MINISTRY OF TREASURY AND ECONOMICS
CONTENTS
Monday 21 January 1991
Pre-budget consultation
Ministry of Treasury and Economics
Adjournment
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair: Wiseman, Jim (Durham West NDP)
Vice-Chair: Hansen, Ron (Lincoln NDP)
Christopherson, David (Hamilton Centre NDP)
Jamison, Norm (Norfolk NDP)
Kwinter, Monte (Wilson Heights L)
Phillips, Gerry (Scarborough-Agincourt L)
Sterling, Norman W. (Carleton PC)
Stockwell, Chris (Etobicoke West PC)
Sullivan, Barbara (Halton Centre L)
Sutherland, Kimble (Oxford NDP)
Ward, Brad (Brantford NDP)
Ward, Margery (Don Mills NDP)
Substitution: Fletcher, Derek (Guelph NDP) for Ms M. Ward
Clerk: Decker, Todd
Staff:
Anderson, Anne, Research Officer, Legislative Research Service
Rampersad, David, Research Officer, Legislative Research Service
The committee met at 1335 in room 228.
PRE-BUDGET CONSULTATIONS
The Chair: Before we begin hearing from the Ministry of Treasury and Economics, I would like to ask Mr Decker to make a report. We had asked originally, through agreement of the subcommittee, to have the Bank of Canada make a report today and for John Crow or one of his assistants to come and speak to us. I would like to ask Mr Decker to give us an update as to that situation and what happened.
Clerk of the Committee: At the direction of the subcommittee, I did contact the governor's office of the Bank of Canada and was informed that the governor himself was planning a trip to Australia later this month and was in intensive briefings for that and therefore would not be able to accept the committee's invitation. Apparently, some thought was given to allowing either an assistant governor or someone else from the governor's office to come and meet with the committee, but ultimately they declined the committee's invitation.
MINISTRY OF TREASURY AND ECONOMICS
The Chair: I would like to introduce members from the Ministry of Treasury and Economics. Is it Bryan Davies, the deputy minister?
Dr Christie: I am sorry, the deputy minister could not be here. My name is Bob Christie. I am the assistant deputy minister in the office of economic policy and I will be co-ordinating our discussion. Qaid Silk is the director of our economic forecasting branch, and David Trick is the director of our demographics and social economics branch. We have a small handout that may assist the members of the committee in terms of going through the material that we came here to discuss.
Mr Phillips: I hope we are all into speed reading.
Dr Christie: You know us too well. There is no GST on this material, I might add.
The Chair: I trust it is printed on both sides.
Dr Christie: It will be next time. Your comment has been noted.
Everyone has a copy. Page 1 provides a summary of Ontario's economic outlook as presented in the paper released early in December. You will note that we expect in this outlook very marginal growth performance next year, now this year, with no job creation after a loss of 12,000 jobs in 1990, an unemployment rate that rises a full per cent to 7.3% in 1991 and a CPI inflation rate of 6.1%, up from below 5% in 1990.
The economic recovery from recession in this outlook is expected to commence by the middle of the year, but the risk, I think, fairly clearly, as indicated in that document and by some of the comments we will make here today, is for a recession that lasts longer and for a recovery that begins later than indicated here.
The unemployment rate clearly, as I have indicated, would rise. There would be no job creation. The increase in inflation is almost entirely due to the GST, but higher oil prices are a factor as well. We are noting here parenthetically, although I am sure it is a matter that is on the minds of the committee, as it is on all of our minds, that the Middle East situation makes the oil price component of the inflation forecast quite uncertain, as it makes almost all components of this forecast more uncertain than these things almost always are. But in that connection, the forecast looks for oil prices in 1991 to average about $26 a barrel, up from about $24.50 a barrel in 1990.
The 1992-94 period, the medium term, shows a return to more normal levels of growth but levels of growth that are somewhat below those experienced in the mid- to late 1980s, when growth in Ontario averaged somewhat over 55% per year.
The primary reasons for this more modest growth over the next few years are what we believe will be a continuation of relatively tight monetary policy in Canada, the value of the Canadian dollar, which remains relatively high, a weak United States demand growth and ongoing structural adjustment in the Ontario economy to the free trade agreement and trade developments internationally in general.
Page 2 reviews some recent developments.
1340
Mr Phillips: On page 1, I think the 1990 job numbers are out now, if I am not mistaken. I think instead of minus 12,000, it is minus 120,000.
Dr Christie: This is a year-over-year average. The average level of employment in 1990 is about 12,000 below the average level of employment in 1989. If you look at end-of-year employment, say, versus the peak level, it will be closer to the figure you mentioned. These numbers here for inflation, job creation and the unemployment rate are annual averages.
Mr Phillips: But as an indicator, at least for me, at the year-end there were 120,000 fewer jobs, and I think there were about 165,000 fewer full-time jobs at year-end.
Dr Christie: We have some detailed labour market material coming up later, if we could take that under advisement perhaps and deal with it then, or would you prefer to go right to that material?
Mr Phillips: My point is just whether knowing that at year-end we were at minus 120,000 influences at all your average projections for 1991.
Dr Christie: It does in the sense that we are starting from quite a low base, and in order to realize the zero net on average in 1991 we need to have and do in fact have in the forecast the resumption of job growth, along with the recovery from recession. That is part of the forecast.
The Chair: This is a very lengthy document. Could I ask that we have one question and perhaps if the question is answered later on, we could work that out so that we can move along quickly.
Mr Kwinter: Could I just ask one question about your assumption about the price of oil? The media today indicated that in fact the price of oil may be down around the $18-a-barrel mark. How is that going to impact on your projections?
Dr Christie: Again, for Ontario, obviously a lower price of oil is better, as a rise in the price of oil for Ontario is like a tax increase levied by an outside party. It is a drain on disposable income in Ontario. For example, we have some material, again later on -- and I hope I do not distract the committee too much by anticipating later things in responses to these questions -- we have a slide that shows the impact of a $10-a-barrel difference in the price of oil on the Ontario economy.
Mr Jamison: Actually my question involved the oil question, but seeing as it is a long report, I suggest that maybe we try to work our way through the report.
Dr Christie: Because a number of things have happened since this forecast was done and because the situation is sufficiently fluid, we felt that we should highlight a few of those recent developments to give you a sense of the way in which we see the risks to this forecast. As I think I mentioned before, it is fair to say at this point that the risks generally tend to be on the downside, that is, that the unfolding situation will not be as positive as even the very marginal kinds of growth numbers we displayed in the forecast.
As noted, the United States has followed Canada into recession and in fact industrial production in the United States over the past few months has fallen quite sharply, with the obvious impact on US exports. The unemployment rate for December in Ontario rose to 7.8%, which would require that on average the unemployment rate fall in 1991 in order to realize the 7.3% in the forecast that was presented. In fact, the last two months of data which became available showed a more marked deterioration in the employment outlook and unemployment rate than had been anticipated at the time of making this forecast.
Housing activity, again, has been very weak. The dollar has remained very high in spite of lower interest rates, and the federal government has indicated that it continues to see the battle against inflation as a higher priority than any moves to deal with the recession, the risk on that side of course being a more restrictive fiscal stance and monetary stance on the part of the government of Canada than we might have anticipated a couple of months ago.
Generally, the continuing uncertainty about events in the Middle East and the impacts of those events on consumer confidence may well slow the recovery. These are all factors that we are looking at as we continue to review the outlook in preparation for the budget forecast, which is released with the budget.
Page 3 gives you some indication of the way in which other forecasters are looking at the Ontario economy. It gives you some sense for the way in which forecasts have been moving in the past few months. As you can see in the October-November period, among those who had current forecasts at that point, the range was essentially between minus 1% and 1% and is in and around zero as a sort of central tendency. At the moment, there are very few people calling for positive growth in Ontario. They range from minus 0.3%, or essentially no growth, to a low of minus 3% from the Bank of Nova Scotia.
I think the wide forecast range that we are seeing here reflects in part the level of uncertainty in the environment, the level of uncertainty among forecasters, and the variety of assumptions that people are making about how things will unfold in the Middle East and what will happen to the price of oil, among other things. On average, forecasts for both the United States and Canada are moving lower. We have noted here that the average forecast for Canada in terms of the most recent forecast available is for the economy to continue to shrink by about 0.5%, with the US now seen as being very much the same level.
Finally, we have provided a summary of the anti-recession measures that the Treasurer announced in his statement on 4 December, with the $700 million from the province leading to about $1 billion in short-term capital projects to stimulate employment. The decision not to impose the retail sales tax on the GST has had the effect of saving consumers about $500 million per year, which will improve ability to consume. The extension of the Ontario current cost adjustment to the end of 1991 provides some incentive to investment. The confirmation of the more generous Ontario tax reduction provides $44 million to low-income earners.
Taken together, we expect these measures to boost real output in the Ontario economy by about 0.6% in 1991 and create more than 20,000 jobs; that is, without these measures, our forecast as tabled in early December would have been for a small reduction in the size of the economy next year.
I will ask Qaid Silk now to give some more of the background.
Mrs Sullivan: I just have a clarification. Just so that we know where we are coming from, the Ontario current cost adjustment is the 30%?
Dr Christie: Yes.
Mrs Sullivan: This was the target last year. The Ontario tax reduction was also in the budget last year. The $1 billion in short-term capital projects, is that new money or is that already in the 1990 budget?
Dr Christie: No, that was not in the 1990 budget.
Mrs Sullivan: So this is all new.
Dr Christie: Yes.
Mr Silk: So is the RST. There is no RST on GST.
Mrs Sullivan: That was not in the 1990 budget.
Mr Silk: No. Basically what I will do is take you through the next few slides, which will give a bit more detail on the element we presented in the summary.
The first slide obviously gives you the international economic environment. As you can see, we are expecting slow growth everywhere in the rest of the world, especially the US, our major trading partner, which is already in a recession. It entered a recession in the fourth quarter of 1990 and it is expected to be in a recession at least for two quarters. Some people think it might be a three-quarter recession. In any case, it is very slow growth, 0.4% average in 1991.
For the OECD as a whole -- in other words, all the industrialized world -- we are basically talking about just under 2%, with Japan and Germany leading. But both of those countries slowed down as well. Partly there are some uncertainties there too with respect to German reunification, and of course Japanese financial markets being quite high-levered and of course having experienced a significant downturn in late 1990. There are some uncertainties, but that basically does not change the story of slower growth in the rest of the world.
Slide 6 basically gives you a visual on the outlook that Bob presented for Ontario and of course for Canada. We are expecting the economy to begin a modest recovery by the middle of the year. The recession is hitting central Canada the worst in the country, mainly because manufacturing is in a recession and has been in a recession since the spring of 1989. We will talk about that a bit later in this presentation. Of course, we have had this much sharper correction both in sales and in prices in the Toronto housing market. That is basically because there is a drag in central Canada much lower than in the rest of the country.
1350
Slide 7 just gives you some sort of comparison of this recession versus the previous one, 1981-82, and the recovery period that will ensue from this recession compared to the one that occurred after the 1981-82 recession. The story really is that we essentially expect this recession to be much milder than the one in 1981-82, with the risks that Bob mentioned earlier. There is a lot of uncertainty, both with respect to oil prices and the duration of this war, and that could basically mean a longer recession and a delayed recovery. Notwithstanding those caveats, at this point we are seeing a milder recession, but by the same token a much more modest recovery: 2.9% average annual growth in the 1992-94 period compared to over 5% over the 1983-89 period. That is basically because, as Bob mentioned, we have higher interest rates through the forecast period, a higher dollar and, of course, adjustments related to the free trade agreement and the GST.
The next slide takes you to housing starts, 1989-91, and you can see that there is a significant decline in 1990 that we have just experienced in actual housing starts. It says "estimate," but we just got the actual this morning for December and therefore for the year. The actual was 62.6 or 62,600 starts for 1990, a sharp drop from the 1989 number, and we are saying that 1991, this year, will also see a further drop. Basically, we have the same things: the high interest rates, the very large inventory, especially of condominiums, price declines and the reversal of inter provincial migration that helped in the late 1980s to boost housing. In addition, GST will obviously discourage new home construction as well as resale activity, so we are seeing 54,000 starts in 1991.
Slide 9 gives you the forecast for real business investment both in machinery and equipment and in plant construction. In both elements we are seeing declines both in 1990 and 1991. Why? We have enumerated reasons there. We have obviously got a significantly lower corporate profit. We have a very weak economy and demand growing very weakly. We have a lot of excess capacity and nobody is going to be that tempted to put in extra capacity. We have the continuation of high interest rates, which means that it is very discouraging to put in new plants and equipment. In addition, we have very high commercial vacancy rates. and that is going to affect negatively or adversely commercial construction.
The next slide looks at the export-import sector of the Ontario economy. The dark chart is the exports, the light one is the imports. In 1990, at least in the first half of the year, we had a substantial trade surplus going, and that was because we had a lot of machinery equipment exports to the United States related to a business investment boom that was going on there. We had auto exports going quite strongly. That was in the first half of the year. It slowed significantly in the second half.
Of course, this year we are seeing a sharp reduction in exports growth, basically the 0.6, very little growth. That is because the US is in a recession. Obviously, with a more severe downturn in the US, we could have a decline in exports. Imports fell last year 1.6%. We are seeing no change in imports in 1991, basically because our economy will be very weak. Consumer spending will be weak, business investment north of the border will be very weak although that just will not pull in a lot of imports.
The next slide looks at the Ontario and Canadian inflation rates, and you can see from the chart -- the light bar is Ontario, the dark is Canadian -- in both 1989 and 1990 the Ontario rate was higher than the Canadian, in 1990 just marginal, but in 1991 we expect the Ontario rate to be lower than the national rate. On the other hand, both of them are going to be higher than 1990, 6% plus, and that is primarily because of the GST. Without the GST, we think actually inflation would have fallen slightly in 1991.
