CONTENTS
Thursday 6 February 1997
Pre-budget consultations
Ministry of Finance
Hon Ernie Eves, Minister
Mr Michael Gourley, Deputy Minister
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)
*Ms IsabelBassett (St Andrew-St Patrick PC)
*Mr JimBrown (Scarborough West / -Ouest PC)
*Mr TedChudleigh (Halton North / -Nord PC)
*Mr JosephCordiano (Lawrence L)
*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 E.J. DouglasRollins (Quinte PC)
*Mr JosephSpina (Brampton North / -Nord PC)
*Mr WayneWettlaufer (Kitchener PC)
*In attendance / présents
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Alison Drummond, research officer, Legislative Research Service
The committee met at 1106 in committee room 1.
PRE-BUDGET CONSULTATIONS
The Chair (Mr Ted Chudleigh): We'll call the meeting of the standing committee on finance and economic affairs to order. This morning's meeting commences the pre-budget consultations, and as is normal in these proceedings, we start with a presentation from the Minister of Finance, the Honourable Ernie Eves. Mr Eves, I understand we have an hour together this morning.
Hon Ernie L. Eves (Deputy Premier, Minister of Finance): I'm looking forward to it, Mr Chair.
The Chair: Thank you very much. If you'd like to start with your presentation, we'll think up some good questions for you later on.
Hon Mr Eves: I'm sure some have already thought some up, but we'll continue.
I am pleased to be able to join the committee this morning, at the beginning of your pre-budget consultation process.
Over the last 18 months, the government has taken decisive action in the province of Ontario to create jobs and to bring our public finances under control.
We have cut the deficit from the $11.2 billion we faced on assuming office in June 1995, and by next year the deficit will have been reduced by more than 40%, to $6.6 billion.
We have cut income taxes for Ontarians to create jobs -- 90,000 more private sector jobs last year alone.
We have cut payroll taxes. Our plan will mean that 88% of Ontario employers will be freed from the employer health tax by January 1, 1999.
We are getting rid of unnecessary regulations and red tape so that the job-creating private sector can get on with doing what it does best: creating employment and the wealth needed for a society of opportunity and social justice.
But there is more to do and we will be taking the next steps in our upcoming provincial budget.
Today I'll provide an update on our third-quarter Economic Accounts and third-quarter Ontario Finances as you begin your deliberations. I am looking forward to the results of those consultations in the coming weeks and to your advice in preparing the budget.
While you may not see it on the front page of the newspapers, there are numerous signs that our economy is picking up in Ontario. The evidence is everywhere. Today Ontario is cited, along with Alberta, as the province most likely to lead in overall growth in 1997.
Overall consumer confidence in Ontario has improved more than in Canada as a whole, increasing in fact by 22.3% last year. And this morning's newspapers report a Royal Bank of Canada study which says that increased spending on furniture, appliances and other big-ticket items "should spur growth in the domestic economy."
We're also deemed to be the most desirable province in which to invest by 59.5% of respondents to a Conference Board of Canada survey.
A January Dun and Bradstreet survey revealed that Ontario business optimism is the highest in Canada as we enter 1997. They report that "It is not surprising that Ontario continues to lead the nation in optimism, and we fully expect this trend to continue in the long term."
The economic results for the third quarter of 1996 being released today confirm the continuing improvement in our economy. From July through September, real growth in Ontario accelerated to 3.8%.
For the fourth quarter, US growth increased to 4.7%, much stronger than was anticipated.
While the results for Ontario's fourth quarter are not yet available, we have a number of encouraging signs that improvement in this province's economy continues. For example, retail sales grew 2.1% in November, and in the fourth quarter Ontario department store sales were up 7% from a year ago, the best growth since 1989.
Stronger growth was most apparent in business investment. Investment in new machinery and equipment grew by about $2.5 billion, or 38.8% at annual rates, in the third quarter. Investment in new plant and office facilities, that is, non-residential construction, also grew very strongly, up 6% in the quarter, while residential construction, which includes both new construction and renovation, grew by 12.7%. These investments form the basis for more jobs and growth, now and in the future.
Economic growth does not come from government. Economic growth, jobs and equality of opportunity emerge from the private sector: from small and medium-sized business, from risk-takers and investors. These are the people making these job-creating investments, and these people created 90,000 jobs last year here in Ontario.
Last year alone, Ontario accounted for 56% of the private sector jobs created in the country. Ontario's Help Wanted index jumped by a record 4.2% in December and by an additional 2% in January, a sure sign of new job creation.
We are taking further steps to help the job-creating small business sector. As I announced earlier this week, we are making improvements to our small business investment tax credit for banks, which will encourage them to provide more long-term financing to small businesses.
Home resales and auto sales are another critical barometer of consumer confidence. Auto sales were up nearly 20% in November compared to November 1995, and the fourth-quarter Ontario home resales have risen sharply, to 176,000 at an annual rate, up 57.4% from a year ago.
