Transcription du comité 1998-févr-10 | Assemblée législative de l'Ontario

The Chair (Mr Garry Guzzo): Come to order, please. Ladies and gentlemen, thank you and welcome. When we last met the subcommittee arranged that we would commence these proceedings on the second day of February, a week ago yesterday. Thank you for being here today, and I apologize for what it's done for your travel plans for the week following next. We will sit until Friday at 5 o'clock with some variations in Thursday's agenda, retiring early on Thursday. We're back on Monday morning and sit until the following Thursday, a week from this Thursday. I know that's not the agenda that was agreed to but that's the agenda we received, and I gather the House leaders have made those changes.

We'll commence today with the minister's statement. I'll call upon Mr Eves. Thank you, sir.

MINISTER OF FINANCE

Hon Ernie L. Eves (Deputy Premier, Minister of Finance): Thank you, Mr Chair. It's a pleasure to be here this morning for the beginning of your pre-budget consultations. Today I'll provide updates on the province's third quarter economic accounts and third quarter finances. These updates provide proof positive that the government's plan for Ontario is working.

In Ontario today, tax cuts are building consumer confidence and economic momentum, resulting in increased private sector growth. This is all occurring as we continue to control provincial spending. This year's deficit outlook is $5.162 billion. Ten years ago a deficit of $5 billion would have been unthinkable, and it should be unthinkable today. This is why in the fiscal year 2000-01, just over two years from now, this government will bring the deficit to zero as it promised.

Though we should all take pride in the achievements that have been made to date, there is a mountain of debt that we have not yet addressed. In fiscal 2000-01, the province will be paying about $10 billion in annual interest costs to service the debt, even though the deficit will have been eliminated. These debt costs will need to be brought down and the best way to do this is by continuing to strengthen the economy, improving the environment for jobs and growth and continuing to control spending.

Building a better, more prosperous tomorrow is what we've been doing for the last two and a half years and we are already seeing the results that come from lower taxes, less red tape, fewer barriers to growth and a lower deficit.

Ontario's economy has turned the corner and is growing strongly. This government's economic and fiscal policies are contributing to renewed business and consumer confidence. While the entire country is benefiting from an improved economic climate, Ontario's economy is growing faster than the rest of Canada and faster than any of the G-7 countries. We estimate that Ontario's real economic output rose by 4.4% in 1997, up from 3.2% projected in the 1997 budget. All private sector forecasters expect Ontario to continue growing faster than the Canadian average in 1998. The Bank of Montreal says, "Ontario's economy became red hot in 1997 and is likely to remain so through 1998, growing at a 5% pace in both years."

The Ontario Economic Accounts for the third quarter of 1997, which were released today, show that Ontario real GDP grew at a 5.7% annual pace, faster than the national growth rate of 4.1% for the same period. Consumer spending and business investment were the leading sources of growth in the third quarter and have fortified consumer confidence. Improving job prospects, continuing deregulation and progress towards a balanced budget have boosted consumer confidence; in fact, Ontario's consumer confidence has risen now for eight consecutive quarters to its highest level in nine years.

Today Ontario is cited, along with Alberta, as the province most likely to lead in overall growth in 1998. As well, 55.7% of respondents to a Conference Board of Canada survey completed in the fourth quarter of 1997 identified Ontario as the province in which they intend to invest money.

A recent Royal Bank-Angus Reid study shows that Ontario small business owners are the most optimistic in Canada about the prospects for the Canadian economy, with 56% expecting improved business conditions in 1998. Tax cuts, increasing consumer confidence and stronger household and business demand have, in turn, fuelled vibrant private sector job creation.

In the last two budgets, our government cut taxes a total of 30 times. The impact of tax cuts on the economy is crystal clear -- tax cuts create jobs. The Help Wanted index is the highest it has been in a decade. A quarter million people have come off the welfare rolls since the government assumed office.

Public optimism and confidence in the economy have rebounded. Average annual private sector employment rose by 130,000 jobs in 1997. In January 1998 Ontario private sector employment rose by 35,000 jobs, following a 9,000 job gain in December. Since June 1995, 311,000 new private sector jobs have been created.

Youth are benefiting from Ontario's strong economic and employment growth. The overall employment trend in the past year has been positive for youth. However, there are still too many young people unemployed and underemployed. To help remedy this, Ontario has allocated over $180 million for labour market programs to assist 141,000 youth this year, 49,000 more youth than were helped last year.

More people working means more people spending. Tax cuts not only increase the economy's capacity to produce goods and services; they also help stimulate the demand for those goods and services. Ontario auto sales alone were up 17% over the first 11 months of 1997, on their way to the strongest gain in 12 years. For example, last November Ontarians bought 45,612 cars and trucks, 5,000 more than November 1996. Over the first 11 months of 1997 Ontario retail sales increased 6.8% from the same period a year earlier, on pace to register the strongest performance in nearly a decade. Department store sales in Ontario were up 11.4% during the first 11 months of 1997, the strongest gain on record.

The housing market in particular is benefiting from strong consumer confidence and job growth. In 1997 housing starts in Ontario were up over 25% from a year earlier. This represents the highest level since 1992. In January Ontario urban area housing starts rose 2.2% to reach an annualized level of 51,600, following a 4.8% rise in December.

The Canadian Mortgage and Housing Corp feels that the strong housing market performance in Ontario will continue, stating:

"Ontario's economy has shifted gears from job recovery mode to job growth.... Jobs are a key ingredient in boosting housing demand, but combine jobs with affordable mortgage carrying costs, strength in home resales and moderate inventories of newly completed and unoccupied homes, and they suggest that housing starts should grow further."

In addition to strong domestic demand, growth in manufacturing exports is contributing in a big way to the strength in Ontario's economy. Ontario has become a global competitor and will continue to claim its share of an expanding world market. Ontario's export orientation has increased sharply, rising from 28.5% of GDP in 1989 to 45.6% of GDP in 1996, higher than any of the G-7 countries.

