? MR. CRAIK: Yes, Mr. Chairman, it will.

Again I expect that there would be fairly minor changes required as far as the brochure is concerned, any changes we have to make with regards to negotiations with the federal government. MR. CHERNIACK: Mr. Chairman, there are some programs that don't come into effect until January 1st. Will they be fleshed out in the brochure that will be distributed? MR. CRAIK: Mr. Chairman, the January first ones - the major programs are not effected by the federal decision. it's the part that affects the cost of living tax credit itself that is affected. MR. CHERNIACK: Mr.

Chairman, I understand that, but I'm asking whether the programs themselves will be sufficiently described in the brochure so that people could start seeing how it relates to the individual person. MR. CRAIK: Yes. MR. CHERNIACK: I was wondering about the urgency of the advertising, but if it's going to be ready very soon - there must be a reason. MR. CRAIK: As I indicted in the House, Mr. Chairman, it's an application type program. They're all new programs, and it's going to require a fair amount of public information for people to become aware of the programs.

Some of them are going to have to be under way before the first of October, and be fully under way, all of them, by the first of January, so there will be a period of advertising and information to set up the administrative and public awareness mechanism in order to get them operational. MR. CHERNIACK: Where will application forms be obtainable? MR. CRAIK: The application forms - first of all, the brochure is available through a central 4545

Monday, 9 June, 1980 government office. The final administrative procedure in the delivery of all of the programs is still in the process of being worked out between the three departments, and there are some final details that yet have to be ironed out. MR. CH ERNIACK: Will the brochur e contain information as to where application forms can be obtained? MR. CRAIK: I presume that it will, Mr. Chairman. MR. CH ERNIACK: Mr.

Chairman, I raise it, because I would think that when the brochure comes out, every MLA is going to start getting calls as to where the application form is and how do you deal with it, and therefore the Minister isn't sure whether or not the brochure will contain that information. If it's practically written, surely you can find out that. MR. CRAIK: Mr. Chairman, I gather that it does contain the information at the present time. MR. CHE RNIAC K: Mr. Chairman, what is the budget for the advertising and what is the budget for the brochure and the mailing? MR. CRAIK: I can't tell you that number offhand.

There has been an Order for Return in the House requesting the amount that has been spent on it. MR. CHERNIACK: I wonder if the Minister, having indicated that, is prepared to extend that Order for Return to take in the full cost, rather than the cost up to the date of the acceptance of the Order, which was before the advertising, I believe, and before the brochure was printed. MR. CRAIK: I can only tell the member that if he wants to place his Order for Return that way, I would have no hesitation in accepting it. MR.

CH!;RNIACK: Certainly there must be people in this room who can tell the Minister what the budget is for the brochure and the advertising. It must have come right out of this department, and that's why I was looking for the amount. I don't see any room for it in here. MR. CHAIRMAN: 5.(aX 1)- pass - the Member for St. Johns. MR. CHERNIACK: Mr. Chairman, I would like to know where is the money coming from to pay for that program that's being advertised and printed. MR. CRAIK: Mr. Chairman, it comes out of the total budget for the programs. MR.

CHERNIACK: So that's under the item that is before us, under Other Expenditures, 11 2,000, which is very much the same as last year. Is that what the Minister is saying? MR. CRAIK: No, Mr. Chairman, it would come under Tax Credit Payments. MR. CHERNIACK: Mr. Chairman, is the Minister saying that advertising by the government will come out of item 6. Tax Credit Payments, for a program such as the Community Services, Day Care, all that? Does that come under - I don't think he's right, Mr. Chairman. I wish he would reconsider his reply. MR. CRAIK: Mr.

Chairman, the amount will be contained in the 28.6 million that is contained in the Suppl ementary Supply. MR. CHERNIACK: All right, Mr. Chairman, I accept that. I suppose we will get a breakdown of that. We did get a breakdown today of that 28.6 million and ther e was no indication there of the cost of advertising of the program and of the brochure. Is the Minister now saying that those costs are shown in that item, in addition to the actual expenditure to people in that Suppl ementary Supply; is that what he is saying? MR. CRAIK: Mr.

Chairman, the advertising, as well as the administrative that may be incurred in that will be contained in that figure. MR. CHERNIACK: Mr. Chairman, I would leave this if the Minister would undertake that when we come to Supplementary Supply he will give us a proper breakdown of the item there, to show that the administration is separate from the advertising, is separate from the actual expenditures to individuals. MR. CRAIK: We'll provide the member with as much information as we can on those items when we come to them. MR. CHAIRMAN: 5.(aX 1) - the Member for St. Johns. MR. CHERNIACK: Mr.

Chairman, I wanted to know what plans the Minister has for public discussions of the White Paper. MR. CRAIK: Mr. Chairman, it wasn't intended, in indicating - I think this question was directed to the Minister of Community Services. MR. CHERNIACK: No - yes. It was also directed to the First Minister, who didn't know. MR. CRAIK: It wasn't the intent, in indicating that in the White Paper, that there were a series of public hearings.

By public discussions, I think the Minister of Community Services indicated that he intends to have full discussion with the various interested parties, groups, the interest groups, and organizations that are already involved in the field and who have an interest in this, whether it's the school divisions or the community welfare planning council, the day care centre groups and the other interested groups in the field.