Overall housing starts in Ontario rose to 46,700, an increase of 22.4% in the fourth quarter. For all of 1996, Ontario housing starts rose by 20.2%, compared to 8.7% in the rest of Canada.
Ontario is also leading the way in business confidence and investment. Reflecting renewed confidence, planned investment spending by Ontario businesses was up 11.9% in 1996, compared to 0.4% in the rest of the country.
On a year-over-year basis, machinery and equipment investment rose 16.3% in the third quarter of 1996 and non-residential investment in plant and office facilities was up 9.4%.
You can find a very real example of investment growth in this morning's press reports of Toyota's $400-million retooling of its Cambridge plant, which will lead to an additional 1,000 jobs.
Improvement in confidence and in our cost-competitiveness has been a key factor in the improvement in Ontario's trade performance in recent years.
Our trade balance over the first three quarters of 1996 reached an all-time record high of $16.7 billion, almost double the level of only two years ago. Our international exports are up by more than 9% over the first three quarters of 1996, compared to the same period a year ago.
Businesses are responding to the environment for growth and jobs that our policies create. They are also taking advantage of opportunities in Canada, the US and the global economy, and they are being successful. That success means more investment, more jobs and an improving fiscal outlook for Ontario.
Lower interest rates are also boosting consumer spending, consumer confidence and business investment, supporting growth and jobs. Interest rates have fallen substantially since early 1995. Canada's sustained low inflation rate and deficit reduction at both the federal and provincial levels have created the conditions required for interest rates to remain low.
The prime lending rate in this country has fallen by more than half, from 9.75% in April 1995 to 4.75% today. Canada's strong economic performance in getting interest rates down reflects the confidence of international investors in the efforts made by federal and provincial governments to get Canada's fiscal house in order.
The Bank of Canada's clear resolve to contain inflation has also contributed to increased confidence.
Lower interest rates encourage businesses to invest and are also contributing to improvement in our fiscal position. This year alone, our public debt interest costs are now expected to be $195 million below the level we expected in our budget last May.
Real personal disposable income is a key factor in setting the tone for both consumer confidence and consumer spending. In 1995 when we took office, Ontario was reeling under the effects of the tax-and-spend decade. Years of massive spending increases, necessitating crippling deficits and excessive taxation, had begun to hollow out our economy. Even with some 65 separate tax increases, including 11 hikes in personal income taxes alone, the province still had to borrow money to feed its spending habit. In that period, Ontario government spending doubled and the accumulated debt tripled to almost $100 billion.
We promised to lower taxes to encourage investment and consumer spending and create jobs, and we are doing just that. Our first budget cut taxes not once but 10 times, allowing Ontarians to keep more of their hard-earned dollars, boosting consumer confidence and encouraging job creation.
The immediate impact of our tax-cutting plan is on the disposable income of the people of Ontario. By 1998 we expect that real disposable income in Ontario will have increased significantly from its 1995 level. Lower taxes, more jobs and real wage gains will lead to stronger growth in disposable income and consumer spending.
The economic projection that I presented to the standing committee in November provided a prudent set of planning assumptions on budget-making. At this stage they still remain reasonable, cautious assumptions, and they will be updated in the budget in May.
I continue to fully expect that the economy will grow faster than we have assumed for our planning purposes. The positive performance of the economy confirms that the government's plan to cut taxes and create jobs is indeed working.
The cycle of tax, spend and borrow, if left unbroken, simply is a cycle that feeds on itself in a spiral that spins even faster, and it takes everything down with it. It is a cycle that no longer could be ignored. It is a cycle that our government has broken.
We have moved quickly to keep our promises and make the changes necessary to renew hope and prosperity in Ontario and create a sustainable economic climate that will support important social programs that the people of Ontario deserve.
We promised to balance the budget and we are going to do that. In my November fiscal update I indicated that by next year we will have reduced the deficit, as I said, by more than 40%, to $6.6 billion. As the Dominion Bond Rating Service has confirmed, we are indeed on track to eliminate the deficit and balance the budget of the province by the fiscal year 2000-01.
The third-quarter Ontario Finances which we are releasing today confirm the continuing improvement in Ontario's fiscal performance. The 1996-97 deficit outlook, at $7.7 billion, is $508 million below the budgetary plan. As I mentioned to the standing committee in November, I do not expect that we will need the $650-million reserve set aside in the 1996 budget.
The increase in the revenue outlook I am reporting today is largely a result of higher tax revenue. Total tax revenue is $1.5 billion above the budget plan. Personal income tax revenues are $970 million higher than projected in the budget. Of this, $578 million results from higher 1995 tax assessments. An additional $390 million in income tax revenue is projected in 1996.