Ontario's increased export orientation reflects the province's highly competitive position and is contributing to the province's strong growth. Real Ontario exports increased by an average of 7.5% between 1995 and 1997, and are expected to grow at an average rate of 5.8% over the next two years.

Improvements in confidence and in the province's cost competitiveness have been key factors in Ontario's trade performance improvement in recent years. These improvements in Ontario's economic prospects are also reflected in the provincial balance sheet.

Ontario is on track to meet the balanced budget deficit targets originally outlined in the November 1995 Fiscal and Economic Statement. In fact, for a third straight year Ontario is on track to overachieve its deficit target.

In 1995-96, the province overachieved its deficit target by $508 million. Last year, we overachieved the deficit target by $1.275 billion. The 1997-98 third quarter deficit outlook, at $5.162 billion, is $1.418 billion lower than the 1997 budget forecast of $6.580 billion, and some $430 million below the level reported in the second quarter Ontario Finances. This year's deficit will be $1.7 billion less than the deficit in 1996-97 and is more than 50%, or $6.1 billion, below the $11.3 billion deficit that the government inherited when it assumed office.

Strong economic growth and lower taxes, less red tape and fewer barriers to growth have already resulted in the province achieving a surplus in the operating balance last year. The operating balance is the difference between total government revenue and total spending on all programs, not including public debt interest. It is also a statistic, I might add, that the federal government points to with some pride as having achieved.

Achieving a surplus in the operating balance is an important milestone. It means that the province no longer needs to borrow money to pay for ongoing programs. The surplus in Ontario's operating balance will grow from $1.7 billion in 1996-97 to $3.9 billion in 1997-98.

While this achievement is cause for some optimism, let me reiterate that our intention is to balance the overall budget and then to begin to reduce the debt.

As I mentioned earlier, the Ontario deficit, at $5.2 billion this year, as reported in the third quarter Ontario Finances released today, is $1.4 billion below the $6.6 billion deficit target we set out in the 1997 budget, and some $430 million below the $5.6 billion reported in the second quarter finances of the province.

Revenues have increased by some $2.4 billion since the 1997 budget and some $525 million since the second quarter outlook, primarily due to $2.1 billion in higher personal income tax and other tax revenue and $564 million reimbursement of expenses related to local services realignment.

Higher-than-forecast tax revenue is due to the strength of the economy and the cautious nature of budget projections. At the same time, expenses have increased by $1.7 billion since the budget and $95 million since the second quarter outlook.

This is primarily due to a $577-million increase in transitional expenses related to local services realignment and a $900-million increase in the provision for restructuring and other charges to ensure that sufficient funding is available to support the significant restructuring taking place in the province.

Improvements in the deficit are important steps to slowing the growth of debt. We are all looking forward to the day when we can begin to pay down the debt.

Ontario's debt-to-GDP ratio was stable -- between 15% and 18% -- for the two decades before the 1990s. Then in the five-year period between 1990 and 1995, the debt-to-GDP ratio doubled and debt grew from $39 billion to $89 billion.

Our debt stands now at over 31% of GDP. This makes us vulnerable in the event of future economic shocks and it means that an unacceptably high share of our spending goes to paying interest on the debt.

Given that Ontario's debt is about $9,400 for each and every person in the province, prudent debt management is vital to the government's overall deficit and debt reduction. Unless the province continues to manage its finances carefully, Ontarians will never rid themselves of the burden of excessive debt. The debt will continue to threaten Ontarians' security and prosperity and the priority services that we all value and rely on. The government is committed to bringing Ontario's debt ratio back to its historical norm in a reasonable number of years.

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The recent ice storms in eastern Ontario illustrate the need for prudent fiscal planning and for ensuring sufficient fiscal flexibility in order to accommodate unforeseen events. Our prudent and cautious approach has allowed this government to respond quickly, decisively and compassionately to the needs of those affected by the recent ice storms in eastern Ontario. In total, the province has committed $75 million to help individuals and communities in eastern Ontario deal with their immediate financial concerns.

As announced by my colleague the Honourable Al Leach, Minister of Municipal Affairs and Housing, on February 2 of this year, the province is providing funding at a ratio of up to four provincial dollars for each dollar raised through local fund-raising efforts. This commitment exceeds the normal ratio under the Ontario disaster relief assistance program of one to one in recognition of the extraordinary nature of this disaster, and it ensures that people who need help with uninsured private property damage will receive it.

The government recognizes that farming communities have been especially hard hit. We have therefore committed an initial $10 million to assist farming communities to recover from this disaster. While we realize that the extent of the damage experienced by farmers can never be fully compensated, we hope to help to begin the recovery process by getting funds into the hands of farmers as quickly as possible.

The government is maintaining its resolve to tackle the threat of debt. While significant progress has been made, there is an ongoing need to manage expenditures. With an aging population, our health budget continues to come under pressure, with increasing demands for physician services as well as new drugs and new and improved technologies. Our education budget is also under pressure from increased enrolment growth and from ongoing improvements to curriculum. As I have already mentioned, investment in these priority programs and services is being clearly affected by growing public debt interest costs.

Balancing the budget is not the end of the task. Even after the deficit is eliminated, government must balance prudent economic and fiscal management with the need to preserve and enhance priority services if the burden of debt is to be reduced.

I hope the information which I have provided to you this morning and the ideas and advice which interested individuals and groups will be bringing forward over the upcoming weeks will be carefully considered by the committee in its report to the Legislature. In particular, I will look forward to advice from the committee which will contribute to making Ontario the best place in North America in which to live, work and raise a family; help today's youth by providing more work and training opportunities, which will also help Ontario's labour force remain competitive in the future; and build on the gains we have made to date by further strengthening Ontario's economy so that we can compete with any jurisdiction in the world and win.

Thank you.

The Chair: Thank you, Mr Minister. Members of the committee, we have about 35 minutes for questions. We did agree, I believe, to divide them equally. That was the subcommittee's direction. We also agreed, I think, to split them at five-minute intervals until the final shakedown, and we'll divide it evenly again. Is that satisfactory? I'm prepared to start with the official opposition. Mr Phillips.