The purpose and intent of including that is that when a new program like this is brought in, there are inevitably cha nges in the early period of its operations that you are going to have to entertain or consider to ensure that you are getting the benefits to the areas where you think you are getting them to, and how do you change it to ensure that that happens. So the intent, by putting that in, is to indicate that we don't put it forth as being the last word in the delivery system for benefits to those for 4546

Monday, 9 June, 1980 which it is targeted, and that there will be a period of public discussion, following that, the programs instituted in the Budget, to ensure that the White Paper objectives are being reasonably met. MR. CHERNIACK: Mr. Chairman, I would like to read back to the Minister his words in the White Paper, which in the last section,

Part 4, dealing with the White Paper reforms conclusion, reads: Further improvements or reforms may be suggested during public discussion of this White Paper and the government is open to constructive suggestions. Does the Minister now say that there never was an intention to hold public discussions but rather that there would be discussions by various Mini sters would various vested interest groups; is that the correct

interpretation of what he said this evening? MR. CRAIK: First of all, there won't be further change at this session of the Legislature but, as I indicated, it is a new program and it undertakes some massive changes in present programming and there are going to be adjustments that may well have to be considered at subsequent sittings of the Legislature. lt could be the next sitting of the Legislature.

But in that period following the programs being developed and going into place, then it's the intent that the government would want to have as much public discussion as possible to ensure that the programs are meeting their intent, and that's the purpose of putting it in there. I think the Member for St. Johns is probably putting the

interpretation on that it's public hearings, perhaps similar to what may have been followed at the time of Unicity coming in, but it's not the intent ,. to follow that formalized a program. MR. CHERNIACK: Mr. Chairman, I am only reading what the Minister said, and the Minister said, public discussion of this White Paper. Now, how will there be public discussion of the White Paper that the government can listen to, unless it is a discussion and it is public? I didn't use the word hearings, and that's what I am asking the Minister: What does he mean by public discussion of the White Paper? MR.

CRAIK: lt would be primarily the programs that have been instituted as a result of the White Paper, and whether or not those programs are meeting the intended targets of them. MR. CHERNIACK: Mr. Chairman, where will the public discussions take place? MR. CRAIK: In the community at large, Mr. Chairman, and with the organizations that are already involved in it and have formalized themselves into groups and, in general, any other type of public discussions that, principally, the Minister of Community Services may feel is necessary for the purposes of making adjustments to the programs. MR.

CHERNIACK: I must say I reject this phrase in this White Paper and maybe the Minister does too, because public discussion is not private dicussion with vested interest groups, nor is public discussion within the community, public discussion that the government relates to. I would rather he said he regrets this phrase than to try to justify the phrase. I want to tell him that the First Minister, when I read this to him, said, on Page 4285 of Hansard: I will have to take a look at the particular line that my honourable friend has taken out of, or in context of the particular paragraph in which it appears.

My recollection, Sir, would be that was with reference, I should say, Sir, to Education financing other things that were indicated in the report, but I will be happy to take a look at that sentence. That was June 3, Mr. Chairman. I know he has had other things on his mind. That brings me to the next question: Is this Minister involved in the study on Education financing, which I understand is taking place and will be completed by the end of this calendar year? That was the clear statement by the Minister of Education. Is that correct? MR. CRAIK: Mr.

Chairman, I have no doubt that the Department of Finance will have an involvement. MR. CHERNIACK: lt's the other way around. I had the impression from the Minister of Education that he expects the Department of Finance to develop this entire program. I am asking the Minister whether he is working on it and whether he confirms the deadline of the end of this calendar year on that paper? MR. CRAIK: Mr. Chairman, I interpreted the question as being was I, as the Minister, going to be doing this study? I can't confirm that.

I expect that our department, Finance, will be very much involved with how it is structured, whether it is a commission or person or otherwise hasn't yet been determined, but the intent is to complete it by the end of this calendar year. MR. CHERNIACK: The reason I thought this Minister would be the one involved is that he is the one who said that he would wash out the Property Tax Credit and the other tax credit as soon as possible, as soon as he was able to rearrange Education financing.

So I don't see how any administrative group or any group of bureaucrats could develop that program without some indication and policy input by the Minister. I assume the Minister will be giving direction. MR. CRAIK: Mr. Chairman, I wondered why the member was pursuing that course of questioning and now I know. I guess that is something that will have to be taken into consideration. MR. CHERNIACK: Mr. Chairman, has the Minister changed his mind about the program of Property Tax Credit and the statement he made back in, whatever it was, 1976, I think? MR. CRAIK: Mr.

Chairman, I am going to, one of these days, provide a clipping to the Member for St. Johns of an

article in the newspaper in 1977 that had a pair of scissors taken to it, and I think I recall it was from the Winnip eg Tribune, which wrote the story up, and in part was based on what took place in the House but in part on discussions outside the House, and so on, with the reporter at the time. 4547

Monday, 9 June, 1980 Anyway, .in reporting it, the Minister went on and said that 1. had said property taxes would be - the credits would be removed and as a result of questioning of the Member for St. Johns. In between what I said, and in fact the Member for St. Johns had raised the questions, the NOP campaign group in Riel had very cleverly taken a pair of scissors and taken out the whole paragraph and a few sentences out, pasted it back together again, Xeroxed it and put it out. It became a major campaign issue. I think, for his own edi