The increase in the revenue outlook reflects both the strength of the Ontario economy and the cautious nature of the budget forecast. Even after putting income tax revenue into the year it was earned, total tax revenue is expected to be $957 million above the budget forecast and $511 million above the 1995-96 actual level.
Improved revenue performance has permitted increased investment in the restructuring fund which was created in the 1996 budget. The size of the restructuring fund has been increased from $900 million to $1.8 billion and we have committed over $1.3 billion in restructuring investments to date.
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As part of our reforms to make government work better, we will be sharing the costs of social assistance with local governments. A $700-million trust fund for welfare has been established that will provide assistance for communities in the event of unforeseen economic circumstances. I would like to reiterate here that this fund, that $700 million, is the municipal share of a fund that will continue to grow until it reaches $1.9 billion. The province of Ontario is up-fronting $700 million of the municipal share. Municipalities will not be asked to contribute a cent to that fund, for the next three years for certain and possibly forever. In effect, the province of Ontario will be fronting the money for the fund, barring any unforeseen recession, in the next three-year period of time, and I want to make that perfectly clear.
The government has also set aside a fund of some $800 million over the next few years to help with capital and operating expenses; $250 million of this fund will be made available in this fiscal year.
As I said to the committee in November, we are open to new and innovative ideas to accomplish the objectives we have set out in Ontario. The people of this province have told us that they want us to help the private sector create jobs, they want affordable taxes, they want a balanced budget and they want high-quality, affordable services, particularly in health care and education. We have listened and we are delivering.
The next budget will continue to deliver the progress that people have told us they want to see on these fronts. This committee has a central role in helping with that progress. You will be hearing a very broad range of views and ideas. This advice can help contribute to meeting the goals that I believe all Ontarians share. I am particularly interested in hearing ideas on giving more encouragement to small businesses to grow and create jobs.
I look forward to the important contribution the standing committee will make as we prepare for the 1997 budget.
The Chair: Thank you very much, Minister. If you would entertain some questions, we could move, I think, to two rounds of five minutes each starting with Her Majesty's loyal opposition.
Hon Mr Eves: That would be Gerry and Monte.
Mr Gerry Phillips (Scarborough-Agincourt): Thank you very much, Minister. I assume this afternoon the staff might be providing us with some numbers in terms of the revenue outlooks for next year and some of the preliminary expenditure outlooks, just so we can begin looking at 1997-98.
Hon Mr Eves: You will see our revenue outlooks and expenditure projections for certain, obviously, in the budget. What information the staff is able to share with you they will at this particular point in time.
However, I must point out that governments in Ontario, and of all political stripes, I might add, for years got into the habit of trying to make revenue and expenditure projections for a period of some five years. I think it's proven over the years that no matter which government was in power, they were very largely inaccurate by the time you got to years 3, 4 and 5.
Since we came into office in June 1995, we have adopted an approach very similar to that taken by the federal government, which I believe is a very prudent and cautious one to take. I don't think anybody nowadays can accurately predict with any sense of accuracy where we're going to be even two or three years down the road. As you see from our May 7 budget projections, albeit very cautious and prudent numbers and assumptions that we did make, we were out considerably in terms of the amount of revenue.
Mr Phillips: All I'm asking for is just the next 12 months. That's all. If we're asked to provide advice, we need some help in terms of the outlook.
One question would be on jobs. I prepared some questions here that we're interested in. The job performance in 1996 in our opinion was disappointing. The full-time job growth was about 35,000 jobs, which is the lowest we've seen in three years in Ontario. The number of unemployed went up by 27,000. The campaign promise was about 145,000 jobs a year, and as you know, we're well behind that. Why is it that job creation has been so slow in coming?
Hon Mr Eves: First of all, I might say up front that obviously nobody is pleased as long as we have an unemployment rate in this province of 9.1%. I don't think anybody takes great solace in that. However, I do think, looking at the positive end of the spectrum, the private sector in this province created over 90,000 jobs last year, albeit there was, in rough numbers, a 10,000-job reduction in public sector jobs, leading to a net job increase of some 80,000. I also think it's important to remember that 107,000 more people came on the rolls in looking for employment last year, which is why the unemployment numbers went up from 8.7% to 9.1%, because 107,000 more people thought they had more opportunity now of finding employment in the province of Ontario and were seeking employment in the province of Ontario. That is why the unemployment number went up.
However, if you look at the CIBC economic outlook or report that was produced yesterday, they, along with just about everybody in the private sector, are predicting that by 1998 that number will drop to 8.1%. In their prediction, the University of Toronto is 7.9% --
Mr Phillips: I understand that. I'm just saying it's been the weakest job performance in three years in Ontario. I'm trying to get an idea --
Hon Mr Eves: I disagree with that.