Mr Gerry Phillips (Scarborough-Agincourt): I want to begin by getting some clarification on what is now I think almost the third-largest provincial tax in the province. That is the over $6 billion that the government sets on property taxes, and particularly on business property tax.

Last week the government announced the tax rates for municipalities across the province. This is going to raise, I gather, about $3.6 billion. Based on the information that was provided to us, Minister, you can see that we have widely varying rates across the province.

For example, for a business valued at about $500,000, Hamilton will pay a tax of about $18,500 and the neighbouring community, Burlington, will pay about $11,300. A business in Orillia will pay about $14,200 and a business in neighbouring Huntsville will pay $5,000. A business in Brockville will pay $16,000 and an identical business in Parry Sound valued at exactly the same value will pay $5,000. In Toronto, a business will pay $21,600, and an identical business, exactly the same business, the same value, in neighbouring Richmond Hill will pay $11,100. So you can see that for, I gather, the same services across the province, the same opportunity across the province, businesses will see tax rates that will vary from, for this particular example, a $500,000 business, $21,600 in Toronto, $18,500 in Hamilton, $5,000 in Huntsville and $5,000 in Parry Sound.

I wonder, Minister, if you can give us the rationale for why businesses would have such widely varying rates across the province.

Hon Mr Eves: The rationale for the widely ranging rates is the rationale that's been established over many decades in this province by rates set by individual boards of education and by municipal councils. We understand that the ideal situation would be to have a uniform business tax rate, commercial and industrial tax rate, across the province of Ontario. That is the ultimate goal we will be working towards along with municipalities.

However, to try to solve this inequity in the commercial and industrial tax system across the province in one fell swoop, overnight, would mean the transfer of some $510 million, or half a billion dollars, from some taxpayers in some parts of the province where tax rates admittedly have been excessively high -- primarily, of course, in the city of Toronto proper -- to other areas of the province, to other municipalities across the province, to other commercial and industrial taxpayers.

I don't think you solve the problem of tax inequity by penalizing those people who have shown cost-effectiveness and managed their affairs prudently and kept their taxation rates relatively low over the years. I don't think you solve the problem of excessive taxation, admittedly, in terms of rates in the city of Toronto, and other municipalities as well, I might add -- in the area of commercial tax rates, there are nine other municipalities in the province, all in northern Ontario, that are in excess of the provincial average of the 3.16 rate. But in the area of industrial taxation, roughly half the municipalities in the province are above the average rate.

The government had a choice to make, quite frankly. It could have shifted the $510 million on to those who have been responsible over many decades and managed their affairs prudently. I don't think that's too fair. Or I guess it could have eaten half a billion dollars a year and added half a billion to the provincial debt, which I don't think the government is able to do at this time.

However, in two years' time, when the budget is balanced and we're talking about budgetary surpluses, as they are indeed in Ottawa today and hopefully a couple of weeks from now, I can't think of a better place to spend the province's surplus, quite frankly, than to eliminate this tax inequity that exists. But I do want to point out that the tax inequity was not created by the provincial government. The tax inequity was created by many decades of taxation rates being different in different parts of Ontario.

Interruption.

The Chair: Order, please. Excuse me. Please sit down, sir.

Interruption.

The Chair: I'm going to ask you to sit down, if you don't mind, or be removed. Thank you.

Thank you, Minister. Mr Silipo.

Hon Mr Eves: Sorry. I hadn't quite finished my response to Mr Phillips.

The Chair: I apologize, but we are on a time constraint. I'll give you a minute to go back to it.

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Mr Phillips: I don't think that was five minutes, was it?

The Chair: Five minutes each per round.

Mr Tony Silipo (Dovercourt): Just give him six and take it from the next round.

Hon Mr Eves: Mr Phillips talks as if the province is raising all the money to pay for education in this province from commercial and industrial education taxes, and that simply is not the case. The province's education budget this year, the amount that will be spent on total education in the province this year, is in the neighbourhood of $14 billion. We proposed initially that we would take over the entire cost of education and that we would also assume the education property tax in total across the province. Municipalities did not like that idea. AMO and other municipal organizations, including the large urban municipal organization in Ontario, came to the government and said no, municipalities want to have roughly 50% of the revenue from what is now education taxes to pay for their responsibilities under the Who Does What exercise, and the provincial government will get approximately 50% of the revenue.

Mr Phillips: No, that's not what they said.

Hon Mr Eves: Yes, that is what they said, and we accepted their proposal virtually in its entirety.

Mr Phillips: They said they don't want to accept all the social housing costs. That's what they said.

Hon Mr Eves: With all due respect, Mr Phillips, I was at a meeting that had 16 to 18 municipal representatives representing every municipal organization around this province, with the Premier, Minister Johnson, Minister Leach and myself, and we accepted about 99.8% of their proposal in total. This was a big component of their proposal to us. We accepted that. That is why we are where we're at today.

Mr Phillips: This is grossly unfair.

The Chair: Excuse me, Mr Phillips. You ask a question; you get an answer. That's the way the system --

Mr Phillips: I resent the fact that --

The Chair: Please don't interrupt.

Mr Phillips: -- we get one hour of the minister's time once a year.

The Chair: Yes, you've made that point; you made it very effectively.

Mr Phillips: I think it's totally unacceptable, one hour of your time a year.

The Chair: But you'll allow him to answer the question. Please continue.

Hon Mr Eves: I've concluded my answer.

The Chair: We have a couple of minutes remaining in the second round.

Mr Silipo: Minister, one of the comments I would make with respect to education, besides the impacts that Mr Phillips has just talked about, is to note that one of the things that has happened in Ontario since your government took over is that there has been a drop in spending for education of about $1 billion.

Even more noteworthy than that, it's interesting to note that when you look at the overall public expenditure, what we spend in Ontario and what we're projecting to spend in Ontario is actually lower, proportionately, as a percentage of public expenditure than even provinces like Alberta. We're going to be spending 16% of overall public expenditures, and that's five points less than a jurisdiction like Alberta is spending. You know better than I, Minister, that at the end of the day that's going to translate into cuts to programs in classroom after classroom in the system.

