CONTENTS
Thursday 28 November 1996
Economic statement
Hon Ernie L. Eves, Minister of Finance
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Mr TedChudleigh (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Mr TimHudak (Niagara South / -Sud PC)
*Mr TedArnott (Wellington PC)
*Ms IsabelBassett (St Andrew-St Patrick PC)
*Mr JimBrown (Scarborough West / -Ouest PC)
*Ms AnnamarieCastrilli (Downsview L)
*Mr TedChudleigh (Halton North / -Nord PC)
*Mr Douglas B. Ford (Etobicoke-Humber PC)
*Mr TimHudak (Niagara South / -Sud PC)
*Mr MonteKwinter (Wilson Heights L)
Mr TonyMartin (Sault Ste Marie ND)
*Mr GerryMartiniuk (Cambridge PC)
*Mr GerryPhillips (Scarborough-Agincourt L)
*Mr GillesPouliot (Lake Nipigon / Lac-Nipigon ND)
Mr JosephSpina (Brampton North / -Nord PC)
*Mr WayneWettlaufer (Kitchener PC)
*In attendance / présents
Substitutions present / Membres remplaçants présents:
Mr TonyClement (Brampton South / -Sud PC) for Mr Spina
Mr HowardHampton (Rainy River ND) for Mr Martin
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Alison Drummond, research officer, Legislative Research Service
The committee met at 1538 in committee room 151.
ECONOMIC STATEMENT
The Chair (Mr Ted Chudleigh): I'd like to call the standing committee on finance and economic affairs to order. To start with, I would like to ask the press to please be aware that there is a committee meeting going on and to go about your business as unobtrusively as you can. Thank you very much for your cooperation. There is an overflow room in committee room 2, which is around the hall to the right as you go out the door. This will be on television and monitors in that location.
The purpose of this meeting is to hear a presentation on Ontario's economic and fiscal outlook from the Minister of Finance. Mr Phillips, did you have a comment?
Mr Gerry Phillips (Scarborough-Agincourt): I wanted to say two things. One is that I am very, very disappointed that we were told that this report would be released at 3:30 and that there was no pre-release. I then find when I get here that the minister had agreed to give the report to a limited number of people at 3 o'clock. I find that unacceptable.
The second thing is that, Minister, you personally promised me that this statement would include the transfer payments. I've now had a moment to look at it, and I don't think you have lived up to that promise you made to me that this was the purpose of this statement.
I just wanted to register those two things, mainly because I'm very angry that some would be given an advance copy of this and the committee was told it would be released at 3:30. We arrive here in good faith, only to find that at least a half an hour ago a whole group of people had the report. I think it's bad manners.
Hon Ernie L. Eves (Deputy Premier, Minister of Finance): First of all, if I could, Mr Chairman, I would like to say to Mr Phillips very directly that the Minister did not agree to anything. The ministry may have agreed, as I understand, to have a media embargo of this document until the committee proceedings started. I share your concern. If that arrangement was in fact made for the media, it should have been made for members of the opposition as well. That is what I have to say about that.
With respect to my commitment, as you put it, to announce transfer payments at the same time, I don't believe I ever said any such thing. There have been some deliberations as to exactly what format this statement would take. I have, if you'd care to look at it, a listing of fall economic statements in the province of Ontario since 1983, and I note that when your party was in government, from 1985 until 1990, never once did you have a fall economic statement that included transfer payments. So it's very interesting that you should be concerned.
Mr Phillips: I'm sorry, Minister, but when I asked, "When are we getting your fiscal and economic statement?" you looked me in the eye and said: "It is taking longer for me to get the transfer payments finalized. When they're done, we will make the announcement."
Hon Mr Eves: If you will wait until this statement is complete, you will see that in fact there is reference to two sets of transfer payments in the statement itself, so perhaps we should proceed.
Mr Gilles Pouliot (Lake Nipigon): On a point of order, Mr Chair: On the same note, I too came here, responded to the invitation to attend to this committee to which I belong, to which I am appointed, and I expected, as per agenda, an economic statement. In lieu of that, we're presented with a sort of rosy update. I'm sure that the Treasurer and Minister of Finance will agree with me that when we're addressing the transfer partners, they will have to take the hit to the tune of $3 billion, so it's only just that when you inform people you will also tell them when the hits are going to take place. People have to plan. We're here to listen to you. What plan of action do you have, meticulously, precisely, vis-à-vis the $3 billion the crown is seeking?
The Chair: We'll get on with that listing in just one moment. The minister will make his presentation. There will then be approximately 30 minutes for questions, for which we will proceed in rotation starting with the opposition party, and there will be 10 minutes for each party to ask those questions.
With that, Mr Minister, I would like to welcome you to the committee. Would you like to proceed, please, with your economic and fiscal outlook.
Hon Mr Eves: I am pleased today to present Ontario's 1996 economic outlook and fiscal review for the information of all members of the Legislature and indeed for all Ontarians. Over the last year and a half, the government has acted to renew the province's economy and get Ontario back to work. Today I am providing a midyear update on what I believe to be the concrete results of those actions, including an economy that is outpacing the cautious budget projection of 1.9% growth for 1996 and is now expected to grow by 2.3% this year.
In addition to this statement, I am releasing a document containing more than 100 pages of additional information focused on Ontario's economic outlook and fiscal position. This information will be useful to Ontarians in understanding, in detail, the economic and fiscal environment in which we will be preparing for the 1997 budget.
Furthermore, I will also be tabling in the Legislature Ontario's 1996 open financial disclosure report, which outlines Ontario's financing activities. As you will recall, last year was the first time this had been done in the province of Ontario's history, and we are continuing with that tradition.