In addition, of course, we have got the oil price uncertainty. On the one hand, if we get a very short war -- and this was the question referred to earlier -- we could of course get lower oil prices and that would dampen inflation. On the other hand, a six-month or longer war as opposed to a six-week war would actually most probably lead to high oil prices and boost inflation. At this point we are sort of in a base case kind of way, if you like, if we have a short war in terms of what is built in here, but none the less there is some uncertainty about that.
The reason we will have lower inflation than nationally is because we have a much weaker economy and, of course, because the government has decided not to put RST on GST, which reduces provincial inflation by about one tenth to two tenths of a percentage point, so that helps keep the relative differential in Ontario's favour.
On the unemployment side, the next slide, we have got the unemployment rate already risen in 1990, as you had referred to earlier, a 6.3% average for 1990, and we have got it going up another percentage point in 1991 with total employment remaining static, not changing at all on an average for the year. That, as Bob pointed out, would mean that there will be some resumption. Just as the economy recovers by midyear, there will be some resumption of employment growth by midyear as well, so that for the year as a whole it will mean no change in employment.
You have got unemployment rate averaging 7.3% and, as Bob pointed out, we have ended last year with 7.8%. That is the number that came out after we had finished this forecast here, so in a sense we think that that is going to be reasonably on track. None the less, if we have got a much weaker economy, a lot more loss of confidence, that is going to push the recovery and therefore keep that unemployment rate quite high through this year.
The last slide I have before handing it over is the oil price slide that we have got. What this does is give you some idea of what will happen if oil prices remain high, in this case a $10 increase in the price of oil. You can see its extremely adverse impact on the Ontario economy. We are an oil importer, and it is like a tax being imposed on us by foreign countries essentially. It is adding $2 billion to our oil bill. It really undermines personal income and therefore consumption.
Obviously it has a very negative impact on consumer confidence and business investment in Ontario; not energy investment but business investment in Ontario. To some extent it raises the interest rates worldwide and that affects our trading partners and subsequently us as well in a second-round effect, if you like. Partly the Canadian dollar is seen as a bit of a petrocurrency, because we have provinces that are affected very beneficially by high oil prices. As you have observed in the last little while, the Canadian dollar does benefit when the expectations of oil prices rise, but unfortunately that for Ontario is not very good initially and again undermines growth.
1400
Basically, we are saying that if oil prices rose $10 as a result of a long, protracted war, that would be another sort of double whammy, if you like, for the Ontario economy. On the other hand, the reverse is true in some sense. It is not entirely symmetrical, but to some extent oil prices fell recently and they are now just under $20. I do not know if they would fall to $10 a barrel, but if they at least fell to $18 or $15, that would be beneficial, but not entirely symmetrically because it does take a bit of time. Confidence gets eroded much more rapidly than confidence gets built up. So it would have a beneficial impact, but would not be, as I said, symmetrical.
If there are no questions at this point, I will hand over to my colleague David Trick and he will talk about the labour markets.
Mr Trick: What I would like to do in the next few pages is look specifically at the employment situation over the last couple of years. What the graphs on these several pages normally do is show the situation since 1989 and then, for comparison and as a historical benchmark, show the situation during the 1981-83 recession. In general, as Qaid noted, we are expecting that this particular recession will be somewhat less severe than the last one. At the same time, you will see on every graph that the numbers are certainly not great cause for optimism.
Having said that, then you start on page 14. Page 14 shows the overall employment situation in the province. Just as an explanation of how this graph is set up, the employment for August 1989 is set equal to 100 and is shown in the dotted line on this graph, and then the employment for August 1981 is also set equal to 100 and is shown as the solid black line.
One thing I should point out about most of these graphs is that the employment data are not seasonally adjusted so you will see the pattern of summer and winter there. In general, you lose about 200,000 jobs between summer and winter in Ontario just because of things like tourism, agriculture and construction, which are all highly seasonal industries. With that in mind, clearly the pattern on this graph is first of all that employment during the present recession is lower than it was at its peak, which was August 1989.
Second, it is not quite as severe a situation as we had in the previous recession. As Qaid was saying, we are expecting employment as a whole to be fairly static between this year and last year, so the prognosis will be that the line for 1991 will neither be much higher nor much lower than what you see here for 1990.
Mrs Sullivan: I would like to look at the graph in a little bit more depth. On the bottom, what are the years? I gather that what you have done is go to a base of 100 to compare these graphs, one of which is a 1989 base year of 100 and one a 1981 base year of 100.
Mr Trick: That is correct. If you see along the left-hand axis there, August 1981 equals 100 for the solid black line and August 1989 equals 100 for the dotted line. Along the bottom for the dotted lines, the years are August 1989 going through to 1990. There is no line shown for 1991 yet. For the solid black line, it starts in August 1981 and goes through April 1984. The point is simply to try to compare the progress of this recession compared to the last recession.
Mr B. Ward: The graph lumps all the jobs, does it not?
Mr Trick: That is correct.
Mr B. Ward: Is it possible that we could differentiate between manufacturing jobs and service sector jobs? Is that a possibility?
Mr Trick: Yes. A few pages along, there is a breakdown just like that.
Mr B. Ward: We should not be asking any questions, because you have everything covered.
Mr Trick: That is quite all right. I am always glad if there is a question we might have answered.
Just turning to page 15, we show a similar set of data with respect to the unemployment rate. As Qaid said, the prognosis for the coming year is that the unemployment rate will be roughly 7.3%, so it does not go terribly much higher than where you see the end of the line now for 1989-90. By comparison, in the last recession we did get up to about 12% at one point. Again, there is some indication that the severity is not quite as great, although clearly the situation is not optimal.
Just as a matter of background, we are going to go through several slides that show the impact of a recession on men over the age of 25, women over the age of 25 and youth aged 15 to 24. One of the things you have to keep in mind is the change in the demographic structure of the province over the past 10 years. During the last recession, much of the baby boom was still entering the labour force and consequently we had quite a substantial rise in the youth unemployment rate in the last recession.
The Chair: The chart on page 15 indicates that the unemployment rate seasonally adjusted at 7% was reached in October. You are making the assumption that the recessions are starting, are you not, in the same time frame, in the same quarter, or at the same rate?
Mr Trick: Why do we pick those two as the base?
The Chair: Let me just finish my question. The question is that given that you have started with 1981-83 recession at 6.5% -- you have that line -- and we have just passed that now, how do we know that this is parallel or co-ordinating? How do we know that we are not at the beginning of the upsurge where the graph starts to peak?
Mr Trick: There are two or three different questions there. Let me start with the question of why was it higher in early 1981 as compared to early 1989. Essentially that was the demographic fact that you had so many young people in the labour market at that time. We went through a long period of roughly a decade when unemployment rates were substantially higher than what they had been previously or what we experienced, say, during the late stages of the expansion in 1987, 1988, 1989.
For this whole decade from roughly 1975 to 1985, unemployment rates tended to be higher than historical average because there were so many young people trying to enter the labour market at the same time. Essentially your question is how do we know that 1991 will not be worse than 1990 and then 1992 worse than 1991. The forecast which Qaid presented is not based on just this kind of graph. The forecast is based on looking at the actual situation in the economy as of the last few months and the expectation for it.
The purpose of this graph is not to show that this is how we do a forecast, but just to show the severity of the two situations.
On page 16, to reiterate the point I guess I just made, the number of young people in the labour market has tapered off somewhat since the early 1980s. Meanwhile, there has been a substantial rise in both men and women over the age of 25 in the labour market. Partly that is because baby-boomers are now between the ages of roughly 25 and 45 and partly it is because of the higher participation rates of women in the job market.
1410
Mr Phillips: What do you expect the labour force to grow by next year? How many people roughly?
Mr Silk: I have it at 1.3%. I can tell you in a minute how many people that is.
Mr Phillips: Maybe 60,000 or something like that?
Mr Silk: Some 66,000.
Mr Phillips: So that is the number of jobs you create?
Mr Silk: That is right.
Mr Phillips: To keep the unemployment rate the same.
Dr Christie: To keep the number of unemployed the same, which would be pretty close.
Mr Trick: On page 17 we show a breakdown between the experiences of men and women during both recessions. If we start with the chart at the top for males, we see that the number of males employed at this point is about 93% of the number employed in August 1989. This shows somewhat less severity than in the previous recession. At the worst point of the previous recession we had 55% as many males employed at the bottom as we did at the top. If we look at the graph for females we see a somewhat different experience. For a number of reasons which we will go into in a minute, females have been so far not as severely affected as males in terms of job loss. Right now roughly 99% as many women are employed today as were employed at the peak employment level of August 1989. That was true of the earlier recession as well.
On page 18, we show the seasonally adjusted unemployment rate by age and by sex. The first group that is typically affected by a rise in unemployment is youth under the age of 25. Typically they have the least seniority, they are often in the least stable jobs, part-time jobs and so on. In both recessions they were the first group to have their unemployment rate rise. The rise, at least so far in this recession, has been nowhere near as great as in the preceding one because of the demographic reason I mentioned.
For men and women over the age of 25, it is only in the last two or three months that their unemployment rate has started to rise in any substantial way. Prior to that it was relatively flat, as you can see on the graph.
On page 19, we show unemployment rates for men and women respectively. Typically, during periods of expansion the male unemployment rate is somewhat lower than the female rate. During periods of recession you tend to see the reverse. Certainly in the last recession the male unemployment rate was higher. In recent months it has crossed over again; the male rate is now higher than the female rate after having been lower for much of the period of expansion.
On page 20 we see some of the same trends, except shown for employment rather than unemployment. For both men and women over the age of 25, it is only in the past few months that you see much of a dropoff at all. So far, as I say, most of the effect of job loss has been on young men and women under the age of 25.
Mr Phillips: Although that is the average job. I think in the last 12 months 116,000 males have lost their full time jobs.
Mr Trick: I would have to look up the number. That would not surprise me. That would probably include all age groups.
Mr Phillips: Yes. Let's just say if you took the end of December as opposed to your average.
Mr Trick: On page 21 we show the breakdown for young men and young women. Both of them have dropped off fairly substantially over the last year and a half. The drop off for young males has been somewhat more substantial than for females, but it is clear they are both on a negative path.
On page 22, to return to the question I was asked earlier, we see a breakdown by service sector versus goods sector. You see quite a substantial difference in the two patterns. In both recessions it is typically the goods sector where you see the most job loss. The service sector actually has grown slightly in both recessions. Because 84% of women work in the service sector, they are somewhat less affected by recessions than are males; then, during a recovery the opposite happens in that males typically pick up most of the jobs during a recovery and expansion.
Mr Phillips: You include full- and part-time jobs in your numbers, do you not?
Dr Christie: That is right. Just before we leave that page, I should mention that there is an appendix to this presentation which goes into far greater detail than you perhaps care to hear on the demographic and age and sex breakdown of the employment experience of this recession. We are not going to go through those graphs one by one, but I will just point out to you that they exist.
Mr Phillips: What percentage of the gross domestic product do the two sectors produce, the service and the goods?
Mr Silk: The service sector is about 70%, and the goods, including manufacturing, is about 30%.
Dr Christie: I think John Hoicka has these numbers in detail. Manufacturing tends to be 24% to 25%, agriculture and the primary sector have the rest. We can get the exact numbers for you.
Mr Fletcher: As far as the service sector jobs are concerned, you do not differentiate between the public service and the private service sectors?
Mr Trick: No, these are both included in those data.
Mr Fletcher: You cannot tell me, then, if over the last four or five years or in the last recession whether government has been spending more money by hiring more people through job creation employment programs or whether it has been the private sector that has been carrying it?
Mr Trick: I do not have those numbers with me. We can certainly try to find them for you.
Mr Fletcher: I would not mind finding out.
Mr Jamison: What you are saying, for my own clarification, is that the service sector has grown significantly between the last recession and this recession and the goods sector has correspondingly shrunk?
Mr Trick: The number of people employed in the goods sector has been roughly constant for the last 10 years if you leave out cyclical variations. There has been no particular expansion in employment in goods production. Most of the net expansion in employment over that period has been the services.
Mr Phillips: The numbers I have seen on manufacturing are that we have 10% fewer jobs today than we had 12 months ago in manufacturing. Is that right?
Mr Trick: Yes.
Mr Hansen: With the loss of manufacturing jobs, there might be an increase of service jobs but looking on into 1991 it could possibly catch up that these manufacturing jobs we have lost, where people are not working, could affect the service industry also. Is that a good indication here, reduction in services?
Mr Trick: There are a couple of different factors. One is that as you lose manufacturing jobs you do lose some of the momentum of the economy. We have taken that into account in producing the forecast for the coming year. As mentioned earlier, the forecast for the economy as a whole is roughly stable in employment, so that is factored into our overall forecast.
Mr Hansen: One thing I see is that when we are talking about layoffs in 1989 and 1990 we are talking about loss of jobs going to the United States, which is quite a bit different. So when we talk about this turnaround in the economy, we are going to wind up not having these jobs rejuvenated. They are not layoffs; they are actually plant shutdowns. So I think there is going to be quite a bit of difference between the 1981 and the 1991 comeback.
Mr Trick: That is certainly consistent with our own forecast. We think the recovery will be somewhat slower than it was in 1983-84. You are making exactly the point I would make about this graph on page 23, that even though the overall number of layoffs does not yet match what we saw in 1982, the number of complete closures is quite substantially higher than in 1982, and those are workers who are not going to be recalled. So you are right.