Mr Phillips: You may, but the facts are that full-time jobs were created for 35,000; and in the previous two years, 72,000 and 89,000. The unemployment rate was going down for three straight years; it went up. In 1995, there were 116,000 private sector jobs created; in 1996, 90,000. Private sector jobs are dropping, apparently, in creation. I'm curious why we aren't seeing what I think everybody had been kind of expecting, and that is a rapid growth in jobs, but that our unemployment rate's going up, the number of unemployed is going up and youth unemployment's going way up.
Hon Mr Eves: As I recall, sitting in that chair about a year ago yesterday, to be exact, I was asked the question by a committee member, "When do you expect we will see the transition from your tax reduction into job creation and performance in the Ontario economy?" My answer, I believe -- and you can look up Hansard if you wish -- from my memory was that I would expect this will take a year, if not two, to fully work its way into the Ontario economy. Obviously, it isn't going to happen at 9 o'clock in the morning. I think if you listened to the remarks I made earlier, there are all kinds of positive signs that the economy in the province of Ontario is improving and indeed revenue is up $1.5 billion.
Mr Phillips: No, I'm just curious on the jobs.
Hon Mr Eves: The revenue being paid in taxes of all kinds in the province is indicative of more people working, more people paying tax: more people paying income tax, more people paying retail sales tax, more consumer spending, more taxes of all kinds, more corporate tax being paid by far in the province this year than last year. That means people indeed are creating jobs, they are working and they are paying more taxes. That's why the revenue numbers are going up. Despite the fact that all our critics said that if you lower taxes you will have lower revenue, we have lowered taxes and the revenue is increasing.
Mr Phillips: The revenue's lower than your officials said --
The Chair: Thank you very much, Mr Phillips. We move to the third party. Mr Martin.
Mr Tony Martin (Sault Ste Marie): I appreciate the opportunity to participate here this morning and to ask the minister a few questions. Certainly, your presentation has not surprised a whole lot of us around the table in that it paints a picture, as governments are wont to do, that shows what you are hoping or proposing to do in the best of lights. Indeed, it speaks to something I think we all believe, those of us who have chosen to come and live and work in Ontario, and that's that Ontario is a good place to live, Ontario has the potential to be a strong economy and in some sectors is doing quite well.
We're also, by your presentation this morning, assured again that you are working very closely with your partners and advisers. As a government and as a group of ministers concerned about the economy of the province, you've done a fair amount of travelling abroad to listen to the financiers and operators at that level as to what it is they feel would be in their best interests to be doing in Ontario.
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However, what's glaringly missing here is any reference to the question of consultation at home, any involvement or conversation with local authorities and community economic development organizations who, I suggest to you, in my conversations with them are very concerned with what you're doing, because they understand that there is no simple, narrow answer to the problems and the challenges that face all of us. In my understanding of how an economy does best, qualities like stability and confidence are of utmost importance. Yes, we have an external market, but we also have a domestic market and an economy that we need to be concerned about.
What you've achieved in the private sector in the numbers and figures that I'm looking at is more than negatively compensated for by what you've done in the public sector. The impact of the changes that you've made has been quite devastating to many communities and to many families and people in this province. I myself have spent a fair bit of time, in my own community particularly, going around and speaking with people. In contrast to what you present here this morning, there's a great deal of instability, lack of confidence and anxiety out there.
I would suggest to you that if we really want to move forward into the next century in some optimistic fashion, we need to have everybody on board, that it's not enough that Bay Street be on board, but the whole of Ontario be on board, and those people who have contributed over the years in such a fundamental and important way to the economy who now find themselves in a position where they don't know where they belong any more and how they can continue to contribute need to know how that fits into place.
You've done a number of very dramatic things in your short time in government. More recently, the downloading to municipalities of the cost of services that the province traditionally picked up is the latest salvo, barrage, at communities and at people.
The Chair: Is there a question, Mr Martin?
Mr Martin: Yes, there is.
The Chair: Your time has almost expired and he won't have time to answer it.
Hon Mr Eves: I don't think he wants to have --
Mr Martin: The question is, when are you going to share with us any plan, any impact study, any information around the impact of your latest round of announcements and how that will affect communities and how that will play into the economic picture and forecast that you're painting here this morning?
Hon Mr Eves: You're correct that our government is moving quite rapidly. We, unlike some of our predecessors of all three political stripes, are doing exactly what we said we would do and we're doing it, quite frankly, as quickly as we can.
We understood one thing the people of Ontario told us, that the status quo was a non-starter in this province. You talk about the impact on the public sector, and I do concede -- in fact, I indicated in my response to Mr Phillips that there have been some 10,000 public sector jobs lost in the Ontario economy in the past year. There have also been some 90,000 private sector jobs created, for a net increase of 80,000 jobs. The private sector jobs created in Ontario are in the neighbourhood of 57% of all the private sector jobs created in this country last year.