This information will, I trust, be useful to those wishing to offer advice or ideas to the standing committee on finance and economic affairs, to members of the Legislature or to me directly, as Minister of Finance, on the measures to be included in the 1997 budget. As I indicated when ministry business plans were released last April, we want to hear ideas on how we can become a more efficient, innovative and accountable government. We continue to be open to new and innovative ideas to achieve the objectives we have set as a province.
Our actions taken to date are producing tangible results and our plan is working for Ontarians.
In the Common Sense Revolution and in the throne speech, we described our vision for Ontario and our plan to make that vision a reality. We are removing the obstacles that too much government and red tape have put in the way of people who want to create jobs in Ontario. Obstacles such as high taxes and ballooning deficits threaten our children's future and they choke our economy.
When this government took office, we faced a deficit of $11.2 billion. This meant that the government was spending $1 million an hour more than it was taking in in revenue, 24 hours a day, 365 days a year. In the budget, we took the necessary actions and cut the deficit this year to $8.2 billion. This represents a reduction of some $3 billion, or 27%. By next year, we will have reduced that deficit figure to $6.6 billion, a reduction of more than 40%. We will keep on that downward trend until the deficit is eliminated by the end of the fiscal year 2000-01.
So I am pleased to be able to report that the economic and fiscal plan that this government has put in place is on track.
We have overachieved our fiscal target for last year by almost $600 million.
With improved economic performance, I would expect that we will not need to use the $650-million reserve fund set aside in the 1996 budget for this year unless some unanticipated risk, such as an economic downturn, occurs to require its use between now and then. That would appear to be unlikely indeed. We need to stay vigilant, however, in our management of the province's budget. Just as last year, with improving economic performance, I fully expect that we will exceed our 1996-97 budget target.
Our five-year balanced budget plan is already producing dividends: 127,000 net new jobs in the province of Ontario since the end of June 1995; improved economic performance, including lower interest rates; lower interest rates compared to the US, due in part to more responsible fiscal policy all across this country of Canada; renewed confidence on the part of consumers and investors; overachievement of fiscal targets and flexibility to make key reinvestments in services of critical importance to all Ontarians.
According to the Conference Board of Canada, consumer confidence in Ontario has risen by 19.2% so far this year.
Nationally, business confidence held steady in the third quarter, with 53% of respondents citing Ontario as the most desirable province for investment.
For example, businesses in Ontario are planning to increase plant and equipment spending by 11.9% in 1996.
Since June 1995, 127,000 net new jobs have been created in Ontario alone. This is close to 60% of all jobs created in the entire country over this period. They were created here in Ontario. Prudent and cautious projections suggest that between 200,000 and 300,000 net new jobs will be created over the next two years. We fully expect that the Ontario economy will again outperform our cautious projections and exceed those levels of job creation.
Lower interest rates are another indicator of domestic and international confidence in the economic and fiscal policies being pursued in this country. The prime lending rate is at its lowest level since 1956. Five-year mortgage rates are at their lowest level since 1965. Ontario's housing resales have increased 24% so far this year. Housing starts are up 21.6% from last year. Both housing resales and housing starts are expected to continue to strengthen over the next few years as stronger job gains, lower mortgage rates and improved consumer and business confidence support an increase in activity.
Providing Ontarians with well-deserved tax relief is a key part of our job creation strategy.
It is leaving more money in Ontarians' pockets now. By leaving more money in Ontarians' pockets now and laying out a real plan to continue to cut taxes, we are restoring confidence about the future. This will encourage people to buy whatever they need or want for themselves and their families.
Lower taxes are also creating the incentives for businesses to invest in Ontario and for entrepreneurs to start up new businesses. For people to take the risks of building or expanding businesses, they need to see the potential reward of their efforts. Our plan for competitive tax rates will make this happen.
1550
A competitive tax system is also critical to attract those with specialized skills to companies in Ontario. These are the people and the companies that can help Ontario compete throughout the world. Their success means jobs and growth, not just for the companies themselves but for their suppliers and related companies in Ontario and across the country.
On January 1, 1997, Ontarians' take-home pay will go up again as the second stage of the tax cut announced in the 1996 budget comes into effect. Fully half of the promised 30% personal income tax cut will have been delivered as promised. This will mark the second time in six months that Ontario taxpayers will see an increase in their take-home pay. This may be, for most people, the only increase they have seen in their take-home pay in some period of time.
By 1999, we will have reduced Ontario's personal income tax rate by 30.2%. For many with modest incomes, the tax cut will be even larger. Ninety-one percent of all taxpayers will receive a tax cut of 30% or more. With these changes, 10,000 more Ontarians with low incomes will have their income taxes eliminated entirely and more than 1.1 million Ontarians will benefit from the Ontario tax reduction. The top marginal tax rate in Ontario will be reduced to 49.6 cents on each dollar earned, the second-lowest in Canada.
These changes mean more money for people to spend or invest, more incentives for initiative and growth, and a more competitive tax system -- and that means jobs.
Our agenda to create jobs through tax cuts is not limited to cutting personal income taxes. Everyone agrees that payroll taxes kill jobs. We are doing something about it. As of January 1, we will cut the employer health tax for all businesses. This will create jobs. When fully implemented, it will mean that 88% of private sector Ontario employers will no longer have to pay this payroll tax.
This fall, the government kept its commitment to cut the average workers' compensation premium payroll tax by 5%.