I want to come back to the broader picture. Education is one big piece; health care is obviously another. But I would say, Minister, that this budget of yours that's coming up is probably in some ways the most important of your budgets. I recall being here a couple of years ago when you said the impact of the tax cuts as it relates to creating jobs is going to be felt a couple of years down the line; it will be a little bit slow to get going, but that is there. I recall reading a document which I know is all too familiar to you, the Common Sense Revolution, in which you said the basic reason why you were doing everything else -- the tax cuts primarily, the cuts in government expenditure and so on and so forth -- was in order for you to create 725,000 jobs. That was the major direction that you set out for yourselves and for your government.

I was a little bit surprised, given that statement in the Common Sense Revolution and given what you said to this committee a couple of years ago and I think reiterated last year -- that we would see the growth coming -- that when you set out at the end of your presentation what you're going to be looking for advice on from the committee, it took about three or four bullets before you got to dealing with the issue of work, and particularly the issue of youth unemployment.

You talked a little bit about job numbers. I'd like to get you to explain to me and to this committee: Do you believe you're going to reach the 725,000 job target? I'm surprised you didn't talk more about that, as I say, given the importance you've placed on it. How do you balance whatever job targets you're going to get against the job growth that would have been there, even if you had not implemented the tax cut, against the cost that the tax cut is causing to all of us and to citizens across this province in terms of cuts to health care, cuts to education and cuts to other services? Could you give me a clearer sense than you did in your presentation about where you stand on jobs, what you're anticipating and how you square that off against the costs that people are having to pick up as a result of the 30% tax cut?

Hon Mr Eves: You've raised several issues and I think every one of them is fairly significant in your questioning, Tony.

First of all, you talked about reduction in education spending. Last year, in the calendar year 1997, in fact some $269 million more was spent on the education system in Ontario than had been spent in 1995 when we assumed office. I will grant you that the source of the funding came from different places, ie, property tax education tax, and I will grant you that perhaps it was spent in different places, ie, higher contributions to the teachers' pension plan. But of course those are obligations that the province is committed to and has to pay and are part of teachers' reimbursement and they're part of the cost of classroom education. They're part of having teachers in the classroom.

We have made a commitment with respect to levels of both education and health care funding. As I announced last fall, we have actually provided an envelope for two years out in terms of the amount of money that will be spent in the health care system in this province, and that represents an increase. It's in excess of $18 billion a year. You will note that we ran on a campaign of not spending less than $17.4 billion a year on health care and in fact will be spending, by the time we reach the second year of that envelope, about $1 billion more a year than we committed to in 1995; not to say that there aren't still some very significant pressures, as I briefly alluded to near the end of my statement today, both on the health care system and on the education system, but we are committed to providing those very significant, I think, parts of not only Ontario but indeed Canadian society as we transfer our health care system from one of an institutionalized or bed-based system to a more community-based health care system, especially with respect to an aging population.

There is indeed a huge challenge on the government to make this transition as smooth as possible and to make sure there are more long-term-care beds and more long-term-care facilities available for an aging population. Hence we committed a substantial amount of money, over a five-year period of time, to health care restructuring in the province, some $2.7 billion I believe we committed last year.

With respect to your comments about job growth in Ontario, since June 1995 there have been 311,000 private sector jobs created in Ontario. The Conference Board of Canada, in a recent study it did, projects that number will reach some 720,000 jobs by the year 2000. You will see that is not very far from the 725,000 number in the CSR document itself.

Am I totally happy with the amount of employment that has been created? No. I don't think any government should ever be totally happy with the amount of employment that has been created. But I think, to be fair, if you look especially at the economy's performance in 1997 and the projections by any one of a number of economic forecasters for 1998, you can expect the very vibrant Ontario economy to continue and those jobs to continue to be created.

One area that concerns me, and I know it concerns the federal government in my discussions with Mr Martin, my federal counterpart, is the area of youth employment. Youth employment: Although it has been somewhat better in 1997 by about 30,000 jobs here in Ontario and far better than it has been elsewhere in Canada, I am not satisfied that enough is being done to help young people looking for employment. I think government has an obligation to help young people looking for employment. I think government has an obligation to help train those young people, to talk to our educational institutions and provide them with a practical education so that they can seek opportunities in the areas where jobs are available and will be available in future years, especially the high-tech sector.

In the last 10 years, two out of every three jobs created in Ontario have been created in the high-tech sector, and I see no reason for that number to go down. In fact, it will probably increase. Yet we don't seem to have enough graduates coming out of our university and college system to give to high-tech companies. That's an immense challenge for government, for the educational system and for the private sector, all to combine and try to address those very important concerns, because obviously the future of the province and the country lies in our young people.

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Mr Ted Arnott (Wellington): Mr Eves, since assuming the office of Treasurer in June 1995, you have embarked on a very disciplined balanced budget plan. The people of Wellington county strongly support your efforts in this regard. They're also concerned about the next step: When we get into a surplus position, what do we do? You alluded in your comments to that future for us, and it's a positive future, I think. You indicated that you feel the ratio of debt to our GDP is at too high a level right now and that over a reasonable number of years we have to reduce it. Are you in a position today to elaborate on that with some specific targets you might have in mind for debt reduction?

Hon Mr Eves: I don't have a specific target today that the government has for debt reduction. However, I think that when you look at the federal government's discussion around the whole concept of a budgetary surplus, it generally comes down to three areas: further tax reduction, perhaps of a more specific nature, and I'll come back to that in a minute; further reduction of the overall debt, in their case of the country and in our case of the province; and increased spending for priority programs. I think all three are very relevant pressures on the Ontario economy and the Canadian economy.