With respect to your concern about consultation, I can assure you that leading up to last year's budget I personally consulted on an individual basis with some 40 to 50 groups of various and diverse backgrounds, from all sectors of Ontario life, and will continue to do so coming up to this budget. This committee, of course, will be having its deliberations; individual members go out on their own and they consult with people in their communities; the Sampson-Spina task force that has been out and across the province for the last year has consulted primarily with respect to the small business sector, which is the backbone of Ontario's economy, in fact the backbone of Canada's economy.
I can tell you that the private forecasters, as indicated on the screen here, are projecting much greater growth than our cautious and prudent assumptions and projections in our budgetary documents. I can tell you that last week I was in Windsor, London, and Niagara Falls -- Windsor, that great hotbed of Progressive Conservatism in the province of Ontario. The mayor of Windsor, not exactly a known card-carrying Progressive Conservative, indicated that his response to the Who Does What initiatives was he was taking a very responsible wait-and-see approach. He wasn't screaming and yelling and talking about the millions of dollars a year this is going to cost the city of Windsor.
He said, "I don't know how anybody can possibly predict what the expenses are going to be until they see what the 1996 assessments of their properties are going to be, until they see what their exact costs to pick up responsibilities that the province is asking them to pick up are going to be in dollars and cents."
It's impossible for anybody to give you an accurate figure as to exactly what is going to happen. The final impact will only be able to be determined when the properties in the province of Ontario are reassessed at June 30, 1996, values, everybody's on a level playing field, every municipality makes its decision with respect to mill rates and how it chooses to disburse the tax burden among six different classes of property taxpayers in the province in their particular municipality.
The Chair: If we could move to the government side.
Mr Tim Hudak (Niagara South): Thank you, Minister. It's good to see you back before the standing committee once more. I've noticed an interesting change of tone in questions from across the floor and it'll be interesting to see how it plays out over the next few weeks. About this time last year, as you said, there was a great deal of opposition to tax cuts, I think based on the opposition's expectation that tax cuts would reduce government revenues. But from your presentation today I'm seeing a different outcome.
Minister, my question to you is, what has been the impact of tax cuts on government revenues and on economic activity?
Hon Mr Eves: I think you can readily see that in the third-quarter finances that were released today. If you turn to the page that talks about revenues, which is page 8, and if you look at not only the budgetary projected plan but more importantly, I suppose, the actual numbers for the fiscal year 1995-96, and compare those to the current outlook -- which I would caution people are still prudent assumptions and I still think that by the time the final numbers come in for March 31 for this fiscal year, there's still room for improvement even with those numbers, because we're still making some very cautious and prudent assumptions. If you compare the 1995-96 actual lines to the current outlooks for 1996-97, in every category the government numbers are up, save one, employer health tax, where we don't want them to be up, because we're starting to eliminate that tax.
Mr Gerry Martiniuk (Cambridge): Welcome, minister. You've already given us the good news about Toyota investing $400 million in Cambridge. That's in addition to the $600-million plant that's presently going up. That means a thousand jobs for our municipality, and we have one of the lowest unemployment rates in Canada right now. What's happening in the rest of the province? Have the tax cuts contributed to consumer confidence and investment in other parts of Ontario?
Hon Mr Eves: As I said, last week I was in Windsor on Thursday, I believe, in London on Friday and Niagara Falls on Saturday. I can tell you that in all three of those communities, the general populace is very supportive of the direction this government is taking. I think the general populace is much more optimistic today that they were a year ago or two years ago. They can now see some light at the end of the tunnel. They are going to be able to keep more of their hard-earned dollars.
Governments quite often forget that the money belongs to the people. A government per se has no source of revenue, other than taking the people's money and redistributing it. I think you have to have that incentive for people to be able to keep some of their hard-earned dollars to invest in the province of Ontario, to expand in the province of Ontario and particularly in the small and medium-sized business sector.
The Chair: Mr Rollins, do you have a short question?
Mr E.J. Douglas Rollins (Quinte): Yes. Thanks for letting me be on this committee. I certainly appreciate it. I wasn't here last year and I'm looking forward to it.
Minister, with the increase in spending, is it not more beneficial to creating jobs than the tax cut? I know it looks right at the present time -- we hear from the opposition continually on that line of thinking.
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Hon Mr Eves: With respect to spending, this government realizes that with some of the changes we are making, we have some substantial reinvestments that have to be made. That is why we created the reinvestment fund to start with, of some $900 million. Now that we find revenues are far in excess of what we projected them to be, we've been able to expand the size of that fund, as of today, up to $1.8 billion.
We do understand that when you're in a rapidly changing health care system, for example, and you have to change that system and base it more away from the institutionalized system that we had previously and provide the latest up-to-date technology, provide front-line care to patients, provide in many cases care for patients at their homes or on an outpatient basis, whereas years ago that wasn't the case that is going to require substantial restructuring, reinvestment by the province, and we're prepared to make those types of reinvestments. The reinvestments we're planning on making are of a structural and capital nature that will allow the province of Ontario to go ahead in important fields of health care and education for many years to come. I realize that sometimes it's very difficult for people to see that in year one when you're looking at a 10- or 20-year game plan.