However, the federal employment insurance payroll tax is being maintained at a level far higher than is needed to support the benefits it provides and to provide for a future economic downturn. As both the Canadian Federation of Independent Business and the Canadian Chamber of Commerce have stated, there is clearly room for EI premiums to come down from the current $2.90 rate announced on November 19.
We have ended the tax-and-spend policies of the last decade. Last year's budget contained 10 tax cuts, including the personal income tax cut and the cuts to the employer health tax, among others. We have exempted call centres from retail sales tax. Since the budget, IBM has opened a 1,000-job call centre in North York. S&P Data opened a new 300-job call centre in North Bay. Canada Trust, CIBC Insurance and TD Bank are among others expanding their call centres.
We have also provided a rebate of retail sales tax on building materials, available to Ontario's more than 60,000 farmers by the end of this fiscal year.
We have provided an incentive for first-time home buyers in the province purchasing newly constructed homes, in the form of a rebate of the land transfer tax until the end of March 1997. So far, over 6,000 Ontarians have taken advantage of this benefit and now have the pleasure of owning a new home.
Other tax measures include the introduction of the Ontario film and television tax credit, the cooperative education tax credit, a reduction in the racetrack tax and, by 1999, the elimination of the employer health tax on the self-employed. We have also paralleled a number of federal corporate tax budget measures that result in tax reductions.
In the 1997 budget, I will announce the next steps in implementing the continuing reduction in personal income taxes in the province of Ontario.
Ontario's economy is showing solid progress. In the 1996 budget, we expected real economic growth of 1.9% in 1996. As I indicated earlier, our current outlook is 2.3% growth this year, increasing to 2.9% in 1997 and 3% in 1998.
Lower taxes, more jobs and increased wages will lead to stronger growth in disposable income and consumer spending. In stark contrast to the reductions in real disposable income experienced during the early 1990s, real disposable income is expected to rise by 2.3% in 1997. This should lead to a 2.5% increase in consumer spending.
Investment spending is expected to rise sharply as business confidence is restored. Ontario's machinery and equipment investment is expected to grow by 10% per year, on average, over the 1996-98 period.
Non-residential construction will also expand rapidly, rising at an average annual rate of 6.3% over the same period, a significant turnaround following six years of decline.
Ontario accounts for close to 60% of Canadian manufactured exports. With a much improved competitive position, Ontario exporters are expected to continue to gain market share in foreign markets. Exports are projected to rise by an average of 4.8% over the 1996 to 1998 period.
Export growth has produced a record trade surplus and, in the second quarter of 1996, eliminated Canada's current account deficit. Ontario's strong competitive position has made a major contribution.
Further details on the economic outlook are contained in Ontario's 1996 Economic Outlook and Fiscal Review.
We are implementing changes that will make government work better for the people of Ontario. We will continue our efforts to identify additional savings over the next several months through the budget preparation and ministry planning process. These savings will not only assure achievement of our balanced budget target, they will permit significant and substantial reinvestment in improving health care, education, and other services that Ontarians have told us are priorities for them.
We are working towards completion of the process of finding savings in the government's own operations and programs. These programs are currently being reviewed and decisions will be announced by the responsible ministers following completion of the ministry business planning process, directed by my colleague the Honourable Dave Johnson, Chair of Management Board.
The Who Does What panel, chaired by David Crombie, is expected to release the complete set of its recommendations early in December. The wide-ranging reforms to the organization, management and financing of local services being examined are directed at increasing accountability, eliminating overlap and duplication, improving quality of services and enhancing value for the taxpayers' money.
In my November 1995 fiscal and economic statement, I announced a two-year funding commitment for grants to municipalities. Their transfer payments for 1997-98 are already known. They were announced over a year ago.
For years, education spending in Ontario has been increased without ensuring that money was directed where it was needed most: to educating students in the classroom. The Sweeney report found that as much as 47 cents out of every dollar was being spent outside the classroom. We have made it our priority to focus spending on students in the classroom.
The Minister of Education and Training has already announced a number of measures to improve the quality of education in Ontario's classrooms. We are implementing a demanding curriculum, setting clear standards for students to meet, and using province-wide testing to measure student achievement against those standards.
A new funding model is being designed for our education system to make it fair and more accountable to taxpayers. The minister is also reviewing the issue of school governance, and he will be making a comprehensive announcement on restructuring and funding in the school sector.
The knowledge and skills of Ontario's labour force are a key economic strength of our province and are qualities upon which our program of jobs and growth will build. Our colleges and universities play a critical role in providing the education, skills and research needed in a competitive economy.
The Advisory Panel on Future Directions for Postsecondary Education is studying the future of our post-secondary institutions and is expected to report by December 15. The Minister of Education and Training will announce funding levels for colleges and universities shortly thereafter.
Initiatives introduced in the 1996 budget will continue to assist the post-secondary sector.
1600
The cooperative education tax credit will help promote co-op programs across the province, providing jobs for some 20,000 co-op students in the province this year. The Ontario student opportunity trust funds will assist qualified students who need support to take advantage of opportunities offered by our post-secondary system. This initiative has been an outstanding success.
Universities and colleges are on track to achieve their targets of raising nearly $100 million from companies and individuals. The province will match any donations to these trust funds made before March 31, 1997.
I want every person, every patient, and every parent in Ontario to know that this government is committed to funding the health care services we all need. Before we were elected, we promised to keep health care spending at no less than $17.4 billion. We have kept that promise, we are keeping our promise, and we will continue to keep our promise. In the 1996-97 fiscal year we have allocated $17.7 billion to health care.