1420
Mr Fletcher: On page 23, could we have in some way a correlation between the job loss in Ontario compared to the job increase in some areas of the US? I would like to see if there is a correlation. Is that possible?
Mr Trick: We could certainly find those numbers for you. I do not have them with me. If there are no further questions, John Hoicka, who is senior policy adviser in sectoral and regional policy branch, will cover the next section.
Mr B. Ward: I would like to turn back to page 23. The complete closures and cutbacks: when you gather your statistics, do you have a cutoff of number of employees who would be included in this stat? What would that number be? It is probably in the background, but I will ask anyway.
Mr Trick: Actually, it is not. Under Ontario legislation, the Ministry of Labour has to be informed if you intend to lay off 50 or more workers, so these data cover only the 50-plus category, the definition of major layoffs.
Mr Christopherson: Just to take that question to the next step, how much difference would it make if the calculations that are not included were? Do you have any sense that it would change things at all?
Mr Trick: The residual would be the difference between the 31,000 reported as layoffs and a net job loss reported in the same period of roughly 120,000 jobs. So you would have quite a substantial number of workers working in smaller plants who are laid off, say, two by two, 10 by 10, who are not reported in these data.
Mr Christopherson: But you would not know whether those people were temporarily laid off or whether the jobs were eliminated?
Mr Trick: I do not think there is any obvious way of knowing that. I will have to think about that question, but I do not think there is any way of knowing.
Mrs Sullivan: I have before me a clipping from the Toronto Star, 16 January, talking about shutdowns claiming 20,554 jobs. This is from Ontario Ministry of Labour statistical data. Where would those figures fit into this chart?
Mr Hoicka: Maybe I could respond to that. The original data from the Ministry of Labour actually break that 31,007 into three parts, and this particular graph simply shows two of them. The full layoffs were 15,339. In addition, that cross-hatched area includes partial but permanent layoffs, and that figure is approximately 5,000 in 1990. It just happened that we took the two-part split rather than the three-part split, but it would not be difficult to provide the committee with their data. That reinforces the conclusion, if you think about partial closures. The 5,000 in 1990, I am fairly certain, is larger than the comparable figure in 1982.
Mr Jamison: You are talking complete closures in the figure of 15,000?
Mr Hoicka: That is correct.
Mr Jamison: The other figure you are including is permanent layoffs but the plants are not closing; it is new technology or whatever.
Mr Hoicka: That is correct. They might be closing down a line. There would be another 5,000, but they would be included in that cross-hatched area.
Mr Phillips: The essence of your presentation is that you are betting we are coming out of this in another six months, and that is why you have picked the dates and what not. If you put another view on it, just looking at the numbers, I see that it is about 165,000 or 170,000 full-time jobs lower at the end of December, offset by about a 47,000 increase in part-time, which kind of masks the numbers, in manufacturing. You think it is 24% of the gross domestic product; I thought more like 35% of the gross domestic product was manufacturing. Its number of jobs is down by, I guess, 110,000. I guess Treasury feels we should not feel as pessimistic about the end of December numbers because its belief is that by the middle of the calendar year we will be heading out of the recession.
Dr Christie: That is an apt summary of the forecast that was presented in early December. As I think we indicated at the beginning of our discussion, there have been a number of events that would lead us to be perhaps not as bullish, if essentially no growth can be described as bullish. There are a number of downsides to that forecast that I think we have described, which might go some distance to rationalizing the difference of views you appear to be referring to.
Mr Phillips: As the Chairman said, it depends on where you put your time, whether those graphs are below the 1982 numbers substantially or whether there is any feeling they may continue to rise.
Dr Christie: The graphs we have shown have attempted to match up, for example, the first year of recession or first quarter of recession. We know that the recession began in Ontario in the second quarter of 1990 and we have attempted to match that to the corresponding quarter of the 1981-82 recession. What we have tried to do is match beginning with beginning. As we indicated earlier, we are not trying to identify the end to the month, but we are trying to give the committee a sense of how -- as it has unfolded so far compared to 1981-82 at the same relative point -- it is faring to date.
Mr Kwinter: I just want to follow up on that same point. You have done your projections and you assume that by midyear we will be pulling out of the recession, but you have also qualified that depending on certain things happening. It is possible that the figures, not only on the major layoffs but all the figures, could be going up in 1991 so that 1990 is not the peak; it could be 1991 if things get worse.
Dr Christie: The peaks, for example, for the unemployment rate? That is certainly possible.
Mr Silk: Actually, in our projections, we have an average unemployment rate for 1990 of 6.3%, which we have just seen the past year. We are basically saying that is not the end; in 1991 we are going to have an average of one percentage point more, 7.3%. In fact, December ended at 7.8%. We are not saying that the worst on the unemployment rate is anywhere behind us.
Mr Kwinter: That is the point I was trying to make, that because of the way all of your projections are, you show 1982 as the peak of the negative stuff. When you look at this you see 1990, and it gives the impression that 1990 is the peak in this recession and that things will only get better, as they did in 1983, 1984 and 1985, but that is not necessarily so.
Dr Christie: If those graphs have been interpreted to suggest that, they were not intended to suggest that. They were only intended to suggest how things have progressed to date. We have not tried to give a month-by-month forecast of, for example, the unemployment rate or jobs in manufacturing. We are trying to show how the recession has developed compared to the 1981-82 experience, and it is certainly possible that those lines relating to this current recession could continue to deteriorate -- in fact, given our forecast of a recovery not beginning until the middle of 1991, would be expected to continue to deteriorate through at least the first half of this year.
Mr Silk: Our forecast basically is saying, yes, at present we are not out of the woods, that in fact the recovery will not occur before midyear. So if you are asking us in January 1991, "Is there more bad news to come?" I suppose we would have to say, "Yes, our forecast does acknowledge that." For 1991 as a whole, the forecast we presented in December was that we will see, because of a resumption of growth by midyear and because of some anti-recessionary measures taken by the government in December, some resumption and therefore the average for the year would be 0.5% growth. But that is an average for the year. We are not trying to hide the fact that for the next little while things will not turn around.
1430
I could at this point give some information on the 35% you were referring to earlier, Mr Phillips. The 35% you referred to is basically the goods-producing sector. You are quite right; it is 35%. However manufacturing itself is 24% of the economy; construction is 6%; utilities are 2.5%; mining, 1%; agriculture, forestry and fishing, just under 2%. That makes up the goods-producing sector. In the services, I was wrong; it is not 70%, it is 65%, if that answers your question.
Mr Stockwell: These are the same figures basically or the same forecast that the Treasurer was looking at in the announcement in December. He sounded a lot more confident then than you do now with respect to your projections and when we will be out of this recession and so on. It seems that you are a little less confident this month than you were last and maybe the month before that, and I can understand that.
You are calling for a 0.5% increase in real growth for 1991. Considering the $1 billion -- the $700 million plus the $300 million -- dumped into the economy, if you did not have that, in fact there would be negative growth. So in fact we would be in full force, right involved in a major recession. There would be negative growth in Ontario to the tune of something just marginally below, but definite negative growth.
The second question is, where are the revenue projections? Are they coming forward at a later date or what? I suppose as a committee we are going to ask you to comment or make recommendations on a budget process and we kind of get half an equation here. I have flipped through as best I can. I cannot find any revenue projections. Were they not here on purpose?
Dr Christie: With respect to the first point, you are absolutely right. That is in fact what the forecast would be were the anti recession activities not there. The forecast for next year would have been for a small negative number. With respect to the revenue figures, we do not have those. We were here to describe for you what we see to be the economic outlook and we will relay your interest in the revenue side to our colleagues.
Mr Stockwell: When we requested their attendance we specified that we did not want any revenue projections. I assume that when you look at economic forecasts and growth and negative growth --
The Chair: Mr Stockwell, if you were to refer to table 1 -- I think you have a package -- they have projections, current outlook for 1990-91.
Mr Stockwell: You are standing by those projections then.
Dr Christie: For the current fiscal year?
Mr Stockwell: No, no, the projections for 199] .
Dr Christie: For fiscal 1990-91, which is the current fiscal year.
Mr Stockwell: No, no, 1991-92, the next fiscal year.
Dr Christie: The projections referred to were revenue projections for fiscal year 1990-91.
Mr Stockwell: Right, ending in March.
Dr Christie: Ending March 1991. That is correct.
Mr Stockwell: So we do not have any projections for the next fiscal year.
Dr Christie: There have been no projections for fiscal 1991-92.
Mr Stockwell: Then correct me if I am wrong. Did you not say last year that our revenue projections generally run at 90%o of gross domestic product?
Dr Christie: The rule of thumb that we use that has been described to this committee before is that the growth rate in base revenue tends to go at about 90% of the growth rate of GDP.
Mr Stockwell: With that rule of thumb, you are saying Treasury has not put any revenue projections together.
Dr Christie: We have not brought revenue projections today. We have come to, again, as I said, discuss the economic outlook. I am not aware that any specific revenue projections have been tabled before with the committee, although we have talked in general terms about the direction of the revenue.
Mr Stockwell: Sorry, Mr Chairman. I was under the understanding that we were receiving those as well. I thought revenue projections were part of it. It is really looking at one side of the equation if we are just go in, to look at this. How can we make serious recommendations when we have no revenue projections?
The Chair: I would suggest that those numbers he sent to us as soon as they have been compiled. Is there any projected time frame within which they would be compiled?
Dr Christie: We would have to get back to the committee on that, Mr Chairman.
Mr Stockwell: They have to be compiled by now.
Mr Jamison: I may be wrong, but I would imagine that the spring budget would have a bearing on what the income of the province would be. It might be pretty hard to project at this point since the budget is being worked on and this is part of the process leading up to it.
Mr Phillips: What are the latest estimates? This document is now three or four months old. What are revenues and expenditures, for this year, just to get an idea of where we actually are going to end up at the end of the year?
Dr Christie: I think the next scheduled release of that update would be for 31 December and that normally comes towards the end of January, so that should become available in the next few weeks.
Mr Phillips: I gather we will write a pre-budget report. I forgot what you said about whether the committee will have any estimate, to help us on our pre-budget work, of what the revenues will be for the next fiscal year.
Dr Christie: The next fiscal year? We will have to get back to the committee on that, along with a number of other matters.
Mr Phillips: That is good. So by the end of this, when our committee finishes hearings, we will know at least as of the end of December what will be the revenue and expenditures for this fiscal year and some ballpark for next fiscal year, I guess.
The Chair: If they can send us some numbers by the end of the month, then at least we would have some projection of what the revenue was going to be.
Mr Stockwell: It is farcical to go through this process without revenue projections. What a colossal waste of time.
The Chair: I will consider those comments and give you comments back a little later.
Mr Sterling: You seem to compare a lot of the various economic indicators with the 1981-82 recession. I was wondering whether or not you had done any analysis on the debt situation with the Ontario government and the overall debt situation of the Ontario taxpayer in terms of the ability of the government or the advisability of the government to go to a larger deficit during a period of recession. Have you done any analysis in that way, for instance, of per capita debt of the average Ontario resident in 1981-82? How much space was there then for governments to basically spend their way out of a recession, as opposed to today?
Dr Christie: The basic debt figures that we have looked at are the ones that, for example, are published in the budget each year. On a per capita basis, certainly debt is higher now than it was in 1980 or 1981, but I believe I am correct -- and we are looking for the exact figures -- that, for example, the total provincial debt as a percentage of gross domestic product is significantly lower now that it was in 1981. In terms of how that relates to any particular deficit level or the economic stimulus that relates from any particular deficit level, no we have not looked at that, but we are certainly aware of the relative debt position between the two periods.
1440
Mr B. Ward: I have a point of order. Not to dampen the enthusiasm for the questioning, etc -- they are all very valid questions -- it seems to me we are getting a little bit off the topic of the report here. We were talking about major layoffs and then I believe moving into net farm income, etc. My suggestion would be that we try to plow through this report. Then any valid questions outside of this report could be asked at the end of that discussion.
The Chair: You have moved in the direction of my thoughts, Mr Ward. Do you have one quick question to wrap this up?
Mr Sterling: What is the deficit right now?
Dr Christie: The deficit noted in the last Ontario Finances was just somewhat shy of $2.5 billion.
Mr Sterling: I said now, though; today.
Dr Christie: The last official statement is that --
Mr Sterling: I did not ask you for the official statement. I asked you what it is.
Dr Christie: That is the most recent figure I have available, sir.
Mr Sterling: So you will not tell me?
Dr Christie: That is the most recent figure I have available, sir.
Mr Christopherson: On a point similar to Mr Ward's, unless I misunderstand, the questions being asked are talking about the Ontario budget, while the briefing we are receiving is on the Ontario economy, which are two different things.
The Chair: Maybe we should proceed with the presentation. John, I think you are up next.
Mr Hoicka: Okay. This is the sectoral situation and outlook. What I have done here is simply pick a number of key industries to briefly describe current history and at least a qualitative outlook for 1991 and the next couple of years.
Page 24 is a chart which indicates net farm income in Ontario. The dotted line indicates net farm income without government payments. As the decline makes clear, those figures reached a peak in 1986 and, for practical purposes, have been declining since that time period. They went up slightly in 1990, but at this point they are expected to decline somewhat in 1991.
The bold line gives the total farm income, and then the difference between the two lines indicates the net government payouts. In Ontario in 1990, those net government payouts were about 44% of net farm income, up from 23% in 1978 and 35% in 1982. By comparison, for the country as a whole, payouts were 65%, so Ontario farmers received a smaller percentage payout than farmers across the country. In large part that reflects large payouts for grains, so you will see quite substantial federal payments in Saskatchewan, for example. Those figures are much higher than 65% in Saskatchewan.