The Chair: If we could move back to the opposition.
Mr Phillips: Just a small detail question. I notice on the third-quarter report on page 2 you indicate that Revenue Canada has upped the assessment of 1995 returns on personal income tax, but they're included, I gather, in this year's numbers. What is that? How much is that?
Hon Mr Eves: I believe that is the number --
Mr Michael Gourley: At the moment we have in the total figures -- this is on page 2, as it's indicated there -- $970 million above the second quarter. The share of this that is related to 1995-96 is approximately $570 million. I don't have the exact number.
Hon Mr Eves: I think it's $578 million.
Mr Phillips: Is it fair, then, to say that in actual numbers, personal income tax revenue will actually drop in 1996-97 over 1995-96?
Hon Mr Eves: No.
Mr Phillips: I'm sorry, if you add the $570 million back into 1995-96 and take it out of 1996-97, personal income tax revenue is dropping year over year. Where is the magic in this tax cut, then? This looks very, very interesting.
Hon Mr Eves: First of all, in every year there's always an adjustment.
Mr Phillips: It's dropping.
Hon Mr Eves: The federal government collects the tax; they keep the money; they distribute the provinces' share to them, in some cases a year later, in some cases a year and a half or two years later. You could look at the 1995-96 numbers for the province of Ontario and you could find some money that was included in that year that was for the 1994 year, for example, or perhaps even for the 1993 year. There's overlap that goes on every single year, because we don't collect our own provincial income tax, like the province of Quebec does. Perhaps, then, they've made a good argument for us doing so in the future.
Mr Phillips: But can you confirm that if you put the $570 million back in 1995-96 and take it out in 1996-97, personal income tax revenue will actually be dropping in 1996-97 over 1995-96? Is that not the case?
Mr Gourley: The minister indicated earlier that total tax revenues will actually be going up --
Mr Phillips: Income tax.
Mr Gourley: -- and that the impact of the tax reduction was in fact going to show itself in terms of increased retail sales and increased corporation taxes and so on as jobs were created. So the figure that we should be looking at in this issue, in my view, at any rate, is the total tax revenue, which clearly shows, as the minister indicated --
Mr Phillips: I will just say that we came in here being told personal income tax revenue was up dramatically, things were working well. We now see if we adjust -- because they now say $570 million of this revenue actually should be put in 1995-96, take it out in 1996-97 -- personal income tax revenue now drops by $100 million.
Hon Mr Eves: Total tax revenue in this province will be up $511 million in 1996-97, compared to 1995-96, adding back in the $578 million in personal income tax revenue from 1995.
Mr Phillips: This is very interesting.
Mr Gourley: If I could just clarify it, with respect to the rules we are now following, the accrual rules require that we report that income in this year, and the rules will require that we report that in future years, so it is not possible to say -- we wanted to be clear that the revenues we are collecting are made up of a number of years, including this year's personal income tax revenues.
Mr Phillips: I understand.
Mr Gourley: So these are properly accounted for, as we have shown them here, as an increase, and they will be again next year as well.
Mr Joseph Cordiano (Lawrence): Minister, in your projections for job creation, I noticed in some of the papers you put forward, with the Market Ontario plan, you're banking on 237,000 jobs being created as a result of foreign direct investment. Can you give me a projected number of dollars with respect to foreign direct investment that we can anticipate over the next three to five years? You use those figures to determine the basis for part of your job creation numbers.
Hon Mr Eves: No, I can't provide that for you off the top of my head, but I will ask my officials to try to find whatever they can for this afternoon's deliberations. I can tell you that what we did project in the November 1995 fiscal update was that we anticipate the Ontario economy will create between 200,000 and 300,000 jobs over the next two years.
Mr Cordiano: That seems like a huge number with respect to your job creation plan for foreign direct investment. You're anticipating an increase that's quite substantial in order to reach those numbers. You said in your fiscal outlook in your first budget that you were going to create 725,000 new jobs in the first term of this government's administration.
Hon Mr Eves: No, over five years. We've always said over five years.
Mr Cordiano: We add up the numbers, Minister, and your job creation record is pretty dismal in terms of its first year of operation. You're not meeting your targets. You're not on target to meet the 725,000 jobs that you promised the Ontario electorate you'd create.
Hon Mr Eves: I guess if you assume, Mr Cordiano, that only 80,000 jobs net will be created for the next four years in a row, you'd be quite accurate in that assessment, but we don't believe that's the case. We believe that as these changes work their way through the economy, in fact those job numbers will continue to grow.
Mr Cordiano: You've had 18 months of --
The Chair: Thank you very much, Mr Cordiano. We'll move to the third party.