In our discussions over the last few days with respect to the matter Mr Phillips raised in his initial question, the inequitable, unfair rates of tax being charged on the commercial and industrial taxpayer in Toronto -- and other municipalities as well, I might add -- vis-à-vis some other areas of the province, I think that is an area the province should definitely be looking at to spend its budgetary surplus on in the future, and there will be a budgetary surplus in two years' time, so we have to start planning for that day today. Not to say that we can't address some of the inequities that Mr Phillips and the mayor of Toronto and others have raised before then; I think we can.

We can sit down with the municipalities and work out a plan whereby they reduce the commercial rate on their part of commercial and industrial taxes and the province can reduce its rate on commercial and industrial education taxes on a dollar-for-dollar basis. Hence, if a municipality decides it wants to go in that direction, to whatever tune it feels it can afford or deal with in any particular year, be it as low as $5 million or $10 million a year or be it as high as $50 million or $100 million a year, the province will be there for them as partners, because we are partners in this. They've assumed 50% of the responsibility with respect to taxes that formerly were strictly education taxes; we've assumed roughly 50%. I think that's the way the problem should be approached.

I think overall debt reduction will always remain a serious concern. The province of Alberta has started to address and has addressed its debt problem. However, you also see in Alberta, quite frankly, pressures from the people of Alberta, and rightly so, for increased spending in important priority areas such as a couple of the ones Mr Silipo raised a few moments ago: health care and education. Those are very important areas, not only to Ontarians but to Canadians. It differentiates us from our good neighbours to the south and I think it's something we can be very proud of and certainly something we do not want to destroy but want to improve upon.

The Chair: The government has a couple of minutes left. Any questions?

Mr John R. Baird (Nepean): You mentioned youth unemployment in your remarks. That's of growing concern for folks, not just for young people who are looking for their first job on getting out of school, but for parents worrying about the next generation. The federal government has talked considerably in recent months about other programs and opportunities that could be taken at the federal level. I think it's safe to say that youth feel very strongly that they don't want another platitude and they don't want simply another make-work project that's short-term based. In Ontario at the provincial level what have we been doing and what can we do on that issue?

Hon Mr Eves: I think I briefly alluded to what we have been doing in the statement with respect to spending $180 million on employment services for youth this year. Is it sufficient? It certainly is not addressing every concern, there's no doubt about it, in terms of youth unemployment.

But I think it's important to remind people that we have taken some significant steps over our first two and a half years in office. We introduced the graduate transition tax credit, which supports the hiring of some 45,000 unemployed post-secondary graduates over the course of some three years. We've introduced the cooperative education tax credit for post-secondary students in co-op and leading-edge technology programs. We have enhanced the funding for summer employment for students. We are reforming the apprenticeship programs in Ontario to provide our youth with more opportunities to prepare for careers in skilled trades. We have provided in our last budget, I believe, loans of up to $7,500 to help young entrepreneurs start businesses.

I think that all those things are important measures, and obviously, taken collectively, when you look at $180 million, that's a fairly significant sum to be spending to help our youth. But I don't think our job is by any means done. I think there are more things the government can do, especially in the educational and training and apprenticeship sectors. I believe there are things the federal government can do, and hopefully we'll hear about some of those in the next 10 days to two weeks, whenever the federal budget finally comes out.

We, along with every one of our provincial colleagues at the finance ministers' meetings, have suggested to the federal Minister of Finance where he could create a substantial number -- it's estimated up to 50,000 jobs for young people right now -- by eliminating EI premiums on young people, both for the employer and for the employee. This would still leave the EI account in huge surplus in terms of billions of dollars every year, so it would not cost the federal government any money from that point of view, and it would provide a great impetus to hiring young people across the country, including Ontario.

The Chair: Thank you, Minister. Mr Phillips, the Liberal caucus?

Mr Phillips: I really find it unfortunate that we only have an hour and I made that point earlier. I don't know why the minister can't afford us, once a year, more than one hour. We get about seven minutes per caucus.

I want to return to the property tax issue. I think it's, by any stretch of the imagination, grossly unfair that a business in Brockville is going to be paying three times the rate a business in Parry Sound pays. The government has said that some municipalities do not charge their residential property taxpayers enough and their business taxpayers too much.

You moved to a uniform mill rate residentially so that no matter where you live in the province, you now pay the same educational mill rate. Why would you not, at the same time, have done the same thing with our businesses? I think there were $600 million worth of community reinvestment funds that you could have used to cushion the blow. What are we to say to a business in Brockville that is valued at an identical amount of money to a business in Parry Sound, doing exactly the same business, but is paying three times the rate of a business in Parry Sound?

Hon Mr Eves: First of all, with respect to the residential mill rate, you're quite correct, Mr Phillips. We did move to a uniform rate, as you know, for residential education tax across the province. That resulted and will result in substantial increases in mill rates in certain municipalities such as Parry Sound -- in excess of 50%, I believe, in their case. So they will be paying substantially more money with respect to educational residential tax in those areas.

You are quite correct: In an ideal world we would have a uniform commercial and industrial rate as well. Mr Ritchie's panel recommended that to us, that it was the ultimate goal the province should be striving for, and it is the ultimate goal the province is striving for.

Your opinion, if I can gather your comment correctly, that we could take $510 million out of the $650 million we've set aside as a reserve in our budget every year -- I guess we could do that. I guess the difference of opinion may come in whether you think the province can afford to address --

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Mr Phillips: I said the community reinvestment fund.

Hon Mr Eves: Okay, sorry. The community reinvestment fund was allocated to municipalities that generally do not have a large commercial or industrial tax base to assume a lot of the responsibilities that they're being asked to assume under the Who Does What exercise, and that is where that fund was allocated. In addition, of course, the Minister of Northern Development and Mines has a $77-million transition fund that he is spreading over two years to further assist some more remote and northern communities that have a huge disparity between the amount their responsibilities are going to cost them and the amount of tax revenue they have available to them.

I have never said that the city of Toronto's commercial and industrial tax rate should not be lower. It should be lower. But I do want everybody to understand, and I think it's only fair to point out, that this is a system that has grown over many decades. The inequity is about half a billion dollars a year, in round figures. The debate then becomes, or the discussion should be around, how soon we can eliminate that inequity not just for Toronto but for all municipalities, but I will concede that Toronto is about 80% of that $510 million, or roughly $400 million a year. How soon can we move to address that?