In my November 1995 fiscal and economic statement, I announced a three-year funding envelope for hospitals. They know, and have known since last November 29, what their funding level for not only 1997-98 but indeed 1998-99 will be. Those transfer payments were announced over a year ago -- or a year ago exactly, I guess, tomorrow.
We recognize that restructuring to improve the quality of health care will require major reinvestment. We are committed to making the necessary investments. In the coming days and weeks my colleague the Honourable Jim Wilson, Minister of Health, will announce reinvestments in health care in Thunder Bay, Sudbury and other communities across the province.
As part of our commitment to maintaining the health system, we have already made significant new investments. More people of all ages will receive higher levels of care in their homes through the reinvestment of $170 million into community-based long-term care. An additional 80,000 seniors and people with disabilities will receive services such as nursing, therapy, homemaking and meal programs through this support and reinvestment, which will also create some 4,400 full-time front-line positions for nurses and other health care providers in communities across this province.
We have increased funding for cardiac care over the next two years to enable cardiac surgeons to perform 1,500, or 19%, more operations than they did in 1995-96.
We have earmarked $15.5 million for additional training for Ontario's paramedics.
In order to help correct the physician shortages in northern and rural Ontario, we are increasing the funding for northern medical training, funding a rural training program at the University of Western Ontario, and paying higher weekend wages or sessional fees to doctors working in emergency wards in underserviced areas, especially in northern and rural Ontario.
We are establishing 30 more examination centres for early detection of breast cancer, through the reinvestment of $24 million. We are equipping communities across the province with modern diagnostic technology in the form of 23 additional MRI units. We have made 275 new drugs available to seniors and welfare recipients.
We are reinvesting $23.5 million to enhance community based mental health services, to ensure that services are in place in the community before any more changes are made to inpatient services delivered by psychiatric hospitals.
We are reinvesting $25 million to expand dialysis services, improve access to care and provide treatment for more patients with chronic kidney failure. Since complications from diabetes are a major cause of kidney failure, we have also introduced programs that raise awareness about diabetes and how to reduce its incidence.
We have also reinvested $25 million in hospitals, mostly in the greater Toronto area, that are coping with the most intense population pressures in Ontario.
To date, the Minister of Health has made almost 40 major reinvestment announcements, with many more yet to come.
I am confirming today that we will be investing $6.5 billion next year in Ontario's hospitals, as I announced a year ago, and we are investing $736 million in our municipalities, as I announced a year ago.
To make decisions in a thoughtful manner, we are consulting with Ontarians through various reviews and panels, including our own business planning process, the Who Does What exercise, and the Smith advisory panel on post-secondary education. The government will not make the decisions on funding levels for schools until after it has received the complete advice of the Who Does What panel, chaired by David Crombie, and we will not be making any decisions on transfers for Ontario colleges and universities until we have received the advice of the Smith Advisory Panel on Future Directions for Postsecondary Education. I would also like to indicate that I would be willing to return to this committee once those announcements have been made by the respective ministers.
It has been a year and a half since the people of this province asked us to restore their vision of Ontario as a place of prosperity and opportunity.
Today, Ontario's economy is regaining strength. Jobs are being created in increasing numbers. Interest rates are coming down and consumer and business confidence is up. Businesses are adding new employees, purchasing machinery and equipment, and expanding and locating in Ontario. We are meeting our targets towards a balanced budget.
Today, more Ontarians are buying homes, finding new jobs and investing in the future. The people of Ontario want to know that tomorrow will be better than today, for themselves and for their children, and today Ontarians have more reasons to look to that future with confidence and optimism. Thank you, Mr Chairman.
The Chair: Thank you very much, Mr Minister. We'll now move to questions. We'll have 10 minutes from each caucus. We'll begin with you, Mr Phillips.
Mr Phillips: This was an interesting chamber of commerce speech. I think it probably was literally a blue cover put on something that was delivered to the chamber of commerce.
Minister, it was you, really, who raised the expectations of what we were going to be dealing with. I think you've said to every reporter at Queen's Park, certainly to me, that it was your intention to identify the $3 billion in cuts that were going to be necessary. You've used that number with the public. The public is anxious and the public is worried. In particular, those organizations that are going to be directly impacted are worried: the school boards, the colleges, the universities, all of those organizations.
We appreciate the speech, but it is not what you promised. You said to me -- I will say it again -- that the reason you were delaying your statement was because you were wrestling with the $3 billion, wrestling with the cuts.
My question to you is: Is it still $3 billion? Why are we waiting for you to come forward with the details? It is causing anxiety out there. And why did you indicate to us that you thought you would be ready in the middle of November, then towards the end of November, and then early December, and suddenly, 24 hours ago, you've completely changed your mind and we don't have the statement dealing with it; we've got the chamber of commerce speech?
Hon Mr Eves: I would like to address the points made by Mr Phillips very directly. What he refers to as a chamber of commerce speech is the same sort of document that has been produced in the province of Ontario in the fall for many, many years, including by every Treasurer in his government between 1985 and 1990. Having said that, they are typically exactly the same thing that Mr Martin delivered in Ottawa approximately a month ago. They are, generally speaking, in-year statements providing the province, or in his case the country, with an update as to where they are in-year with respect to their projections. That's what they've always been. The only big exceptions to that rule were, of course, my statement of last November, when there had not been a budget in the province of Ontario for about a year and a half and therefore we felt the need to have an economic statement.
1610
I want to address very directly the point you make about the $3-billion announcement and the expectations of not only yourself but, I would quite readily agree, a lot of people, not only in the media but throughout the province of Ontario. It was our expectation that we would be ready to deliver on that announcement by this time, but the more and more we got into the exercise, the more and more we realized that certain aspects of that would not be able to be fulfilled by the end of November.