Mr Howard Hampton (Rainy River): My question concerns the last time you appeared before this committee and the interrelationship between then and now. When you appeared before this committee on November 28, you said quite clearly that you would be able to make the expenditure cut announcements when the decisions with respect to the Who Does What panel had been made.
We've received all sorts of information from the Who Does What panel since November 28, but we still haven't heard from you, the finance minister, as to where the $3 billion is going to come from. You and the Premier said that would be announced in the fall economic statement. You didn't announce it in the fall economic statement. So I want to ask you now, where in your mind is the $3 billion coming from that you have acknowledged you need to cut and I believe the Dominion Bond Rating Service has acknowledged you need to cut? Can you delineate that for us?
Hon Mr Eves: I think what's happened between my appearance in November and today, as you can see by the third-quarter update, is that revenue projections are up strongly in Ontario. They're far exceeding what we had projected, by about $1.5 billion. If you look at public debt interest alone, you're looking at a $195-million savings in this fiscal year alone, and that too is just today's prudent and cautious assumption.
Ministries will continue, through their business plan approach, to be asked to find cost savings year after year on an annualized basis. We may not in fact need to find $3 billion in savings to achieve our target of balancing the budget by the fiscal year 2000-01, and if we do not need to reduce expenditures by $3 billion, we won't. This isn't strictly an exercise in meeting some number; it is an exercise in trying to provide the most appropriate service to the people of Ontario, especially in the fields of health care and education, in the most efficient and cost-effective manner possible.
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Mr Hampton: I might buy your tax revenue improvements of $1.5 billion, I might buy that -- I'll leave that aside for a minute -- but I think you're still out by $1.5 billion.
My sense of where the money is coming from is that the money is in effect being downloaded on municipalities in your mega-week announcements. The money will come out of the $1 billion you plan to take out of education and the money will come out of health care. But it seems to me you've identified $1.5 billion in potential tax improvements. By your own accounting of last fall and by the announcements you made last fall, though, I think you still have to tell us where the other $1.5 billion is coming from. I think people need to know that.
Hon Mr Eves: We will continue to find efficiencies at the provincial level and there's no doubt that we believe municipalities will continue to find them as well.
I can give you an assurance with respect to health care. I can unequivocally tell you that this government will absolutely live up to its $17.4-billion commitment to health care; no less than that. This year, as you know, it's in excess of that. It's $17.7 billion. As a matter of fact, I think you will see that the government will continue to spend increasing dollars on health care as the years go on, because I don't believe you can make the significant changes that have to be made to update the health care system in Ontario without very significant reinvestments indeed being spent.
When you talk to the six mayors, for example, albeit they do not agree with the government's plan to create one unified city, they estimate they can save $240 million on an annualized basis by running six municipalities. I think it's fair to assume that with one unified city we will achieve cost savings of at least that $240 million a year.
I also think it's fair to assume that the city of Toronto alone is losing on an annual basis about $100 million in revenue, because in the city of Toronto, over 40% of its assessments are appealed every year. They're losing a tremendous amount of revenue out of what is a very inequitable and antiquated assessment system in Ontario. When you compare that, for example, with the appeal rate in the province of British Columbia, which has a current value system updated on an annual basis, the appeal rate in British Columbia is less than 2%. That is an extremely significant saving. I'm just talking about the city of Toronto and we're talking about $100 million a year.
I think you will see as we go through the next two, three and four years that not only the province but indeed municipalities will be able to find considerable efficiencies within the responsibilities they've been asked to assume and within the responsibilities we are assuming.
The Chair: Thank you very much. Could we move to the government caucus.
Mr Wayne Wettlaufer (Kitchener): Good morning, Minister. My riding of Kitchener borders Gerry's in Cambridge, and I'm just about as thrilled as he is with Toyota's announcement this morning that Kitchener's economy is a good mix.
Small business is still the backbone, however, as you stated, throughout Ontario. I think not enough is being said about what our government has done for small business. We were gratified with the announcement by one of the banks last week in Kitchener about a program it was making to enhance small business and to provide jobs. I think that was a direct result of your budget in April. I wonder if you could put on the record all the things that we have done for small business.
Interjections.
Mr Wettlaufer: They're not looking for handouts.
Hon Mr Eves: I think we have done all kinds of things, obviously, for small business. I think one of the most significant things when you talk to the CFIB or any other group that is very representative of the small business community -- in fact even Mr Martin, when he was in opposition, said any payroll tax is a job-killer. I'm trying to explain to him that that applies to EI premiums today at the federal government level but he doesn't seem to be listening.
If you look at any survey that CFIB has done -- and 80% to 90% of its membership is from the small business community, which is the backbone of our economy -- they feel that payroll taxes have the most direct impact on their being able to create jobs, expand and employ more people. I think the biggest move this government is making as far as they are concerned, besides as individuals paying less provincial income tax, is the employer health tax move. That was a job-killing tax that the Peterson government introduced. It has done nothing but discourage employment and hiring in Ontario since its inception. It is a very unfair tax.