I think we've made a reasonable offer to the city of Toronto in particular and to all other municipalities that find themselves above the average rate of 3.16, to move on a dollar-for-dollar matching basis. I'm certainly prepared to sit down with Mayor Lastman or anybody else who wants to talk about how we get there over what number of years. In a couple of years' time I think we'll be in a better position, from the provincial revenue point of view, to address these inequities for all those municipalities, not just the city of Toronto.

The Chair: Thank you, Mr Minister. Mr Silipo, you have about three and a half minutes.

Mr Silipo: I thought I only used five minutes.

The Chair: No, certainly you went over.

Mr Silipo: It was more? Okay. Minister, I want to come back to this question of the jobs and its relation to the tax cuts. I note with some interest that if you look back to 1994 -- you claim, first of all, that 311,000 jobs have been created since your government took office. We may quibble about some of those numbers, but let's, just for the sake of this exchange, grant you that number. Compare that with job growth in 1994 of 137,000 jobs. That seems to tell me that whatever is creating that growth in jobs, it certainly isn't the tax cut, because the job growth was there prior to the tax cut and it was projected to continue on a course very similar in terms of the numbers that you're looking at. I guess what I want to ask you is, are you prepared at least at this point to admit that whatever the reasons for the job growth are, it has very little, if anything, to do with the tax cut?

Hon Mr Eves: First of all, I don't think the government has ever said that every increase in the growth of the economy, that every single job created in the province of Ontario, is directly related to the reduction in the provincial personal income tax. However, I will say that the approach the government has taken not only to provincial income tax reduction but elimination of the payroll tax, the employer health tax on the first $400,000 of payroll, the reduction of WCB premiums by 5% overall, the freezing of hydro rates -- I think all of those actions, combined with deregulation, combined with the vibrant Canadian economy, combined with Ontario's advantage to export, as we alluded to briefly in our remarks, combined with low interest rates in the country, combined with low inflation, which I believe was 0.7%, if my memory serves me correctly, last month on an annualized basis, year to year -- I think those are all in combination, where you have every government in Canada, regardless of its political stripe, taking the same approach with respect to deficit reduction, debt reduction, tax reduction and reducing the size and bureaucracy of government. Every single government, all 10 provincial governments and the federal government, taking the same approach I think has provided an economic climate, and obviously Ontario, being the heartland of Canada in terms of GDP and commercial and industrial growth, stands to benefit from all of that.

But there's a reason why the Ontario economy is growing at almost twice as fast a rate as any other province in Canada. There has to be a reason for that; otherwise, they'd all be the same. If our policies had absolutely no effect on what's going on in the Ontario economy --

Mr Silipo: In fact, Minister, though, if you look at the projections prior to your government taking office -- this is the point I want to make -- the growth was projected to be there, regardless of the tax cut. Your tax cut is costing the taxpayers of Ontario $20 billion in additional debt that's been added to the provincial debt. It means that revenue, as a result of that, is actually lower by $3 billion this year than it would have been if the tax cut was not implemented, and that $3 billion is being felt big time through cuts to health care and education primarily.

That's the point, Minister, that the growth would have been there. Dealing with the deficit is not a question that's just, as you said, a realm unto yourself. No one is disagreeing with the need to reduce the deficit. In fact, what I'm saying to you is, you would be in a position to bring the deficit down to zero within this year or certainly by next year, if you were not engaged in this craziness of the tax cut. When you add into the mix what that tax cut means to people, the fact that the people who are benefiting are not the 50% of income earners of the province who are in the lower 50% but it's the people in the top 4% or 5% of income earners across the province who are reaping the benefits of that, it's coming at a huge cost to our health care and education systems and it's not the main factor. In fact, it may not even be an average factor in terms of creating jobs. So what's the point?

The Chair: If you want an answer, I'm going to have to interrupt you there. You have one minute.

Hon Mr Eves: First of all, I'm certainly not aware of any projections in 1994 that projected this kind of rate of growth in the Ontario economy in the years 1996, 1997 and 1998. In fact, you will note that the province has followed the lead of the federal government in only projecting two years out. There isn't anybody alive who can accurately project growth any longer than two years out, and even then you have to be quite cautious I think and prudent in your approach to doing so, because there are so many extraneous factors that come into play.

I want to point out that every single dollar of tax reduction to Ontario citizens has remained in their pockets. It's not as if it has disappeared into a black hole somewhere. It's money that these people now have to spend every day, and I think that generates, and it's proven that it has generated, economic growth in Ontario.

As a matter of fact, since we assumed office in 1995, the total provincial revenue from all taxes has gone up by $3.3 billion, or some 9.1%. So as we've reduced provincial income tax rates by 22.4% to date, our revenue from all forms of taxation -- because people spend money. The government doesn't care how it gets the money, whether it gets it in increased corporations tax, increased retail sales tax because people are purchasing goods and services. We don't care whether we get it in increased tobacco tax, increased LCBO revenues or increased provincial income tax.

And that's another interesting point. The provincial income tax revenues have gone up, despite the fact that the rate goes down. Compare that to the experience of your government in 1991-92 fiscal year, when you raised tax rates and got about $1.5 billion less revenue as a result of raising them. I know it may be a foreign concept to your provincial political party that when you actually allow people to keep more of their own money and not take their money away from them, they actually spend it, create jobs in the private sector, more employment's created, more people pay taxes and government revenues go up. That's exactly what's happened.

The Chair: Thank you, Mr Minister. Mr Rollins, you have about three minutes also.

Mr E.J. Douglas Rollins (Quinte): Mr Minister, I'd like to turn your thoughts for a second or two to our debt. I know there's a lot of borrowing going on to look after a debt over the past. Is there a lot of that money offshore or out of country compared to what it has been in the last while? Where are we borrowing the money that we need to borrow?