Mrs Sullivan: On the government payouts, I assume these include both subsidies and support payments as they have been discussed through GATT. Do they include things like tax expenditures such as the interest rate reduction programs? Would that be included in the government payouts?
Mr Hoicka: I think they would include that if it is directly received by farmers. I am not certain, for example, about the Ontario family farm interest rate reduction program payments. For example, the farm tax reduction program would be in there -- it is a direct payment -- tripartite stabilization payouts and those types of payments.
Mrs Sullivan: Crop insurance?
Mr Hoicka: Crop insurance would be in there.
Going from the net farm income, on page 25, the gross cash receipts of course are much larger. This is a basic outlook. The largest sector is the red meat sector, with approximately 30% of total farm cash receipts. We see that slightly improved in 1991 compared to 1990, with cattle production stabilizing and some modest increase in hog production.
The second large group is the supply management sector. We see a mixed set of results there. Dairy quotas are falling at the moment due to excess butterfat production. Chicken production is increasing slightly. That is to some extent being limited by higher imports under the free trade agreement. Demand for table eggs is declining. We think grain and oilseed prices have probably bottomed out, or close to bottomed out, for now and that there will probably be, depending on the weather obviously, a small degree of quantity increase.
The larger group is the pulp and paper group. That certainly has been deteriorating over at least the past year. Prices have dropped, particularly newsprint prices. Profits have dropped very substantially. We are seeing mills taking more time for downtime, inventory control and so forth. That looks like it will continue through 1991 and may take until some time in 1992 to see significant changes in turnaround in that industry.
Lumber and other wood products are of course heavily concentrated in northern Ontario. They are suffering from a whole range of difficulties: the drop in residential construction, low prices nationally and internationally, the export tax and of course a strong dollar, which inhibits exports.
To date, at least through October, sawmill production was down only 5% on a year-over-year basis in Ontario, but there have been significant increases in layoffs since then, so we anticipate that production data will likewise show worse results as we get into the new year. We expect to see some improvement by 1992 as housing starts increase, but there remain medium-term and perhaps long-term difficulties, because we do not see the same kind of increase in housing starts as we have had in the past.
The mining industry: Currently nickel, gold, copper, zinc and uranium are the most important minerals. If you compare it to the situation 10 years ago, gold of course has increased rapidly in importance while uranium and iron ore declined significantly. Through the decade, mining employment dropped by 6,000, principally in nickel, copper, iron ore and uranium. For 1991, we see essentially stable output. Nickel prices remain above break-even cost, so we see no decline, perhaps a small increase, in nickel output. We have had some very substantial increases in gold production over past years, perhaps minor increases in 1991, but we are coming to the end of the major increases. Iron ore and uranium output of course will be down due to closures.
The Chair: I have a question. Mining employment fell by 6,166 from 1979 to 1989. Do you have any indication in what years that decline was the most rapid?
Mr Hoicka: That would have been about 1981-82. In Sudbury, both Inco and Falconbridge very substantially reduced employment about that time. I do not have the figures in front of me. There would have been a modest decrease as well on net in 1990 because the iron ore mines closed down, uranium had some substantial layoffs and there was some reduction in mining exploration, so there would have been a much smaller decrease relative to 198182. Those would have been the key time periods for employment drops.
The Chair: Is there any statistical correlation between the rise in value of the Canadian dollar and the decline in the export market? Would that impact on the rising unemployment?
1450
Mr Hoicka: It might be difficult to find a statistical correlation, I think. At the time the nickel layoffs took place, 1981-82, the Canadian dollar was relatively low, but mining prices were very low at that time period, so the problem is that the dollar plays a role but obviously the price of the product plays a much larger role. So I do not think, if we just correlate it against the dollar, it would be that obvious. One thing that is quite clear is that if the dollar goes up it creates pressures on the industry because its prices are in US terms, and profits, for example, will get squeezed with a high dollar, but then you would have to go back to the price equation.
Mr B. Ward: In discussion with the industry, recognizing we are predicting or calculating that the current recession will end and then slowly climb out of it, is there a feeling in the industry that where the decline in unemployment levels will trough out that we can anticipate -- well, it is as steep as it was in 1982-83. Do you have any feeling on where it will stop? Have we reached as low as we are going to go or is it unpredictable?
Mr Hoicka: I think the mining industry is always a little bit unpredictable, so I do not think anybody could give the Canadian people a strong answer to that. I think the key employers, first of all nickel -- as a matter of fact, over the past year or so Inco has actually hired small numbers of people so they seem to have gotten to a relatively stable situation. I am not sure that their net employment went up, but the idea that they actually put out a job-wanted ad was pretty unusual.
Gold production has been increasing in large part because we have been opening up a number of new mines in Ontario. There have been well over a dozen new mines, and I think the issue there is simply the fact that they are probably not going to continue to open mines. The price of gold is still high enough that almost all the mines in Ontario are profitable at the current price. With the nickel, I think, the same situation; prices are a lot lower than they have been, but they are fairly reasonable. I think in the other sectors to some extent that is the same situation.
Of course there are mines that exist which at some time or another will come to the end of their useful life, and that is a very difficult thing to predict; but at the moment I think the industry would be concentrating on a much smaller issue than overall employment, and that is the situation with exploration. There has been a significant decline in exploration, among other things because with prices no longer as attractive as they were and the cost of capital remaining quite high, it is difficult to sink a lot of investment into that end. But that employment may or may not have dropped to the bottom. It is not large compared to the total, but it represents a perception about the future.
On page 28 is a graph which describes what has happened to manufacturing employment in the past decade, and I think the first key point is that the previous peak in 1981, we never quite regained that peak. There are two further peaks in the graph towards the right end of the graph which are actually slightly lower than the peak in 1981. During that time period between the one peak and the next peak we had an increase of about 30% in output, so that was a very substantial increase in productivity.
Now what we have seen, though, in the past just over a year, is a very substantial decline in manufacturing employment. The peak to trough in the current situation is about 1,076,000 employees down to 907,000 as of December data. That compares to 1,079,000 in the previous recession going down to 873,000, so it has not been quite as steep yet but it is quite possible that we will equal or exceed the decline in employment.
As part of that decline, as noted earlier, there has been a higher proportion of permanent layoffs. So I think it is quite clear that the manufacturing sector has seen significant pressures to date and there may yet be some pressures.
Mrs Sullivan: I would like to follow through, say, in comparing the periods from the peaks and the productivity gains that were made over the period of five years between 1982 and 1987 and then the year 1989. When we are looking at the valleys and looking at I believe the third quarter of 1990 and the third quarter of 1982, what do you see, the comparative outputs during those periods, those periods of decline?
Mr Hoicka: I would have to check the details, but it would be at least between the trough we had then and the current low point. Taking into account that there is probably a difference in months, it would still be at least a 30% increase and probably more than a 30% increase in real output.
Mrs Sullivan: So in that case, then, some of these employment declines in the manufacturing sector are probably technology-based as much as simply plants closed down due to competition or the effects of free trade or whatever.
Mr Hoicka: I think it would be easier to see the time period of the recovery, say, from 1984 to 1989 as demonstrating the effects of productivity. I think the speed with which jobs have dropped between the beginning of 1989 and now, you would be hard put to show that that in itself related to that rapid technological change. There is no question but that during the decade there has been quite substantial technological change and there has been substantial increase in productivity. There are a number of other supporting data, like better control over inventories and a whole series of ancillary data that suggest that technology has played a substantial role in the manufacturing industry in the 1980s, but I would not show this particular decline as --
Mrs Sullivan: It would simply be one factor. Do you have figures of what portion changes in the way of doing things, whether it is the introduction of technology or whether it is just-in-time delivery or whatever, would contribute to declining employment in this sector?
Mr Hoicka: The studies we have done suggest that technological change in the past period of time would give about 2% real growth per year in manufacturing, seems to have been giving that kind of a boost. I think the real problem since 1989 is that we have gotten and continue to get the productivity boost, but if you do not have increased sales then you have a tough decision to make. So I would point to the fact that shipments have not been increasing and in fact now have declined in the latter part of 1990 forcing a resolution of that problem.
Mr Phillips: What qualitative conclusions should we draw from Treasury as we see those kinds of declines? On the surface, I look at it and say 10% of the manufacturing jobs are gone and that looks like it is a significant concern. But, for example, what percentage of our exports does manufacturing represent, and is this going to mean some decline in our export business? What should we take out of that decline?
1500
Mr Hoicka: I think this is much more a job issue than it is an export issue or even perhaps a production issue once the recession is over. I think that manufacturers have been quicker to cut back operations now that they see as unprofitable or low productivity but they have not necessarily cut back substantially in their ability to recover. That obviously would depend on the individual firm.
I think what this chart suggests is that if the previous recession repeated itself, we would have within a couple of years a rebound in employment. I think the question we have is whether with more permanent layoffs that rebound employment will be as strong as it was after the previous recession. However, I do think there is substantial opportunity to have a rebound in the output side.
Mr Phillips: What per cent of our exports would be manufacturing?
Mr Hoicka: About 85% or 90%, probably. It would be a very large percentage.
Dr Christie: We will get precise numbers on that, but that is about the range.
Mr Phillips: In theory, the cliché is, you had better be able to trade globally if you want to survive, and if manufacturing is 80% of our exports, in theory that is what we are trading, although that strikes me as high because of the resource sector.
Mr Hoicka: Oh, yes, sorry, I misspoke myself. I was thinking of the goods sector. I have to rethink it. It might be more like 65% or 70% in Ontario.
Mr Fletcher: When I am looking at the graph I see the Canadian one is like someone's heartbeat that is rather erratic. Yet the United States one, other than the big dip, is rather constant and it does not seem to have the same fluctuations. Is that due to the fact that they are always changing and we wait to change? That could be just a Canadian trait as far as technology is concerned.
Mr Hoicka: I think this graph does illustrate that after the recession, the US employment in manufacturing did not rebound to anywhere near the same extent as it did in Ontario. We made gains in particular industries, for example autos, at a time when there were substantial cutbacks in the US. Our steel industry did not have the kinds of cutbacks that occurred in the US and so forth, so yes, in essence what has happened is that as of now, we are down to about where the US got to by not having the kind of employment recovery that we had. Incidentally, they did have a somewhat better productivity experience during that time period, so their output went up on a per-person basis more than our output did.
Mr Fletcher: We are looking at full implementation of the free trade agreement plus perhaps an involvement in the Mexican trade agreement. Can you still talk about a recovery from this recession back to anywhere near what we have been accustomed to, or is it going to more or less flatten out?
Mr Hoicka: First, I will start with the last point, which is the Mexican agreement. The Mexican agreement I do not think would come into play within the time period of the forecast we are dealing with. It might or might not have an impact, but not within the next couple of years, simply because it is not here yet.
The issue of the free trade agreement is fairly complex to deal with. I would think that the biggest impact has been on industry and the reasons for the drops in the first place have been the recession, simply the fact that sales have not grown and in fact are declining. That relates to a series of things, including the high dollar and quite high interest rates in real terms.
I think the way you would have to think of the free trade agreement is that the restructuring that might have taken place over a 10-year period has been forced back in the minds of many managers as they face the necessity to lay off. They are making decisions, should this be a temporary layoff or should this be a permanent layoff, a decision that you might not have faced for a number of years into the future. So I think it plays a role but it is a qualitative role; it is not a role that you could separate from the very important fact that there is a recession at the time we have an 87-cent dollar.
Mr Jamison: It was mentioned earlier on that the United States was slower going into the recessional cycle too, but this graph would also indicate that to me. Is that a correct assessment?
Mr Hoicka: It would be quite possible for US employment numbers to start dropping, yes, because certainly in manufacturing we hit a recession from the manufacturing point of view, in the sense of no increase in sales, much earlier than the United States did. It would be quite possible to see layoffs there if we came back in six months, for example, so it may well be that they are worse.
Mr Sutherland: What you are saying, then, is that US manufacturing is suffering from the same problem of sales. It would seem to me that a lot of the manufacturing jobs that we are losing are going to the United States, or that seems to be from what we read about. I am just wondering, these plants are going down there and setting up, but if there are no sales there, is it going to be the same slowdown or a worse slowdown than we have, or are you able to tell at this time?
Mr Hoicka: I cannot describe whether the slowdown is the same or worse. I might have to go back to Qaid Silk, because that is an overall question about the economy.
Mr Silk: At present we have, in our forecast anyway, the US slowdown for 1991 slightly sharper than the slowdown for Canada and for Ontario. But the point that Mr Jamison was making earlier is that the US, remember, entered the recession much later. We entered our recession in the second quarter of 1990 and the United States entered its recession two quarters later in the fourth quarter of 1990 so that effectively, you know, maybe it will have a shorter recession than ours, but in any case, in 1991 it will be experiencing slower growth than we will.
Your question I think is, "On what basis are people making these plant location decisions? Why would they want to shift in time from a slow market to another slow market, or a declining market to another declining market?" Those are much longer-term issues.
As John Hoicka pointed out, obviously for our manufacturing sector, the basic reason why we are experiencing a slowdown is cyclical. It is a recession; sales just have not expanded for a long time and people have to make these decisions. Maybe they are accentuated by the fact that everybody is faced with the free trade agreement here and they have got to make location decisions. Maybe things that you might have put off for another couple of years you decide to do perhaps now.
So to that extent, then, the alternative location is obviously the United States, but the question is, has the United States seen the worst? No, it has not; it is going to experience a recession too that is going to go on for at least one quarter, ie, this one, and maybe for the first half of the year. So I think their manufacturing is going to suffer a bit too. We have not seen the worst yet.