The Who Does What panel will not be reporting till early in December. There is no exact fixed date that I know of. Of course, implicitly tied into that is the entire issue of school governance and funding, so we do not feel at this point in time that the Minister of Education or myself or anyone else in our government is able to tell the province what we plan to do with respect to education funding.
Similarly with respect to colleges and universities, the post-secondary education sector, the Smith advisory panel is not expected to report back until the middle of December. Therefore, we're not able, obviously, to tell you, until that panel has reported back to the minister, exactly what the funding levels will be for colleges and universities for the next fiscal year.
But with respect to transfer payments, as I pointed out in my statement, the municipal sector was told on November 29, 1995, not only what their transfer payments would be for this current fiscal year but what the total sum will be -- $736 million -- for the 1997-98 fiscal year, which is next year. They were told that a year in advance and some 15 months before that fiscal year starts. I believe that's the first time ever in the history of the province that that's been done. We gave them a two-year lead time. With respect to hospitals, we gave them a three-year lead time on November 29, 1995.
While I do appreciate the comments that you make with respect to the $3-billion figure, as I've stated in my statement there will be announcements forthcoming from those ministers when they're able to have made those decisions and they have those figures available to announce.
I can assure that that will be done in short order, but I can also assure you that it won't be done without some serious consideration and thought to the recommendations of the Who Does What panel report submitted by Mr Crombie early next month and by the Smith advisory panel submitted by approximately the middle of December.
Mr Phillips: Why don't you just say that? Why don't you just say, "Listen, I'm sorry, I was wrong; we can't get it done," instead of trying to put smoke and mirrors around this thing today? The fact is you are going to have cut $3 billion. You don't know where you're cutting it, and I think the public has a right to demand of you, how did you determine that you could cut $3 billion if you have no idea where you're going to find it?
Hon Mr Eves: I didn't say we have no idea where we're going to find it. Those are your words. I think I've been very forthright in explaining to you how we've come to where we're at today. I think I've just said exactly what you got through repeating.
It is traditional for treasurers in this province, the ministers of finance, to produce an in-year economic outlook and --
Mr Phillips: But that isn't what you promised.
Hon Mr Eves: Now you say that it's not --
Mr Phillips: No, no, what you promised -- not what was done before but what you personally promised. It's your word.
The Chair: It might work better if you'd let him answer the question.
Hon Mr Eves: I've already explained how we got to where we are today and why I cannot tell you the $3-billion reductions and why individual ministers will make their announcements as they are able to thoughtfully think through the process in their particular sectors as to where the reductions are going to be found. I've said it three times today. I don't know why you can't accept that as an explanation --
Mr Phillips: What I can't accept is your telling me one thing and doing something different.
Hon Mr Eves: -- unless you want to score political points, of course, but that's up to you. I think there's a lot of good economic information and news in here. Maybe you don't want to hear about good news in the province of Ontario. Maybe you didn't want those 127,000 new jobs --
Mr Phillips: What I want here is what you promised.
Hon Mr Eves: -- in the last 15 months. I've explained to you why I am not able to deliver on that today. I think I've been very forthright about it. In fact, I was very forthright about it with you on the telephone yesterday --
Mr Phillips: Oh, hold on there.
Hon Mr Eves: -- so for you to show up here today and grandstand is somewhat ridiculous, quite frankly, but you've scored the political points you wanted to score.
Mr Phillips: The second thing I'd ask you is that I see that people making a quarter of a million dollars in this province are going to get a $400-million tax break. Everybody making a quarter of a million dollars, the province has decided we can afford to give them $400 million at the same time as you plan to cut, I gather -- you've already indicated -- cut the hospital funding, cuts to school board funding. How is it that we can afford a $400-million tax break to people making $250,000 a year?
Hon Mr Eves: Mr Phillips, as you know, with the chart I provided to you a week ago in the House -- and I would like to know what your definition of rich Ontarian is, because --
Mr Phillips: It's $250,000.
Hon Mr Eves: That's a rich Ontarian.
Mr Phillips: That's pretty good.
Hon Mr Eves: That's fine. Then what you're telling me is that the overwhelming majority of the tax break we are giving through our income tax reduction in the province of Ontario is going to 99.5% of the people, and the people that you describe as wealthy Ontarians are 0.5% of that population. You will also know that for people who make $74,600 a year and less in the province, 73.4% of the total dollar tax reduction is going to those people. I don't think anybody would describe somebody making those sums of money and less as wealthy Ontarians.
The reality of the matter and the fact of the matter is that the overwhelming majority of the tax cut is going to average- and moderate-income Ontarians, and that, sir, is precisely why we designed the tax reduction the way we did, so that somebody at the bottom end of the economic scale who pays tax gets a 41.4% tax reduction and somebody at the upper end of the scale who makes a significant amount of money -- you describe it as $250,000 a year -- gets a 17.9% tax reduction.
Mr Phillips: Four hundred million dollars.
Hon Mr Eves: It's a progressive way of giving a larger percentage to those at the more modest end of the income scale. We felt that was the appropriate thing to do so that people making less money got more of a tax reduction.
The Chair: We'll move to the third party.
Mr Howard Hampton (Rainy River): To the Minister of Finance, we see what you're trying to accomplish here today. Everyone in Ontario knows that you have to cut a further $3 billion in order to finance your tax scheme, and we also know that the lion's share of that $3 billion is going to come from education, from health, from colleges, universities and municipalities.