We have replaced it with the Fair Share health care levy which we're adding back in to those people who earn more than $60,000 a year. They're now paying the load that employers used to pay, so of course their share of provincial income tax reduction will be substantially less -- down to 17.1% at the upper end of the income scale, the top half of 1% of income earners in Ontario. By January 1, 1999, 270,000 businesses will pay absolutely no employer health tax whatsoever and every employer in Ontario will be exempt on the first $400,000 of payroll. I think that's probably the most dramatic and significant move we've made.
However, when you look at the Red Tape Review Commission, when you look at the agencies, boards and commissions reduction, those are all things eliminating 1,500 regulations, eliminating 40-some statutes in Ontario, just as an initial first cut at eliminating regulation in Ontario. Every time you ask a small business owner who has one or two or 10 or 12 employees to fill out a form, you're costing that person an awful lot of money in the day-to-day operation of their business.
We made a commitment with respect to workers' compensation premiums, and we are reducing those on average by 5%. Albeit there are some shifts in some categories and classes that weren't paying their fair share before and will now have to pay more, but there are more dramatic shifts the other way where people are paying far less now than they had to before. That's fair, because it's based on performance and their safety record in that particular industry.
I think we're doing all kinds of things. I think the property tax assessment reform that we're introducing today will be of great benefit to commercial and especially small commercial properties in Ontario. Municipalities will now have the ability within their municipality to determine if they want to have two different rates for property taxation on small commercial properties: one for small commercial properties and one for larger commercial properties. I think when you look at the cumulative effect -- and there are many more initiatives. The bank credit system -- we did a surtax. We dovetailed last year in our budget with the federal government on its banking surtax, but we're allowing those banks to earn that extra tax back if they can demonstrate to us that they're providing those funds to the small business community.
On Monday, we indicated we made another reform or improvement, I believe, to that regulation in that we're now extending it to unincorporated businesses, which are the small individual businesses run by a family, two spouses or by an individual. Those are the real job creators and those are the people who really get whacked every time we introduce a new regulation, a new payroll tax. We increase taxes, we ask them to fill out another form, we put them out of business.
The Chair: Mr Ford, do you have a brief question?
Mr Douglas B. Ford (Etobicoke-Humber): Yes. Minister, I'm very impressed with the positive responses this morning from you. I'd like you to reiterate the balanced plan which sets out clear targets to eliminate the deficit in the new millennium, 2000-01, which was the keystone of the target. Would you please comment on how the province's finances have been performing under the balanced budget plan and what are the prospects for delivering on target over the next few years?
Hon Mr Eves: First of all, if you look at the third-quarter finance statement today, we are certainly ahead of target for this fiscal year. Last year we exceeded our target by some $587 million. This year our current projections are that we will exceed our target. Even increasing the restructuring fund twofold from $900 million to $1.8 billion, we will still have a surplus of $508 million at the end of the year. That's today's projection.
I would like to caution you that that is still a very cautious and prudent assumption. Those figures could rise yet again between now and March 31, between now and the announced numbers in our budget of next spring, because you never know, of course, until the end of the fiscal year how much money for certain you've been able to bring in, especially with respect to corporate taxation where they pay in instalments. A lot of them save, so to speak, and pay right at the end of the year. If that trend continues, as it has in past years, we may well exceed our targets there as well.
We won't have any problem, I don't believe, in meeting our target, not only this year but next year, which is $6.6 billion. I don't foresee, and I don't know any private forecaster who has indicated that they foresee, a recession on the immediate horizon in the province of Ontario or indeed in the country of Canada.
When you travel abroad -- and somebody alluded to that earlier; I believe Mr Martin -- I can tell you, whether you're in London, England, or New York City or Zurich or any other place, the response is very positive with respect to Canada as a country as a whole. We now have 11 governments in Canada, regardless of political stripe, all going in the same direction. They all understand that if they don't get their act together and reduce their deficits and balance their books -- and most of them are far ahead of the province of Ontario, the province of Quebec and the government of Canada -- then we aren't going anywhere.
We are all working in sync today and we are all working towards the same common goal. I think that is reflected in the stability of the Canadian economy: low interest rates, lower short-term interest rates in Canada by far than in the United States of America -- I can't remember the last time that happened -- very stable and low inflation compared to almost any other country in the industrialized world. We are indeed looking for nothing but positive news in the next two, three, four years ahead.
Mr Ford: Very good.
The Chair: Thank you very much, Minister. We appreciate your report to our committee to commence our pre-budget consultations and we look forward to presenting you with our report in the early spring.
As there is a division being called in the House, this meeting stands recessed until 3:30 this afternoon when we will discuss with Ministry of Finance staff.
The committee adjourned at 1203.