1510
Mr Hoicka: Page 29, just very briefly, indicates another factor in the recent decline in manufacturing and that is the operating income as a percentage of sales. That has declined almost as rapidly as it did in 1982.
On page 30, the first industry and the largest industry is auto assembly and parts. Each dips a little separately because there are slightly different issues involved.
The first key point, and I am looking slightly longer term than a single year, is that there has been to some extent consolidation of assembly in the Great Lakes area, and in particular there has been an increase in Ontario assembly capacity to 2.3 million units in 1993 -- that is what we anticipate we will get to when each of these plants is fully up to speed -- from 1.6 million units in 1979. There are relatively few jurisdictions in North America or anywhere else that have had an expansion of that magnitude.
There are a number of reasons for that. The primary reason is location relative to Detroit. Another issue is the attractive labour costs, and as part of that, the health care components of the wage costs, which are quite high for the major auto manufacturers in the US.
Clearly the current slowdown in North America in vehicle sales is having a substantial impact on the market. However, even with that slowdown, Ontario is increasing its share of production, and in fact in 1990 actually increased its output slightly in the face of a fairly significant decline in North American production. That is because, of course, our new capacity happens to be coming on at exactly the right time. This shows that in 1988 we had 13.6% of North American production. It has gone in 1989 to 13.9% and in 1990 to 15.3%. That is close to the peak that we are going to get with this current round at capacity. It will be slightly higher than 15.3%. It may be 16% by the time we get another two or three years down the road.
We anticipate, even with lower 1991 North American vehicle sales, that Ontario assembly will rise slightly. At the moment we are anticipating a US sales drop from about 14.1% in 1990 to maybe 13.7% in 1991. That is pretty consistent with what, for example, the Big Three are forecasting right now. Given that forecast, we would see a very slight increase in total number of units for auto assembly.
Mr Phillips: To put the auto industry in perspective for myself, put it in some dimension for me, what per cent of the manufactured goods in Ontario is auto and how does auto split between assembly and parts? And the last question really is, what is going on in the US? If in fact proximity to US plants is important, are the US auto manufacturers building the new plants close to us or not?
Mr Hoicka: Let me start with the size. There would be roughly 150,000 people in the auto assembly plus parts industry as compared to something over 900,000 in total in manufacturing. Roughly speaking, it would be split maybe 50,000 in the assembly side and 100,000 in parts. It might be a little bit more and a little less in parts, but that will give you the orders of magnitude.
One important point is that out of that 100,000 in parts, a large minority is actually employed by the majors, for example, GM has a battery plant, engine plant, Ford has an engine plant, etc. Out of that 100,000 maybe 30,000-plus of the jobs would be with the majors. They are important not just because of assembly, but because of the in-house parts.
The second issue you were concerned about was basically how are we doing relative to where they are building plants. Maybe I can deal with that in the next couple of slides because it is more an issue for parts than assembly.
Mr Phillips: I just had this mental image that as the auto industry goes -- it plays a huge role in Ontario's economy. You are saying it is about 15%, I gather, of the manufacturing jobs.
Mr Hoicka: Yes.
Mr Phillips: I just wonder what per cent of our manufactured export goods is the auto.
Mr Hoicka: It would be much higher. It would be at least 50%, I would think.
Dr Christie: Close to 50%.
Mr Phillips: So 50% of our manufactured export goods is auto.
Mr Hoicka: Yes, perhaps higher than that. It is certainly our largest single export. Close to 85% of our production would be exported outside the country and probably half of the remainder would be exported to other provinces. It is quite important from the point of view of our total exports.
Mr Sutherland: You show the Ontario share of North American production for 1988, 1989 and 1990 and that it has increased in there. I want to know, though, how much North American production has increased overall in that time or has decreased in that time, and then not only production but North American production as a percentage of sales.
Mr Hoicka: North American production has I think decreased throughout that time. If I remember correctly, 1989 was slightly lower than 1988 and 1990 was a fair bit lower. Total production has decreased. That is because of sales. In fact, offshore imports peaked in 1987 and have declined slowly since 1987.
In part they have been offset by transplants, but transplants of course are providing jobs in North America so that the peak year in percentage terms was 1987 and North American production has been gaining market share since then, although the market has been declining.
Mr Sutherland: Just one other question in regard to your last statement that even with lower 1991 vehicle sales, Ontario's assembly is forecast to rise slightly: How much do you mean by slightly? At this stage, is it too early to predict what will happen for 1992, or will we see a decline at that stage?
Mr Hoicka: By slightly, I mean pretty slightly, because I think the number was 1.76 million units in 1990 and we think it would be about 1.78, so we are talking maybe 20,000 unit gain given the forecast that we currently have. Obviously, there are all kinds of little things. That is just a number. Lots of things could happen. People might decide they love the Lumina or they hate the Magic Wagon or something like that.
In 1992, in comparison with the number I threw out of about 13.7 US sales, I would say probably -- this is not a forecast at this point -- most people feel that 1992 will be at least back to 1990 levels and probably higher than I 990 levels, so that it is probably 14.1 to 14.5. In that situation, we will definitely have an increase in auto activity in Ontario.
Mr Sutherland: Ontario will have the definite increase.
Mr Hoicka: Yes, because we will maintain market share and the market will be moving back up.
Mr Kwinter: I just want to make a couple of observations. The industry itself projects -- I should qualify that by saying that the auto industry is a North American industry. The fact that it is in Ontario is virtually irrelevant. It has nothing to do with the Ontario market per se. It really is a North American market and 80% of the production in Ontario-based firms goes to the United States.
The industry itself projects that by the year 2000, Ontario -- in fact Canada, but most of it is in Ontario -- will actually achieve 20%. These figures show that 1990 is 15.3% but the industry projects that by the year 2000 they will have 20% of the market that will be produced in Canada. Once you get Hyundai in Quebec and Volvo in Nova Scotia, I think 85% is in Ontario.
To answer Mr Phillips's question about what effect proximity to the assembly plant has on the parts manufacturers, there was a report issued by Booz, Allen and Hamilton Inc that was quite interesting. It was quite controversial when it came out. It said that Ontario was one of the worst jurisdictions in which to build cars. That was based on cost, taxation, government policies, all of these things. They said that Quebec was one of the best, only because of the low labour rates and everything else.
Having said all that -- and this was not a scientific study, it was a survey -- they asked people to respond. When they asked the Quebec auto parts manufacturer, "Where would you put your next plant?" he said, "I would put it in Ontario," and they determined that the number one determinant as to plant location and investment is proximity because of just-in-time delivery.
You have the situation where in Oshawa we have the largest auto facility in North America, the autoplex. When and if Ford completes its expansion in Oakville, it will be the second-largest auto facility in North America. That is what has anchored the auto parts industry here: the proximity and the just-in-time delivery.
1520
Mr B. Ward: On page 30 you mention the increase in Ontario assembly capacity to 2.3 million units in 1993 from 1.6 million units. That is at full capacity, is it not?
Mr Hoicka: That is right.
Mr B. Ward: Would you know what percentage we are at in 1990? Are we at 70% or 80% of capacity or lower, higher?
Mr Kwinter: I can tell you that.
Mr Hoicka: I would need a calculator.
Mr Kwinter: The plants are running full-time. As a matter of fact, companies like Honda are running at greater than their capacity.
Mr B. Ward: And that is who is hiring, I think.
Mr Kwinter: Yes.
Mr B. Ward: At 100% work.
Mr Kwinter: The plants are running at capacity.
Mr Hoicka: The next two pages detail a look at the auto parts industry, which clearly is dependent upon the assembly industry. There is a survey of people in the industry compiled by a Quebec professor who determined what kinds of parts should be just-in-time kinds of parts. As a result of that survey, the different types of parts were categorized as "ought to be within two hours of an assembly plant" because just-in-time was quite important, another group could be two to four hours, another group four to eight hours, and then the final group essentially could locate anywhere you wanted.
We mapped that against the Ontario auto parts industry -- this was based a couple years ago -- to find out how important location was for the Ontario parts industry. What we discovered was that about 60% of them should be within two hours of an assembly plant, another 20% should be within four hours and so forth. That is not the same thing as saying 60% of all parts in a car should be within two hours; it is just that we have specialized in those things that are just-in-time or we anticipate will be just-in-time products. That then makes the next chart fairly important.
Mr Sutherland: You said the way you mapped it these companies or these automotive parts places should be within this level or actually are within.
Mr Hoicka: They should be. For example, if the survey had concluded that engines should be produced within two hours of an assembly plant and if we produce engines, which we do in Ontario, we would have included that in among our 60%. So this is talking about the future.
Mr Sutherland: Sorry, but I am a bit confused here. Are you saying than that 61% of the engine plants would be within two hours, that they have to be?
Mr Hoicka: No, I am saying that of the parts that we produce, 61% are of the type that ought to be near an assembly plant. So if (a) we are producing them and (b) we have a lot of assembly plants near us, then that is a positive indicator for the success of those particular parts operations.
On the next slide, we looked at what was happening to the number or the capacity of assembly plants near Ontario. If you look at the bottom line -- the full line is "within two hours" -- that was between 1978 and 1983. It declined fairly significantly because, of course, there were a lot of plants that were closed down in that 1981, 1982, 1983 time period.
Since that time period, there have been a number of plants constructed, many of them in Ontario. What that has meant is an increase in our two-hour capacity; the same thing within four hours and the same thing within eight hours. What this means for the parts industry is that it is well located in the sense that an increasing proportion of the auto industry is located near Ontario, so that basically the Oshawa-to-Windsor corridor is extremely good from a locational point of view.
What has happened in the last year has been that even though the industry has been quite concerned about, for example, not only a decline in sales but more particularly the exchange rate -- a very high exchange rate makes it much more difficult for it to compete -- over the past two years it has been able to maintain its share of the North American market in the sense that its sales have tracked very, very well with North American production.
What that suggests is that the locational factor has been quite important in offsetting the difficulties that the dollar has created for that industry. What is important is that they have not increased their share, even though they have increased sales in Canada, so they actually have lost market share in the US. They have been fortunate in that, to date, on average -- and that of course would not be true for some individual parts producers -- they have gained through new plants in Ontario.
The steel industry is another major Ontario industry. The key problem in the steel industry is that the industrial world demand for steel has been flat for a decade. There has been essentially no growth. The outlook in that industry, with little pluses and minuses, is also for no growth. What the chart shows is that during the past decade there have been very substantial cuts in employment in both the US and the European Community. There have been cuts, but they have not been as large in Ontario and Japan, so that Ontario and Japan have in fact slightly increased their share of the world steel market.
A second issue which does not show up on this chart is that during the past decade there has also been a trend towards mini-mills and they have taken market away from the traditional large integrated plants. The mini-mills have a higher degree of recycling content. They are located typically at the market rather than near the resource and the quality of their output has been increasing quite substantially. This looks like a continued problem for the future from the point of view of the traditional integrated plants.
What that means for the Ontario industry is that while, on the one hand, it is required to invest in state-of-the-art galvanizing plants -- both Dofasco and Stelco are investing right now -- its productivity edge has been lost relative to its American counterparts over the past decade. Just as the traditional mills in the US face continued pressure from mini-mills, they are facing that as well.
Mr Sutherland: Are the mini-mills a phenomenon just to the US or are they a world-wide phenomenon? Is anything of that nature going on here in Canada?
Mr Hoicka: I believe there is some degree of minimill activity here, but I would think that the US is by far the most visible indication of mini-mills. It is certainly not the only place. Newcor, for example, has brought on a number of new small-sized mills. These are with phenomenal productivity and energy consumption implications, so there is certainly a lot of concern by traditional mills for the 1990s. The likelihood is that not only will they build more, but that there are some other mini-mills looking at some more new technology.
1530
Mr Phillips: Just putting it into perspective, 250,000 in auto; how many in steel?
Mr Hoicka: About 60,000 to 70,000. Wait a minute; that cannot be right. I think in total the number is about 60,000, but it seems to me that would include a lot of mini-mills, steel servicing centres, etc. It may be a high number. I will have to check that.
Mr Kwinter: I have a comment. The reasons Ontario has been much less affected by the production and employment cutbacks are that both Stelco and Dofasco are really state of the art and they have a reputation for being some of the best steel producers in the world. The more significant reason is that the United States, under its restrictions on importing of steel, has Canada under a voluntary restraint agreement at 3.5%. It is one of the few countries that does not have a formal agreement; it is a gentleman's agreement.
The reason is that they use it for an escape valve to counter any strikes they get in the US market. So Canada is always up against that upper limit. Sometimes when there are strikes it goes to 5% or 6% of the US market, which is one of the largest markets in the world. That is why they have been less impacted. Certainly, when the whole economy goes down, it goes down, but when the economy is going well the Canadian steel producers do very well indeed.
Mr Hoicka: Page 34, the construction sector: Construction employment peaked in July 1990 and that was about 65% above the 1980 average, just to indicate the strength of the boom during the decade in construction employment. In contrast, employment in December is down 15.5% compared to December 1989. As about September those employment figures started dropping quite quickly in that sector. We would anticipate there will be further declines in both residential and commercial activity because the declines in starts, of course, will come into play as projects are finished up. So we would anticipate further declines in employment through 1991.
Mr Phillips: The bulk of the anti-recession activity, the $700 million or the $1 billion, is in construction, is it not?
Dr Christie: Primarily.
Mr Phillips: In spite of all of that, we still expect a decline in the construction sector?
Mr Silk: As you know, for example, housing starts are falling to 54,000 in 1991 and business investment is also falling, so the rest of the construction sector, which is not being sort of supported by government activity, is not exactly doing very well.
Mr Phillips: So the major anti-recession thing still will see a decline in construction employment.