It's clear from reading your document that you are going to try to list these cuts over the Christmas period, that you're going to try to pass these cuts off over the Christmas period and hope that no one notices them. For example, on page 11, you say that after December 15 "the Minister of Education and Training will announce funding levels for colleges and universities." You say on page 10, with respect to schools, that the Minister of Education "will be making a comprehensive announcement on restructuring and funding in the school system."
It's pretty clear what you're trying to do here. The one issue that everyone in Ontario is worrying about -- how much are you going to take from education? how much are you going to take from municipalities? how much from health? how much from colleges? how much from universities? -- you are trying to duck here today.
We also know that $3 billion in cuts will mean the loss of tens of thousands of jobs. We know that. We know, for example, with the announcement the other day from the Ministry of Transportation that 700 people are out the door, and we know that the magnitude of cuts here will mean the loss of tens of thousands of jobs.
This is nothing more than a shallow finesse effort. You've come here with information that anybody could read out of the Globe and Mail business report and you've tried to pass that off as some sort of economic statement. You're trying to hold off, you're trying to disguise which communities, which parts of education, are going to be hurt when the cuts are announced over the Christmas period.
I've got some questions for you, and I hope you can deny these. It's our information that your government is going to cut a further $800 million from education. That's the information we have. It is, further, our information that you intend to push off on to municipalities, on to the municipal property tax base, responsibilities for ambulance services, $36 million; community health centres, $103 million a year; public health units, $192 million a year; the assistive devices program, $141 million a year. These are all growth areas of health care and you intend to push them on to the municipal tax base. Minister, do you categorically deny that your government is planning to download those services and those costs on the municipalities?
1620
Hon Mr Eves: To deal with the several issues raised by Mr Hampton in his question, first of all on health care funding: This government made a commitment in May 1994, long before even the last election campaign started, that health care funding would not be reduced below $17.4 billion. We have not only lived up to that commitment, but we have allocated $17.7 billion in this fiscal year for health care funding. We will continue to live up to that commitment. It is a total fallacy, that I know you might like to project across the province, that health care funding is being cut. It is not; in fact, we have increased it some $300 million this year. That is a fact.
With respect to municipalities: They know what their transfer funding will be for the next fiscal year, 1997-98. I announced it on November 29, 1995. I gave them two years' notice. With respect to hospitals: They know what their funding will be for not only 1997-98 but 1998-99. I announced it on November 29, 1995. I realize this is something your government never did. They never gave them two and three years' notice with respect to transfers, but we have done that as a government.
I want to point out to you, as I pointed out to Mr Phillips, that the statement being made here today is an update, an in-year fiscal economic outlook that every Treasurer and every Finance minister in this province has delivered for decades upon decades, and it's taking exactly the same format. I see Mr Phillips shaking his head, but that is in fact the case.
Mr Phillips: That isn't what you promised.
Hon Mr Eves: I can give you the dates they were all made, the precise dates.
Mr Phillips: But that's not what you said you'd do.
Hon Mr Eves: And I can tell you that nine times out of 12, transfer payments were not included between 1984 and now. Mr Laughren, in 1993, for example, gave an economic outlook statement in late November, much the same as I did today, and he didn't get around to announcing transfer payments until March 23, about eight days before the next fiscal year started. You can rest assured, Mr Hampton, that we won't do to our transfer partners what Mr Laughren did on March 23, 1994. We have given municipalities and hospitals two- and three-year lead times.
Mr Hampton: Chair, my question's not being answered here. I put a specific question to the minister. I think we're due an answer. I put a specific question to you. Are you denying that you're going to cut $800 million from education? Are you going to categorically deny that health care programs like ambulance services, community health centres, public health units, the assistive devices programs -- are you going to categorically deny that you are strategizing to put the cost for those programs and the administration for those programs on to the municipal tax base? Are you going to categorically deny that?
Hon Mr Eves: I'm going to sit here and look you right in the eye and tell you none of those decisions have been made, absolutely none. How could we possibly make those decisions until we have Crombie's report in? How could we possibly make those decisions until we have Mr Smith's report in? By the way, David Smith, the former president of Queen's University, requested the date of December 15. I'm sure he didn't request, unless you're questioning his integrity, that it be produced then so it could happen over the Christmas season.
Mr Hampton: No one is questioning anyone's integrity. I'm simply saying to you that the $64-million question in Ontario is where are the $3 billion in cuts going to come from? You came here today and you gave absolutely no answer to that. You're not telling us where the cuts are going to come from. You're not telling us where the thousands upon thousands of job losses are going to occur.
I put it to you that your government is looking now at removing another $800 million from education, and I put it to you that your government is actively considering putting the responsibility for public health units, community health centres, ambulance services, the assistive devices program -- all these are growth areas of health care; they're very important areas of health care. I put it to you that your government is considering putting responsibility for those things on to the municipal tax base. I'm asking you, are you categorically denying that your government is considering those strategies?
Hon Mr Eves: Mr Hampton, our government is going to consider whatever Mr Crombie reports to it early in December and we can't possibly make those decisions until we have Mr Crombie's report, which is exactly why transfer payments in the education sector, and in the college and university sector with respect to the Smith report, can't be made by now. But decisions with respect to municipalities and hospitals have been made; in fact, they were made a year ago.
Mr Pouliot: Mr Minister, it's sad to see an expert working his craft, in this case. By spending the same money, or slightly more, in terms of health you must factor in that the population of Ontario increases some 200,000 per annum. You must also factor in, as you are well aware, that the demographics are changing rapidly in terms of usage, so per capita you're actually spending less. You need not emanate from Harvard or U of T in math to understand that.