Hon Mr Eves: A good part of the amount of money that the province of Ontario borrows, as a matter of fact almost all of it, first of all, is always converted back into Canadian dollars. The flexibility that the government has given itself with respect to the matter of foreign currency exposure is no more than about 5%.

When we borrow, we borrow primarily in the Canadian domestic market. For example, this year I think we have borrowed $8.1 billion, or in that neighbourhood. Over 85% of the amount is in the Canadian domestic market, but the government has taken an approach where it is flexible enough to take advantage of opportunities in other jurisdictions if we see them. The Ontario Financing Authority, Mr Salerno, has done an excellent job in doing that, but I think the protection that's ultimately there is the conversion back into Canadian currency so we're never exposed too much from the level of foreign borrowing, but more importantly, in the level of foreign currency exposure as well.

Mr Rollins: Thank you.

The Chair: I'm sorry, we don't have sufficient time, Mr Minister. Thank you very much for your attendance.

Mr Silipo: On a point of order, Mr Chair: Could I just raise something with the minister? I know it hasn't been the way in which it's been done in the past, but I wonder if the minister would at least think about the possibility of returning to this committee and spending some more time with us after we've gone through the two weeks of hearings and prior to our getting down to starting the writing of the report. I think it might be a useful exchange for us to have with the minister at that point, after we have heard from the various deputants and prior to, as I say, making our report, particularly in light of the fact that we haven't had as much time as we would have liked to get into some issues. I think then we could also build upon information that will have come to us from others. I just want to ask the minister to keep that in mind.

The Chair: It's a valid point for the subcommittee. If the subcommittee makes the request, we'll relay it to the minister and he can respond.

Mr Phillips: On a point of order, Mr Chair: We already made that request of the minister and it was he who said no, but I think --

The Chair: The answer to that question was today, one hour. The question now is, would he come back or would there be additional time after the hearings?

Mr Phillips: Surely the minister can answer that, Chairman.

The Chair: I'm sure he can.

Mr Phillips: Why don't you let him answer it then?

The Chair: If he wishes to make a comment, he'll feel free to do so.

It's not a point of order, but if you want to make a comment, Mr Minister, please feel free.

Hon Mr Eves: I would say to my critics, from both the Liberal Party and the NDP, they know what the tradition has been around this place, be it Robert Nixon, Floyd Laughren, myself or others. The Minister of Finance normally comes here to kick off the pre-budgetary considerations. In fact, that wasn't even a practice in this province until I believe about the year 1985.

We go through our own budgetary hearing process as well on a much more informal basis. We consult with literally hundreds of Ontarians as to what input they think we should have, and I can tell you quite sincerely that over the two budgets I have introduced, a lot of ideas that have come from people other than government have been incorporated into the budget.

I certainly would be happy to receive the advice of the committee. If there is time, I have no objection to coming back if it can be fit into not only my schedule but the committee's schedule and my own pre-budgetary hearing schedule, the pre-budgetary consultation process leading up to the budget.

I think everybody knows that the Legislature will probably be resuming about the middle of April with a throne speech, the House having prorogued.

Mr Silipo: We didn't know that. Thank you very much.

Hon Mr Eves: You do know that now.

Interjection: We thought it was April 23.

Hon Mr Eves: If you didn't before, you probably know that now.

Mr Baird: You found the calendar.

Mr Phillips: Between now and the middle of April, might you find an hour? Just today you set $6 billion worth of property tax rates. Nobody votes on them, no discussion; you just do it with the stroke of a pen. Surely we owe the public some opportunity to debate that.

Hon Mr Eves: Gerry, the property tax money does not come into provincial revenue. The education property tax money is collected and distributed to the school boards in the area where it's raised.

Mr Phillips: Yes, but you set the rate.

Mr Silipo: I'd like to say to the minister that he and his government have changed so many traditions, I hope he's prepared to change this one and come back to the committee.

The Chair: If it pleases the committee, in order to reorganize the room, we'll take 10 minutes at this time and we'll come back at a quarter past the hour.

The committee recessed from 1104 to 1119.

MINISTRY OF FINANCE

The Chair: Mr Gourley, you have approximately two hours, an hour and 50 minutes. We propose to hear your submissions, all of the submissions, and then divide up the time equally for questions between the three caucuses at that time, adjourning some time around 1 pm. If there are some preliminary comments you would like to make or introductions of your staff, please proceed.

Mr Michael Gourley: I'd like to introduce Mr Colin Andersen, who is the assistant deputy minister in the Ministry of Finance responsible for financial and fiscal policies; Mr Steve Dorey, who is the chief economist and assistant deputy minister in the Ministry of Finance responsible for the office of economic policy; and Mr Tony Salerno, who is the vice-chair of the Ontario Financing Authority as well as being an assistant deputy minister in the Ministry of Finance.

WE HAVE THREE PRESENTERS TODAY: TO FOCUS ON A FISCAL PRESENTATION, TO FOCUS ON THE ECONOMIC SITUATION THE GOVERNMENT IS FACING, AND MR SALERNO'S PRESENTATION WILL FOCUS ON SOME OF THE INITIATIVES HE AND HIS STAFF HAVE UNDERTAKEN TO REDUCE THE COST OF THE PUBLIC SECTOR BORROWING ACTIVITIES OF THE PROVINCE. I HOPE THE COMMITTEE WILL FIND THOSE PRESENTATIONS INFORMATIVE AND USEFUL.

WITHOUT ANY FURTHER ADO, I'LL TURN IT OVER TO STEVE.

Mr Steve Dorey: I'll review the recent economic performance and the economic outlook and then pass it to my colleagues.

AS THE MINISTER INDICATED, THE ECONOMY GREW VERY STRONGLY IN 1997 AND THE EXPECTATION BOTH ON OUR PART AND ON THE PART OF PRIVATE FORECASTERS IS THAT SOLID GROWTH WILL CONTINUE INTO 1998.