Mr Silk: I guess the point we made earlier was that both the $700-million capital spending programs which will trigger, say, $300 million by the municipalities, plus the $500 million in terms of the tax break in terms of not imposing the retail sales tax on the GST, will add 20,000 jobs. The point we made earlier was, I suppose, that in the absence of that we would have seen a net job decline in this forecast.
Mr Phillips: I think your forecast assumed there would be 120,000 more jobs averagely in 1991 than there were at the end of December 1990. Construction jobs are going to go down.
Dr Christie: That is again on average, year over year.
Mr Phillips: Yes, I realize that, but as I say, this one surprised me a little bit, to actually see construction jobs, in spite of everything else, still going down.
Mr Hoicka: That may start to turn around before the end of 1991, but I think the point I was making here is that they have not bottomed out yet; it is quite unlikely.
On page 35, service sector employment: This is just a brief chart to indicate that we have created a very large number of service sector jobs relative to employment. In fact, I think this happens to show Quebec, but the Ontario service sector employment as a percentage of population is higher than for the rest of Canada. It is important not just in terms of employment within the province, but in effect interprovincial trade through head offices and our concentration of business services, finance and insurance are important to the economy. In fact, there are service exports related to that kind of activity as well.
Mr Sutherland: So you have a large service sector and an ever-increasing service sector and it seems to be a declining manufacturing employment sector, yes?
Mr Hoicka: I did not happen to include it, but if we had the chart which showed manufacturing sector employment, it would also be towards the top end of that scale. In fact, Ontario provides a very high level of employment relative to its population.
Mr Sutherland: Generally, manufacturing employment has better-paying jobs than the service sector, so there is some real impact in terms of revenue the government would be collecting from tax from that change.
Mr Hoicka: That would be quite complicated to determine. It is true that on average manufacturing employment has higher wages, but there is a great difference in manufacturing wages and we would have to go and determine, I think, whether it was low-wage jobs or high-wage jobs in manufacturing that were being lost. I think the other point is that there is a very big range of wages, obviously, in the service sector, where there is well over two thirds of the total jobs. It is not true that only the low-wage jobs are increasing. There are certainly certain kinds of jobs such as head office jobs that are frequently higher. It would be hard to answer that question.
Mr Sutherland: You are saying it is very hard to determine the shift in employment and the amount of money that the provincial Treasury could get from wages.
Mr Hoicka: I personally think that would be an extremely difficult computation.
Mr Phillips: This is a very unusual number as a percentage of total population. The more relevant one for me is the percentage of jobs, I think, because this depends on how many kids and what not are around, so maybe for me, I would not mind seeing the percentage of jobs in the G-7, which is the one on the next page, a little bit more.
Mr Silk: If I can come back and answer an earlier question by Mr Phillips, I just had the numbers brought to me. We were talking about the construction sector and we have talked about basically a $1-billion capital spending program as an anti-recession package. As I was mentioning earlier, I did not give you the numbers but both residential housing and non-residential is down. Residential construction spending, in our forecast, is going to be down $2.9 billion and non-residential construction is going to be down $1 billion, so the antirecession package is a partial offset. It is not by any means a full offset. Consequently, the construction sector as a whole is being supported by the capital spending program, but it is not sufficient in magnitude by any means to offset the weakness in the private sector.
1540
Mrs Sullivan: The negative $1.9 billion and the negative $1 billion --
Mr Silk: Well, $2.9 billion.
Mrs Sullivan: -- are before the $1 billion or after the $1 billion of provincial and municipal initiatives, when you are talking about the decline?
Mr Silk: After.
Mrs Sullivan: So net there will be a $3.9-billion increase in construction activity?
Mr Silk: That is right.
Mr Hoicka: Page 36 is the more traditional pie chart. The service sector accounts for about 70% of Ontario's total employment and 60% of output. The two parts that are out give a rough idea of the public sector. The public sector does not particularly follow this classification, but by and large health and education are the main component of the service sector that is public.
Since 1980 nearly 90% of the job growth in Ontario has taken place in the service sector. For 1991, performance of this sector is expected to be constrained by a continued weakness in the economy and by the GST. Of course, that will impact mainly on the private sector part of the service sector.
Mr Phillips: Construction is down; manufacturing is down; the service sector is down.
Mrs Sullivan: I just want to ask a question about how Treasury is going to monitor the effect of the GST on economic activity. What are you going to be doing to follow whether a lot of your projections are based on a perception of a decline in activity based on the GST? How are you going to be monitoring that?
Dr Christie: We will monitor that in the same way, as part of our general monitoring of the economy. I think the clearest indicator of the impact of the GST is the consumer price index. We will be looking at that very carefully over the first few months of the year as the impact of the GST feeds its way through the consumer price index.
Mrs Sullivan: I am sure the first month or two will be distorted because of the patterns of retailers who are absorbing the GST or whatever.
Dr Christie: There are certainly some retailers who are, for example, advertising that they will pay the CST for January, so it will take perhaps two or even three months to see the full effect of the GST having worked its way into the consumer price index.
The other thing that we will be watching very carefully is the pattern of retail sales because there is obviously some concern that the basic negative impact of the GST will be upon consumption, and therefore directly on retail sales. We will be looking at that side pretty carefully for the first few months as well and then continuing through the year.
Mr Kwinter: Over the past few months when this issue has been discussed there seems to be a tendency to equate all manufacturing jobs with the settlements of the auto workers in the automotive industry, and all service jobs with McDonalds. Is there some way we can get an actual figure of what the average manufacturing wage is and what the average service industry wage is?
Dr Christie: We can certainly provide you with that information, but I think that as both Qaid and John described, there is perhaps as much variation within manufacturing and within the service sector as there is between the two sectors. There are certainly low-wage manufacturing jobs just as there are quite well-paid service sector jobs in financial services and business services, areas that do tend to pay fairly well.
Mr Kwinter: That is the point of my question.
Dr Christie: It is a compositional shift. Depending on the kind of manufacturing job that is being transformed into the kind of service sector job, that is the computational difficulty John referred to in looking at the other question. What we can provide for the committee are average earnings levels in a number of both manufacturing and service sector occupations. That will perhaps give you some sense of the dispersion of these things.
Mr Kwinter: What about something like the percentage of people in the manufacturing sector earning over $40,000 a year, the percentage earning between $20,000 and $40,000, the percentage earning less than $20,000, and the same thing in the service sector?
Mr Jamison: There have been studies done further on the percentage of earnings in those various sectors. Maybe we can get a feel on what the growth in the particular areas would be by comparing it back one, two or three in size.
Mrs Sullivan: Why would you want to do that?
Mr Jamison: You get a feel for the overall income mix.
Mr Kwinter: The reason I would like to see it is that I notice a tendency for manufacturing jobs to be perceived as being good and service jobs perceived as being bad by certain people. There just seems to be that feeling of, "My goodness, we are losing manufacturing jobs and that is a terrible thing." It may not be. It may be that this economy would be better served by getting more and more high-quality service jobs. I do not know. It would be interesting to see what is happening and where that is going.
Mr Trick: On that point, there is a study which looks at this question in a fair bit of detail that I can certainly provide to the committee, which Statistics Canada did about two years ago. It asked the general question, "Is it true that because we are shifting to a service economy we are moving towards bad jobs rather than good jobs?" The general conclusion they came to was that within each occupational category, whether it was manufacturing, professions, services or whatever, the increased dispersion within that category was far more important than the shift from manufacturing to services, essentially confirming the point Bob Christie was making earlier. If you would like, I can provide that to you. To my knowledge, that is the most thorough study of the question you raised.
Mr Hoicka: Just a last comment, if I can clarify, on page 36: I indicated the service sector would be constrained in 1991. We were not calling for a negative service sector. That was constraint relative to earlier years, so it will slow down although we would say there will be some growth in the service sector.
Page 37 indicates that one of the toughest areas of the service sector is the part related to tourism. Again, it does not fit the standard classification since there are jobs in a whole series of the different components on that previous page. Looking at trips, first of all, they fell in 1989 and expenditures fell. Preliminary indications are that they fell yet again in 1990, and our anticipation is that they may fall to some extent in 1991. In each of these years the factors have first been slowing, and now recession of the North American economy, and of course in 1991, with a recession in the US, that will affect tourism from the US.
High real interest rates are a significant issue, as is rising unemployment, and the exchange rate has certainly had an impact on a large amount of tourism, certainly on people coming to the province and to some extent Ontarians leaving the province and going to the US for vacations.
The conclusions are more medium-term conclusions. First of all, the resource sector outlook depends on the Canadian dollar as well as the US outlook because of its export orientation. We anticipate that it will likely resume and in fact grow during 1991 and continue to have slow growth in 1992.
The construction industry seems to be the most difficult situation, in particular with commercial overbuilding, that aspect. It may be easier to turn around the housing sector than the major projects, where starts have been declining for at least over a year now. It just takes a long time, once that sector goes down, for it to build up again.
1550
In Ontario manufacturing industry, particularly the motor vehicle group, industrial products and investment goods are generally well positioned for recovery in the US as well as Canada, but the caveat we would leave is that output will turn around much more quickly than employment in manufacturing. We will see significant productivity increases. Obviously, the speed at which that output turns around will depend on the US economy, interest rates and the Canadian dollar, because quite a large proportion of manufactured output is exported to the US.
Mr B. Ward: I have a question on page 37, the tourism sector, if we can backtrack for a moment. The figures from 1988 to 1989 show that trips made in the province by Ontario residents were down considerably, 25.6% from 1988. When you talk about 1990, you mention, "The expenditure in tourism will remain weak but stable due to increased travel within the province by Ontario residents." Are we up substantially from 1989 on Ontario people visiting other areas within the province? How did you arrive at that statement?
Mr Hoicka: I think we are up but not substantially.
Mr B. Ward: They must have spent more, then. The visitors from the United States and other countries are down in 1990 from 1989, yet the expenditures are stable, "weak but stable."
Mr Hoicka: Let me see how to phrase this. Relative to 1989, which was a very poor year for Ontario residents visiting places in Ontario, 1990 was a better year for Ontario residents visiting Ontario, and in general that offset continued declines in international and other-province visiting to Ontario.
Mr B. Ward: You have statistics from 1988 to 1989, and then to make the statement that travel within the province by Ontario residents -- you must have some stats to make that statement. Is there a percentage?
Mr Hoicka: We would have to come back with some data on that.
The Chair: Is there any indication of what the impact of the cross-border shopping is going to be on the international travel account deficit in terms of Ontario?
Dr Christie: We do not have any precise figures on that yet. Part of the issue is the fact that people can cross so easily without a lot of recording of what is being carried across the border, which then makes it difficult to have solid statistics on what is actually happening there. Much of the information which has been discussed here I believe comes from survey information that the Ministry of Tourism undertakes, and it would not likely be very good at capturing the cross-border element of the problem.
The Chair: Because it does seem to be a growing factor in revenue maintenance, especially for Niagara region, where sales at service stations -- that will cut out revenues for gas. There is an awful lot of buying going on across the border and that would cut out some sales taxes that would normally be paid. There are large items being purchased now and this will only be compounded by the GST and by the fact that as more and more of the tariffs are removed due to the free trade deal there is less and less incentive to shop, at least in the Niagara area, in Canada, and there are huge numbers going across the border.
Dr Christie: And a factor in that is that the dollar at 86 cents or 87 cents makes it a lot less expensive to shop across the border than it was when the dollar was 77 cents.
Mr Phillips: You said manufacturing depends a lot on the US. Maybe you already told me this, but what percentage of our manufactured goods are exported?
Mr Silk: Internationally 50%, and I think something like -- I will have to check the number -- 15% is exported to other provinces. From our point of view, almost two thirds of our output is exported outside the province.
Mr Phillips: So 50% is international and 85% of that is US or something like that?
Mr Silk: Let me check. We will get back to you.
Dr Christie: The committee may be relieved to know that much of the rest of the paper here is an appendix. However, we do have a couple of slides that look at the regional situation across the province. I will ask John Taylor to take us through those.
Mr Taylor: The table on page 39 shows the regional and community economic conditions. To explain up front, it is an average of the unemployment rates for the communities and regions between October and December. The reason for that three-month average is that the labour force information is presented on a monthly basis that is unadjusted for seasonal variations, so there is a tendency for month-to-month variations that cannot be accounted for. It is a statistical problem, and this helps to smooth out some of that variation.
In terms of the highest regional unemployment rate, that would be in northeastern Ontario for the last quarter of 1990. Northwestern Ontario would be 8.1%, the second highest, followed by the southwest at 7.2%. Central Ontario's unemployment rate averaged 7.2% and the eastern part of the province was at 6.7%. It gives an overview of where the various regions are at in terms of their employment situations.
On a community basis, the Thunder Bay and Sudbury areas, along with Windsor, have higher unemployment rates in the province; St Catharines-Niagara also, just under 10%, followed by Kitchener-Waterloo and Hamilton. The biggest problems in terms of community unemployment certainly tend to be in the north. Windsor and the manufacturing areas would be related largely to the layoffs in auto parts manufacturing.
The Chair: I notice that Ottawa has gone from 5.6% to 5.4%. Is that because of the GST as well?
Mr Taylor: I will have to check on that for you.
Mr Sutherland: If I could just ask a question about the Windsor rate. Maybe you can answer this. Windsor, I would assume, is traditionally higher than London?
Mr Taylor: I believe it is.
Mr Sutherland: Do you have any way of knowing what that traditional rate would be, what the difference would be on average between Windsor and London? I guess the point I am trying to get at is how much that gap has widened in the last two years. Do we have any way of getting a handle on that?