Common Sense Revolution: 725,000 jobs. From page 4 of your address, you're hoping for between 200,000 and 300,000, a shortage of close to 50%.
Common Sense Revolution: The balanced budget will occur in your first term of office. Your address states that you will balance the books by the end of fiscal year 2000-01. I'm not aware that, constitutionally, you're entitled to have a six-year term of office.
I want to draw your attention to page 7. With high respect, Mr Treasurer, on page 7 under "Ontario's Economy is Responding to our Plan," your current outlook is for "2.3% growth this year, increasing to 2.9% in 1997 and 3% in 1998." Your friends at the Dominion Bond Rating Service have taken figures from your ministry which are slightly higher, at 4.8% for 1998 but 4.4% in 1997, and what they've done, by shaving 1% --
The Chair: Your question?
Mr Pouliot: Yes, I'm coming to it, thank you. It's calculated that you would need an additional $2.8 billion. Yet the discrepancy between the figures from your ministry quoted in the ROB by Dominion Rating and your statement delivered here today shaves by 1.5%. My own quick calculation means that, aside from the $3 billion that you're looking for now, you will be required to look for an additional $3.1 billion to $3.2 billion if their figures are right and if your figures are right, because of the discrepancy of 1.8% in 1998 and a discrepancy of 1.5%. Dominion Rating has taken as a threshold, as a common denominator, 1%. How are you going to find the $3 billion supplementary to this $3 billion? Your plan is in the tank, Minister, unless you revise the tax cut.
Hon Mr Eves: Mr Pouliot outlined several questions in the course of his remarks. I would like to address them all.
First of all, with respect to the job creation numbers, he would note if he reads the text that what we've said in the text is that these are cautious projections over the next two years -- not over five years of our mandate; over the next two years -- cautious projections that the province of Ontario's economy will create 200,000 to 300,000 jobs in addition to the 137,000 already created. If he would care to work out that math, I think he will find that if the economy continues to perform under those circumstances for a five-year term, indeed it will come to 725,000 or in excess of 725,000.
We've also gone on to say in the same text, in the very next paragraph, that if the economy performs better than our projections, and we have every anticipation that it will, as it indeed has done this year, those job numbers will go up and we will exceed those job numbers.
With respect to the date for balancing the budget, the former minister will know that his government indicated that they could balance the budget of the province of Ontario in three years' time. The Liberal Party, during the course of the provincial election, indicated they could balance the budget in four years' time, and we indicated that we could balance the budget in five years' time, and we have always said in the fifth fiscal year after our election. Those numbers are what we are aiming at. We believe we can reach a balanced budget in the province of Ontario by the fiscal year 2000-01.
1630
With respect to the DBRS numbers, the DBRS numbers he's quoting are based on nominal growth of the GDP. The numbers we are using in our budget are a real growth in the GDP; that's why there's such a significant difference. However, I do take his point that DBRS does say that if the economy of the province was to underperform by 1% a year for four consecutive fiscal years, which I don't think is going to happen -- it may well exceed our projections by 1% a year for four fiscal years -- in their opinion, we would require an additional $2.8 billion to meet our projections by the fiscal year 2000-01. On the other hand, what he doesn't say is that if the economy exceeds our projections by 1% a year for four consecutive years, we will have an additional $2.8 billion, which means we'll either have a surplus in the province or we will balance our books one year earlier.
The Chair: We'll move to the government side.
Mr Ted Arnott (Wellington): Minister, notwithstanding the critical comments of the opposition members that we've heard so far, there is indeed a lot of good news in this document you've presented to this committee today, particularly the job growth numbers -- 127,000 people who weren't working before June 1995 -- and also, from my point of view, your continued progress against the deficit, so that by the year 2000-01 we won't be borrowing money; we can start paying down some of the debt.
I was hoping I could get your comments on payroll taxes, because we've seen in the late 1980s the introduction of the employer health tax and in the 1990s increased worker's compensation premiums that have inhibited job creation. What do you think the effect of your changes to payroll taxes will have on job creation in the future in Ontario?
Hon Mr Eves: Mr Arnott, we view the fiscal and economic plan we have as having several components. One is deregulation, of course, eliminating as many payroll taxes as we can in the province because, as you know, the Canadian Federation of Independent Business, which is comprised overwhelmingly of small businesses across Canada, and the Canadian Chamber of Commerce -- any independent study done by those two independent bodies will show that payroll taxes are real job killers. There isn't any doubt about that.
As we've alluded to, just a few days ago my colleague the Minister of Labour announced a reduction of WCB premiums on average in the province of Ontario by some 5%. We are eliminating employer health tax to some 88% of small businesses -- sorry, 88% of businesses, all businesses -- across the province by 1999. This will mean that these employers will no longer have to pay this job-killing tax. We've combined it into our Fair Share health levy so that those making significant incomes, whom Mr Phillips was so interested in earlier today and so concerned about, will be paying the overwhelming lion's share of the Fair Share health levy. We thought that was a progressive way of ensuring that those people are doing that.
We are very concerned about payroll taxes. Recently, there's been a debate among several provinces and the federal government about the level of employment insurance premiums. As we all know, CPP premiums will be rising by 25 cents this year, with or without reform of the CPP pension plan. We are concerned that while that is rising and will kill anywhere from 100,000 to 150,000 jobs in the country over a period of time, there is not significant movement the other way in terms of UI premiums, where the federal government and its employment insurance fund has built up a surplus of some $5 billion to $6 billion by the end of this year and will continue to amass a $5-billion to $6-billion surplus every year for the foreseeable future.
Nobody would argue with the fact that there should be a contingency fund, least of all us, who have a contingency fund of $650 million allotted in this year's budget. But we do have to ask ourselves, is $5 billion or $6 billion not enough of a continency fund, as opposed to allowing that number to grow to approximately $20 billion by the end of 1999? We are very concerned about that. We, as indeed the Canadian Federation of Independent Business and the chamber of commerce, feel that the federal government could make significant reductions in their UI or EI premiums and pass on those on, which in turn will create jobs across the country. We are somewhat concerned about that, as indeed other provinces are as well, and we've indicated that to the federal finance minister.
Mr Tim Hudak (Niagara South): Thank you to the minister for appearing before us today. Minister, as outlined in the budget and reinforced today in the economic statement, there are 10 separate tax cuts for people in Ontario: most important, finally, a cut in the personal income tax rates for hardworking Ontarians. What have the cut in the personal income tax, as well as the other nine tax cuts in Ontario, done for job creation?
Hon Mr Eves: We've already indicated the 127,000 jobs that have been created in the province's economy since the end of June 1995. As you know, the first instalment of our tax cut only took place on July 1, 1996, with the second instalment to come very shortly, on January 1, 1997. If you look at the consumer and business confidence as measured by the Conference Board of Canada, as measured by many independent bodies, I think you will see a significant increase in consumer and business confidence in the province of Ontario, and growing every day. I think we're on a very good upward trend in the province. There is no doubt that reduction of taxation has led to some of that confidence. You heard the numbers earlier about home sales and construction, especially construction of new homes. Those are very, very important statistics indeed, especially in a very important segment of our economy that had been going the other way for many years.
Mr Wayne Wettlaufer (Kitchener): Minister, the opposition likes to talk about underachievement; I like to talk about overachieving. I notice on page 2 you say, "We have overachieved our fiscal target for last year by almost $600 million." Would you care to comment on the impact this has on foreign investor confidence, consumer confidence, business confidence in Ontario?
Hon Mr Eves: There is no doubt that not only in Ontario but indeed Canada-wide -- Ontario's economy obviously is very important to the country of Canada as a whole. We are in effect, in terms of the manufacturing sector and export sector, the engine that drives the Canadian economy, so what's good news for Ontario, as Mr Martin has often said to me, is obviously good news for the country as a whole.
It's a combination of factors. You now have all governments in Canada proceeding along what I think is a very fiscally responsible method of getting their debt levels and their deficit levels down. Many provinces, of course, already have balanced budgets in terms of their annual deficit. We are not so fortunate. The province of Ontario and the province of Quebec and indeed the federal government itself, being significantly the three largest players as governments go, are the three last to start doing something about their serious economic problem.
Having said that, whenever I go to New York or London or any other place, Zurich, the amount of international confidence in the Canadian economy and in the Ontario economy in particular is absolutely overwhelming. Many people ask how we have been able to do this, how we've been able to really turn the debt-GDP ratio around significantly in the province of Ontario and indeed in the country of Canada. This bodes very well, obviously, for the Canadian economy. You see that the value of the dollar is rising in international markets. We have low interest rates. Our interest rates, as I've already alluded to, are significantly lower than they have been for many, many decades, and I think that trend is going to continue. I know that Mr Martin and the federal government are very concerned about keeping interest rates low because they understand the impact it has on investor confidence and they understand the impact it has on international business confidence as well.
Mr Gerry Martiniuk (Cambridge): Thank you, Minister, for attending here today. As you know, Cambridge is bumping right along these days. As we speak, Toyota is busy constructing an increase in their plant which will mean 1,200 new jobs in 1997. Recently, I attended the opening of the only regional plaza, I understand, opening in Ontario or Canada for the year 1996. I noted from your statement, however, that foreign investment has increased rather dramatically this year over 1990-94. I was wondering if you could point to specific steps our government has taken that have led to this dramatic increase in foreign investment in Ontario.
Hon Mr Eves: I would say many of the same things to you that I just said to Mr Wettlaufer: the direction we're taking with respect to getting our fiscal house in order, not just in terms of paying down deficit and debt, but tax reduction, making Ontario's economy more competitive again so we can compete not only with our neighbours in Canada and just south of us in the United States but internationally as well. I don't know if people appreciate how important that is.
Reducing red tape and regulation: As you know, we have several committees of our caucus colleagues who are out across the province coming back to us with suggestions for reductions of red tape and agencies, boards and commissions in the province. I find that small business people get very frustrated by the amount of red tape and documentation we require them to fill out and comply with just to do business. They've become increasingly frustrated. We're trying to take a lot of that away so they have an opportunity to do what they do best, because they are the real job creators in any economy, not just in Ontario. Without the small business sector and the small business community, I'd hate to think of where the province of Ontario's economy would be or the country of Canada's, for that matter.
We are trying to do things like reducing payroll tax burdens, reducing regulation and red tape, and I alluded to the 10 tax cuts we made in our budget last May, and we are going to continue down that road until we become not only competitive within North America but competitive internationally as well. I can tell you that's being very well received by international investors.
The Chair: Thank you very much, Mr Minister. We appreciate your attending our committee meeting and for your report today.
Hon Mr Eves: Thank you. I would just like to say at the end of these deliberations, Mr Chair, that I certainly meant what I said, that I'd be pleased to return to the committee when my cabinet colleagues are able to see their way clear to make their announcements with respect to their various sectors in the Ontario economy as well.
The Chair: I made a note of that and we will be calling you. Thank you very much.
Mr Phillips: Try to persuade your members to let you come.
The Chair: There being no further business to bring before the committee, we stand adjourned.
The committee adjourned at 1642.