Mr Taylor: We can look back and see how, over the last few years, that trend has been and how close they have been and probably could give you some assessment as to what the differences are and why they have changed.
Mr Hansen: We were just talking about cross-border shopping in the tourism part. If you take a look at Thunder Bay, they have a certain problem up there; it looks like the forest industry is affecting them also. If you get down to the St Catharines-Niagara area, which I am from, you get 9.2%. I know we had the auto industry, but we are having retail stores closing in the Niagara area, so I think there is a good reflection on the closeness to the border on the shopping, with the purchase of gas, etc, which is a loss to the income. Windsor also, close to the border. We are talking about the auto industry being down, but I think there is something in common, if we look at all border towns, having a problem with unemployment. I know some other groups are coming in to talk to us on these issues and maybe familiarize us a little better with what is actually going on in these areas.
1600
Mr Kwinter: I just wanted to comment on Mr Sutherland's question. London traditionally has the lowest unemployment rates and Windsor traditionally has some of the highest unemployment rates in Ontario. I do not know whether it has changed vis-à-vis each other's relationship, but traditionally that is the way it has been. It has always been that way.
Mr Taylor: The following page, page 40, goes back to the layoff situation. We have shown it here by region. The right-hand column shows the change in the number of layoffs by region between 1989 and 1990. Central Ontario has had the highest increase in layoffs, almost 8,000 out of a total of 14,000 province-wide; the southwest just over 4,000; followed by the northeast at around 2,600, 2,700. Both the east and the northwest have gone in the opposite direction. They have experienced fewer layoffs. Northeastern Ontario would be largely related to the mining sector, Elliot Lake and the Kirkland Lake area as well, for the iron ore mines. The manufacturing in central and southwestern Ontario has been the hard-hit sector in those cases.
The Chair: I have a list of questions. While they do not relate to your presentation, some of them do, and I think they will have a direct impact on what we need to know in order to bring forward a paper that would be useful to the Treasurer. If you cannot comment on them now, perhaps you could find the information and send it along to us. These are my own, and I think others will have some.
I am interested in the cost-sharing programs. Have we any indication of the direction of the federal government in terms of whether it is going to maintain what used to be a traditional relationship in the cost-sharing programs or whether in fact it is going to continue with the most recent trend, that is, unilaterally decreasing the amounts of transfers coming from the federal government?
Dr Christie: I think the most recent expression officially from the federal government was in last year's federal budget, at which time it announced further cutbacks to the established programs financing and the capping of the Canada assistance plan. Those are actions which are continuing to have effects and will continue to have effects next fiscal year. They have not given any indication of further steps in that area, although they have continued to signal their commitment to keep their deficit down. They have indicated that further action on that side will be forthcoming in their February budget, February being the conventional time; they have not announced the budget date yet that I know of.
The Chair: Is there any projection from the ministry of what the transfer payments are going to be from the income tax rebates the federal government collects, Ontario income tax? Do we have any idea what kind of sums they are going to be and how much they will be down?
Dr Christie: I am not sure I understood the question. Are you referring to the personal income tax revenue due to Ontario that is collected by the federal government?
The Chair: Yes.
Dr Christie: I do not have that information with me. I will take that under advisement in the context of the other revenue question.
The Chair: Another question I have, and you have alluded to it throughout your briefing today, is the value of the Canadian dollar. Have you made any projections about what you think the value of the Canadian dollar will be at the end of this year?
Dr Christie: I will ask Qaid to answer that question. He has the specifics.
Mr Silk: Underlying the forecast we presented, we have an average exchange rate in 1990 of just over 85.5 cents. We saw that coming down in 1991 to 84.5 cents through the year, so by year end -- I do not have the figure; I am looking behind for the person who might -- it is on a downward trend, averaging this year about one cent lower than last year. It is on a downward trend. That is partly because interest rates are coming down too. They are coming down in the US as well in our forecast; they are coming down in Canada as well.
The Chair: I would like to know what you base that on, given that about a year ago the feds dropped the central bank rate and that caused a decline in the value of the Canadian dollar, and they automatically turned it around and sent the dollar back up. Why are there projections that the value of the dollar is going to be allowed to go down even though when they had an opportunity to allow it to go down a year ago, they did not?
Mr Silk: I do not want to speculate on how the Bank of Canada runs its monetary policy. January 1990 is I think the incident you were referring to, when it dropped 29 basis points in one week and the market got very nervous and there was a run on the dollar.
The point is that the economy is very weak in North America, in Canada as well. We have seen interest rates drop fairly significantly over the last three or four months. Now the bank rate is I think the lowest it has been since early 1988 or something. Of course, prime rates have also dropped quite significantly and mortgage rates have dropped. This is happening in tandem with US rates coming down, which is keeping our dollar up, and partly because of the uncertainty of our oil prices; the Canadian dollar being a bit of a petrocurrency is keeping our dollar up.
But as the economy continues to weaken, the Bank of Canada does have room to move our interest rates down and, more important, narrow the spread between our rates and the American rates. The consequence of that would be, obviously, that the dollar would fall.
In a sense your question may partly be why people think the dollar is overvalued. There are various reasons for that. We have a merchandise trade surplus but a current account deficit. Most economists in the profession, especially in the private sector, consider that the Canadian dollar is overvalued at 86 cents or 87 cents, that maybe its value should be 78 cents to 82 cents or 75 cents to 80 cents, somewhere in that range, given our productivity level, given our inflation performance with the US, and given our current account deficit.
The pressure on the dollar is down, and the way to prop it up is obviously by higher interest rates. A weak economy removes that prop. The bank has conceded that the GST will obviously add to inflation, but if there are no second-round effects of that the bank has sort of considered that it will not react to the higher first-round inflation by jacking up interest rates, as long as the second-round effects in terms of wages and prices do not show up. That tendency would suggest that the spread would narrow and the dollar would fall.
1610
The Chair: The reason I asked this question is because what happens to the dollar and what happens to interest rates has a two-fold impact. One of them is that since we have a projected deficit, we are going to have to borrow money and we are going to have to pay it back presumably or we are going to have to pay the interest on it and those capital costs are going to have to be included.
The second reason I asked that question is because if you are projecting that the value of the Canadian dollar is going to fall and your projections are wrong, there is going to be an impact on what happens in terms of the budget and what happens in terms of the Canadian economy, revenue and financing. So there is a connection here. Have you calculated the scenario where the interest rates fall but the Canadian dollar stays high, and then the other scenario where the interest rates are sent back up to keep the value of the Canadian dollar higher, even though we are still in a recessionary period?
Mr Silk: Maybe if I can first give you some facts, I sort of said the dollar would drop. What we basically said was that we had an 85- to 88-cent US range in 1990. You saw that. We are basically saying that it would be down from that to the 83- to 86-cent range. By year-end it might be around 83 cents, let's say. The point is, how sensitive is the Canadian economy, especially the Ontario economy, to higher interest rates and a higher dollar? It is quite sensitive. The point however is that, at least in the forecasting sense, we have to ask ourselves why the bank would be interested in a high dollar. Per se, it is interested in it not so much for its sake, but obviously in terms of its inflation impact and a higher dollar means inflation effects are more subdued.
If for other reasons inflation is already trending down, and as I said for example, for the GST there are no second-round effects, if oil prices are down and that softens inflation, the bank is not committed to a high dollar for a high dollar's sake. It is committed to moderating inflationary pressures, and for other reasons inflation is coming down. There is room to manoeuvre for the bank. Our bet is, given our forecasts, that excluding the GST, inflation will be lower in 1991 than in 1990. With US interest rates coming down, the bank has got itself some room. Whether in any given week it miscues, as it did in January 1990, that is a different issue and the question is, what kind of approach would it take?
The Chair: I would like to pursue that. I would assume that Sinclair Stevens, who has offered a suggestion as to why the central bank rate would stay as high as it is -- and the value of the dollar is up there. The other thing is that given the disastrous effects of the high value of the Canadian dollar on the Ontario economy and on the Canadian economy as a whole, one would have had to ask that question about a year and a half ago when the trend started to move the dollar higher. Since there is no economic gain for Canada and Ontario to have a dollar at that height and yet we do, one would still have to ask the question, have we taken into consideration that there may be reasons other than economic reasons that the value of the dollar remains high, and have we calculated that, just in case?
Dr Christie: If I could offer one comment on that, first of all we have not calculated scenarios in which the dollar or interest rates stay high for non-economic reasons. In particular, probably the most convincing scenario that we might look at in terms of higher interest rates and a higher dollar would be one in which we had underestimated how strong the economy was or how much inflationary pressure there was left. In that case, we might see a somewhat stronger economy than we think, to which the Bank of Canada reacts by imposing higher interest rates on the higher dollar, which might mean more strength in the near term but more weakness in the longer term. We are pretty sure we are not underestimating the strength of the economy, so that is not a scenario that we have looked at in any detail.
Mr B. Ward: A quick comment-question, I guess. These are very troubled times and there are so many variables in any type of projections. Do you find that this is one of the most difficult periods that you have had, in your experience, to attempt to project where the economy is going and where the Ontario economy is going because of the variables that are obviously thrown into the puzzle, so to speak?
Mr Stockwell: Last year was the worst time.
Mr B. Ward: Was last year worse?
Dr Christie: I suppose the first comment would be that the big noneconomic variable on the scene is the Middle East. That is always particularly difficult for economists or anyone who is not a military person, and I rather suspect it is very difficult for people with a military background as well. These things are inherently unpredictable, and there are far more issues involved in what is going on over there than what effect it has on Ontario's economy. However, having said that, that is one of the big clouds over what we are looking at in terms of the next year coming up.
Bank of Canada policy is another big question mark. The comment has been made that it is difficult to understand why interest rates and the exchange rate have stayed so high for so long. The only explanation we have been able to come to is that the governor is very serious when he says he is pointing towards zero inflation. That is something that we have some difficulty coming to grips with in terms of a forecast like this, because we have not seen a convincing explanation of the benefits of zero inflation, given that we know what the costs of the policy are.
So those are two uncertainties. Having said that, times are always uncertain, but these probably are more uncertain than most.
Mr Phillips: We will get the revenue estimates I think in a couple of weeks, as you said, when we get the third-quarter stuff out, but my question is, what attention should the committee pay to the province's credit rating? Let me just go on a little bit with that. I gather we have a debt of about $40 billion and Ontario Hydro has a debt of something. We guarantee the debt of Hydro I think. The gentleman said Canada has a trade deficit of $15 billion a year, I guess, and it borrows offshore. The federal government borrows a couple of billion dollars.
I am just trying to get an idea from the Treasury people. What are the benefits or lack of benefits on whatever our credit rating is today? How much of our debt do we borrow offshore, outside of Canada, outside of Ontario, I guess, and is there any consideration we need to have as we look ahead at borrowings that will be required for the province in the next 12 to 18 months the way that we are rated for credit purposes, and just whether that should be something that we are thinking about?
Dr Christie: I find it difficult to offer advice on the committee's agenda. It is certainly a matter of concern to most governments and to most governments at these kinds of times, not only because it affects the cost of borrowing, but if my Treasury and capital market colleagues were here, I think they would tell you that it also affects the availability, that there are a number of organizations that will have restrictions are terms of their lending, will have restrictions on, "I will only have so much double A, or I will only have so much single A." What they will not have is restrictions on how much triple A or double A-plus, for example, and if in very uncertain times people prefer to have those higher quality -- as determined by the ratings -- credits, there may well be some value in that credit rating in terms of simply the ability to access those funds. So there are generally held to be both cost and availability benefits from the higher credit rating.
1620
Mr Phillips: Could I just ask you a specific thing, because maybe it is too general. How much of our debt do we service offshore? Our debt is $40 billion, but I do not what Hydro's debt is. In terms of not just the availability but the specifics, what is the impact of a lower credit rating? Is it like 0.25 of an interest point or is it different?
Dr Christie: The quarter of a per cent has been used. I have heard it used in the past. If there is a current estimate, we would have to confirm that.
In terms of how much of the $40 billion is foreign borrowing, my understanding, and again subject to confirmation, is that it is primarily held by our Ontario teachers' pension fund, the public service fund, Canada pension plan for example, so it is almost entirely in Canadian dollars held in Canada. Now as those funds are lending the money other places, it may be in future at some point that there would be a significant amount borrowed abroad, but at the moment I do not believe that is the case.
Mrs Sullivan: First of all, I have some things that I want to add to the list of information that I would appreciate Treasury coming back with, but I also want to go back to Qaid's remarks in response to your questions, Mr Chairman, about the Canadian dollar and so on. You are predicting a 6.1% increase in the CPI for the 1991-92 fiscal year and you have indicated that you feel that the Canadian dollar will come down because real inflation is basically decreasing and the difference is the effect of the GST on the CPI. Are you predicting then the GST effect on CPI at, what, about 1.5%, or where? What is your figure?
Mr Silk: For 1991 we had built in one and a half percentage points for GST. That is slightly higher than the estimate of the Department of Finance of 1.25. We also differed on the fact that we thought there would be to some extent second- and third-year effects, much smaller but none the less there. We might have to revise that a bit given a very weak economy, but there may not be sort of some spillover into future years.
That is the impact we have, so with a 6.1% inflation rate for Ontario, excluding GST, we would say 4.6, let's say, which is less than last year's 4.9. The governor has already said that he understands the GST will boost inflation, and as Bob earlier pointed out, one of the things we are going to find out from Statistics Canada actually when we publish the CPI in the next few months -- it may not show up in January, for a variety of reasons, where retailers are trying to sort of bite the bullet or whatever, but none the less over a few months it will become clear as to what extent that thing has been passed on. The governor has said, if in future months or in future quarters that does not show up, then he will consider that a one-time bullet which he is willing to live with and not jack interest rates in response to that.
The Chair: With the indulgence of the committee, it is 4:25. If I allow five more minutes for questions, we do have one more piece of business that we have to do before we leave tonight.
Mr Jamison: Many of the questions that have been asked in the committee have dealt very plainly with the policy of the Bank of Canada and again, I just have to really say that I am rather concerned that the Bank of Canada has not chosen to really give us any kind of submission at all. I know that we are going to get submissions from the Toronto-Dominion Bank and the Royal Bank, but those banks really follow suit and I really feel that it would be extremely important to try to get some kind of submission from the Bank of Canada on this issue, outlook and suggestions, and hopefully have someone here whom we could ask questions specific to the economy. I just want to express my concern.
I think it is evident today that again many of the questions that have been put forward deal specifically with the position that the Bank of Canada will be taking or has taken or whatever. I really think it is important to try to readdress that invitation with it, because this province represents one out of three Canadians. I think it is important enough that it make a submission. I really do not understand that it cannot make time for the province of Ontario.
The Chair: I agree with those sentiments entirely. In fact I would ask the clerk to try again to pursue and have a written reason sent on to us why it will not appear before this committee.
Mr Christopherson: I have obviously had the opportunity to have almost all of this material given to me in briefings through the department with the Treasurer. One question that I did not ask and that comes to mind now is, two of the main variables over the last few months in predicting where things might go, of course, were the price of oil and the American economy. Since then, with the advent of the war, we know what it can do to the price of oil if it is a prolonged war, but what might it do to the American economy? Given how that would impact on us, I can think that initially there could be a boom, the old argument that war is positive for an economy; yet the briefing here states that it is intensifying the recession. Briefly, could staff just touch on what the short-, medium- and potential long-term effects of the war on the American economy as it relates to ours might be, please?
Dr Christie: I think the approach that we have taken has been more hooked to oil prices. The war will have two or three fundamental impacts, the first being oil prices. That may go one way or the other, depending on the course of the war. The learned people who discuss these matters seem to relate that side of it to whether there is destruction to production or distribution facilities outside of Iraq and Kuwait and those are things that we will watch for in terms of our monitoring of the economic impact of it.
The United States, from the perspective of oil prices, is very much like Ontario. It is an importer, so the negative impact of oil prices is as we described for Ontario; that is, it is like a tax levied by the rest of the world on the United States, and the reduction in economic activity resulting from that on the US side would then feed through to us because it is the biggest customer on the export side.
The possible upside, I suppose, of war would be government spending in the United States. To the extent that it needs to replace facilities or equipment, it might run a higher deficit and would require a higher deficit to have any of the standard economic multiplier impacts. If in fact, as appears more likely given its deficit problem, any additional spending it undertakes with respect to war is financed by either raising taxes or cutting other problems, as our federal government has indicated it will do, there would not be any material economic benefit coming from the war; perhaps a minor postponement of the so-called peace dividend, but we would not add any positive side to our economic outlook on that account.
1630
Mr Christopherson: I have had a chance, individually and in private, to thank some of the staff in Treasury -- and I guess all the ministers and parliamentary assistants might feel this way and may be taking their opportunity -- for the kind of work, support and co-operation they have shown. None of us really knew what we were going to walk into, quite frankly, especially with Treasury, and there were interesting dynamics in the early days, watching all of us try to see where we are all coming from.
I would like to say publicly how much I appreciate the efforts of each and every one of the staff that I dealt with in Treasury. Without exception, they have done everything they can to make the transition as comfortable and as easy as possible and have played a positive, supportive role. I want to take the opportunity to thank each of you for that. It is much appreciated.
Mr Kwinter: I have a question about the unemployment rate. The present unemployment rate is at 7.8% and you project that that will be reduced to 7.3%. How realistic is that?
Dr Christie: At the very start of our discussion one of the points we tried to bring to the committee's attention was that there has been new information come to light in the past couple of months since this forecast was made and it creates certain downside risks in the forecast. I think the unemployment rate is really a classic example of that. I believe that even two months ago that rate was in the high sixes or low sevens. It has been in the last two months really that it has gone to the 7.8% level.
While we have not redone that number for the purposes of the public forecast yet in the budget, we will be looking at that over the next couple of months. Obviously the fact that the December number was 7.8% is going to make it somewhat more difficult for the economy to achieve that average forecast over the year.
Mr Kwinter: Are there 20,000 new jobs factored into that already?
Dr Christie: No, the forecast of zero net new jobs next year included the impact of the anti-recession program. Without that the forecast would have been minus 20,000.
Mr Kwinter: Okay. My other question is, when you talk about the real external trade and you are showing very little growth and given that trade constitutes about a third of our gross domestic product, has that been factored in as well?
Dr Christie: Yes, that is factored in.
Mr Phillips: Can I go back to that debt thing again and the end of it? I would not mind hearing from somebody from Treasury who was really intimate with this, because I look at your document and it says here, "As a result of these pension reforms, the province will no longer borrow from the teachers' and public service pension plans."
Later on it says, "In view of Ontario Hydro's growing borrowing requirements and the possibility of the province's public market borrowing in the future, the province and Ontario Hydro are developing a global financial strategy to take advantage of financing opportunities in both Canada and international capital markets."
The point I am making is that, for me at least, I do not think we are going to borrow from the teachers' and the public service pensions in the future. I do think we are going to service it offshore or out of Canada and I would not mind some time between now and when we finish maybe hearing from somebody from Treasury who works -- I am not suggesting you do not work in the area, but someone maybe more deeply involved in it.
Dr Christie: I think we can find someone who is more deeply immersed than I am.
Mr Stockwell: I wonder if it would be the committee's recommendation or staff's, I am not sure whose, but I would really like to see some revenue projections. I find it very difficult to deal with any kind of recommendations or have any kind of consultation without revenue projections. It is like dealing in a vacuum. I am not asking for where you are going to spend the money or spill your budget. I am just asking how much are we down, how much more we expect to go down and how much money we see ourselves short for 1991. Unless you do that, there is very little valuable input that we can give the Treasurer.
The Chair: Mrs Sullivan gets the last word.
Mrs Sullivan: There are some things that I think would be useful for the committee to have. Some of them relate to the economic side; others relate to other parts of the ministry's operations. Out of your projections relating to new unemployment rates and changes in employment, I wonder if we could see your projections on changes in uptake for the FBA and general welfare assistance.
I think the Chairman has asked for an analysis of federal offloading and the kinds of difficulties that creates in Ontario over the next fiscal period. I would also like to see a similar analysis for changes in the unemployment insurance legislation federally, both decreases and increases in terms of our revenue situation and the net change.
I was interested in your charts relating to business investment activity. I have been reading materials lately, both from Statistics Canada and from research institutions, that suggest that while capital expenditures will be down, research and development activity will be significantly up. I wonder if you have further data on that.
If I could as well go back to a theory that certainly the previous government believed, that debt is not only in dollars but also in facilities, I wonder if Treasury could provide an analysis of infrastructure requirements, particularly in the greater Toronto area, as well as in the broader regions of Ontario, particularly relating to water and sewer issues and the kinds of financial requirements that will be needed over the next immediate period of time to meet those.
What I also think it would be useful, since this has not been included in the material that you provided, would be an analysis of self-employed new business startups and bankruptcies in that sector and what the impact would be of applying the employer health tax to self-employeds.
Mr Christopherson: Is that all?
The Chair: There is one question left. I would like to know how much the GST is going to cost the provincial government, how much taxed is the running of the government.
Mrs Sullivan: I too would like to thank Treasury for being here.
The Chair: On behalf of the whole committee, I would like to extend our thanks to you for coming. If we have any further questions, we will send them along to you as they arise. We are just at the beginning of this process, and I think that by the end of the process, after hearing some 60-odd submissions, we may have some more questions for you. Thank you very much.
Before everybody disappears from the committee, we have another piece of work that has to be done. We seem to be very popular and there seem to be a large number of people who would like to come before us. In fact, we have more people than time allocations. We must make a decision as to what we will do. As soon as Mr Decker finishes handing it out, we will let him describe what the situation is and what we might do.
Clerk of the Committee: At its last meeting, the committee authorized the subcommittee to proceed with scheduling and to hold a meeting early in the new year to do that. The subcommittee did so and instructed me to leave the last two days of public hearings unscheduled so that the committee would have some flexibility in choosing among the groups that were still on the waiting list to make presentations.
The appointments for next Wednesday and next Thursday have not been set. There are a total of 20 appointments available and on the list as it appears now there are still 30 groups to be scheduled. I do not know how the committee would want to handle that, whether it would be to meet on Fridays or spill over into the next week.
1640
The Chair: How much time is there in these allotments?
Clerk of the Committee: Thirty minutes.
The Chair: Would it be possible that we could shorten them to 20 minutes and do three in an hour as opposed to two? I am looking through this list and I see number 30 on the list is an individual who has already sent in a letter. While the issues are very important to him, I do not think he is going to take a half-hour and I do not think we would want to spend a half-hour. There may be more like that.
Mr Kwinter: Can I make a suggestion? What we might do is have the clerk go through the 30 names, find out where there is duplication, where there are people pretty well in the same areas as others that have already come in, and allow them a lesser time, not to sort of disqualify them, but maybe to have 30-minute intervals for people who are bringing new information from new groups that we have not had any information from. We might give a shorter time to those bringing information that we have already heard from people in the same field.
Mr B. Ward: I think an example would be the Toronto Home Builders' Association. We are receiving a brief from the Ontario Home Builders' Association and there may be some overlap. That would be an example of a shorter time, where 30 minutes would not be required in that particular case. I think it is a good idea.
Mr Kwinter: I am not talking about your schedule. I am talking about this list of people who have not been scheduled.
The Chair: It is the same with the home builders and the Urban Development Institute. These are pretty much crossovers.
Mr Phillips: I thought I heard three weeks of hearings. Was I incorrect?
Clerk of the Committee: The committee has authority to meet for three weeks. It was the feeling of the subcommittee that the public hearings be held in the first two weeks and the third week be reserved for preparation of a report to the House.
The Chair: You probably know this better than I do, you have been on more committees, but we have to come back and hash out what we want to say, with great wailing and gnashing of teeth.
Mr Stockwell: That will take a couple of minutes.
Mr Phillips: At least one of these groups we should hear from. I have just glanced at them and there are some pretty powerful organizations.
The Chair: We could add a Monday morning or a Friday.
Mrs Sullivan: Why is 30 January not scheduled? Is that where these ones are going?
Clerk of the Committee: Yes. The subcommittee wanted to leave the committee some flexibility so it left two days unscheduled. There are a total of 19 spots available on those two days. While the subcommittee did not want me to schedule them, they did want me to schedule the Ontario Nurses' Association. The only day they were available was the 31st, so one of those I committed to them
If we were to add, say, a Friday morning from 10 to 12 that would be four time slots, and then a Monday afternoon of the next week when we would be writing a report, that would give us six. That would take all 30 of them and leave the remainder of the week for writing a report.
The Chair: There is a possibility of a Monday morning. How does that feel? Some people have a lot further to come than others.
Mr B. Ward: I move Monday. Slot them in on a Monday.
Clerk of the Committee: Next Monday and the following Monday.
Mr Stockwell: When you tell them you are reducing their time limit, they are not going to be keen on it.
The Chair: There is going to be a time limit.
Mr Stockwell: I understand there is a time limit. If we can make accommodations to hear them all the same length, I would be prepared to do that.
Clerk of the Committee: I think there are three individuals on this list. What I could do is schedule these individuals at the very end of a morning session or an afternoon session and there would be nobody following, so the committee could spend as much time as it wants. If you only spent 10 minutes, you would not be sitting around waiting for the next group, you would spend 10 minutes and that would be it. They would make their presentation and if you had no questions, that would be the end of the meeting.
Mrs Sullivan: I do not see the Ontario Federation of Agriculture on this. I think we should request them to be here. I think it is very important that they be here as the sector that the Ministry of Treasury and Economics has identified as one that is in a difficult transition. I think that we should be hearing from them, even if we have to drag them here.
Mr Jamison: I agree with that. There are important issues that are relevant to the economics of GATT and so forth. I think it is very important that they be here also.
Mr Christopherson: Are we talking 10 o'clock on Monday morning being enough to accommodate everybody?
Clerk of the Committee: If we met next Monday morning in addition to Monday afternoon, that would give us two hours next Monday morning to accommodate four groups. The following Monday would also be another four. That would give us 8 out of the 10. There are a couple of spots on the full agenda that are open as yet.
Mr Christopherson: Then I think this is what we ought to do. I would suggest, though, if we are going to get into a situation of not being able to meet, I agree with Mr Stockwell. If you are going to reduce people, you are probably better off to be arbitrary and say, "We have someone representing your sector or your concerns already, so we will receive your written and the oral just will not be possible this year." If you start giving some people 15 minutes and some 20 and others 30, you are really looking for trouble, so I agree with that opinion expressed by Mr Stockwell.
The other thing is that I thought Mr Kwinter had a good idea about comparing who has spoken already when deciding who we might have to not hear, but I did not quite understand why we would not go back to the original list also. I mean we should take a look at who is left that has not yet been heard or slotted and compare it there. It should not just be out of the remaining. We would deny, if you will, from the remaining, but the comparison should go right back to the beginning of everyone that we have heard. I think with all of that, we should be able to come pretty close to satisfying most everyone's needs and ensuring that we have covered the broad spectrum.
The Chair: We could start at 1:30 as opposed to 2 o'clock. So start at 1:30 and schedule two Monday mornings?
Mr B. Ward: And invite the OFA.
The Chair: Yes.
The committee adjourned at 1649.