OUR CAUTIOUS FORECAST FOR ECONOMIC GROWTH IN THE YEAR 1997 IS 4.4%. THAT MATCHES THE BEST YEAR IN ABOUT A DECADE. GROWTH IN EACH OF THE QUARTERS THROUGH THE THREE QUARTERS WE HAVE FOR 1997 EXCEEDED 5% IN EACH QUARTER.

TODAY WE RELEASED ONTARIO ECONOMIC ACCOUNTS FOR THE THIRD QUARTER OF 1997. THEY SHOW THAT THE ONTARIO ECONOMY GREW AT AN ANNUAL RATE OF 5.7%. THAT COMPARES FAVOURABLY WITH THE 4.1% RATE FOR THE COUNTRY AS A WHOLE. THE KEY DRIVERS WERE STRONG CONSUMER SPENDING. CONSUMPTION IN REAL TERMS WAS UP 7.9%, ANNUAL RATE, IN THE THIRD QUARTER, REFLECTING STRONG CONSUMER CONFIDENCE. MACHINERY AND EQUIPMENT INVESTMENT WAS UP BY A VERY RAPID PACE OF 34% IN THE THIRD QUARTER.

YOU'LL NOTICE THAT WHILE EXPORTS ARE UP, IMPORTS WERE UP MORE. THE STRENGTH IN IMPORTS REALLY REFLECTS THE STRENGTH IN DOMESTIC SPENDING. THERE'S A HIGH IMPORT CONTENT IN MACHINERY AND EQUIPMENT INVESTMENT, AND THERE'S A HIGH IMPORT CONTENT IN CONSUMPTION, PARTICULARLY THE KINDS OF CONSUMPTION THAT HAVE BEEN GROWING MOST STRONGLY -- DURABLE GOODS SUCH AS AUTOMOBILES.

ON THE CONSUMER SIDE, CONSUMER CONFIDENCE ROSE 3% IN THE FOURTH QUARTER OF 1997, TO THE HIGHEST LEVEL IN NINE YEARS. NOMINAL CONSUMER SPENDING FOR THE THIRD QUARTER WAS UP 2.1%. OTHER INDICATORS OF CONSUMER SPENDING ARE ALSO STRONG. RETAIL SALES WERE UP 6.8% THROUGH THE FIRST 11 MONTHS OF 1997, DEPARTMENT STORE SALES WERE UP 11.2% AND UNIT AUTO SALES WERE UP A FULL 17% IN 1997. OBVIOUSLY CONSUMER CONFIDENCE IS ONE OF THE FACTORS DRIVING CONSUMER SPENDING. STRONG EMPLOYMENT GROWTH, 130,000 PRIVATE SECTOR JOBS, AND GROWTH IN AFTER-TAX INCOME ARE ALSO SIGNIFICANT ELEMENTS CONTRIBUTING TO CONSUMER CONFIDENCE AND CONSUMER SPENDING.

ON THE HOUSING SIDE, HOUSING STARTS WERE UP 25.6% IN 1997, FOLLOWING A RISE OF 20.2% IN 1996. THE RESALE MARKET ACTIVITY MOVED AHEAD IN 1997 BY ABOUT 2%, FOLLOWING AN INCREASE OF OVER 30% THE PREVIOUS YEAR. ONE OF THE CONSTRAINTS IN 1997 WAS SIMPLY A SHORTAGE, IN SOME CASES, OF RESALE HOMES FOR SALE.

IN ADDITION TO THE FACTORS I MENTIONED PREVIOUSLY, THE HOUSING MARKET REFLECTS STRONG CONSUMER CONFIDENCE, INTEREST RATES THAT DESPITE RECENT INCREASES ARE STILL AT ATTRACTIVE LEVELS, AND AFFORDABILITY THAT'S THE BEST IN A DECADE.

ON THE BUSINESS SIDE, REAL SPENDING ON PLANT AND EQUIPMENT WAS UP 6.4% IN THE THIRD QUARTER. THAT'S THE QUARTERLY RATE, AND THAT MATCHES THE 30% INCREASE AT AN ANNUALIZED RATE THAT YOU SAW ON THE PREVIOUS SLIDE. THAT CORRESPONDS TO BUSINESS CONFIDENCE, WHICH REMAINS NEAR RECORD LEVELS. ONE OF THE THINGS WE SAW ALSO THIS YEAR WAS A SURGE IN NON-RESIDENTIAL SPENDING, WITH SPENDING ON STRUCTURES UP ABOUT 10.1% ON THE YEAR.

NATIONAL BUSINESS CONFIDENCE REMAINS AT RECORD LEVELS AND OVER HALF OF THE FIRMS ASKED CITE ONTARIO AS THE LOCATION WHERE THEY PLAN TO DO THE BULK OF THEIR INVESTMENT.

CORPORATE PROFITS OBVIOUSLY ALSO HAVE AN IMPACT ON BUSINESS INVESTMENT PERFORMANCE, AND CORPORATE PROFITS WERE UP 26.3% IN 1997.

THE TRADE SIDE CONTINUED TO PERFORM WELL. EXPORTS ROSE 2.1% AT A QUARTERLY RATE IN THE THIRD QUARTER. IMPORTS WERE UP MORE THAN THAT. AGAIN, IMPORTS ARE UP STRONGLY, REFLECTING THE STRENGTH OF DOMESTIC DEMAND. OVER THE COURSE OF THE YEAR, FINAL DOMESTIC DEMAND IN ONTARIO WAS UP ABOUT 6%. SO THAT HAS LED TO A LARGE INCREASE IN IMPORTED GOODS, BOTH FOR CONSUMERS AND FOR BUSINESS INVESTMENT.

ON THE EMPLOYMENT FRONT, ON A YEAR-OVER-YEAR BASIS, WE SAW IN 1997 AN INCREASE IN PRIVATE SECTOR EMPLOYMENT OF 130,000 NET NEW JOBS. IN JANUARY ALONE THE PRIVATE SECTOR CREATED 35,000 NET NEW JOBS. AT THIS POINT ONTARIO'S TOTAL EMPLOYMENT TO THE END OF JANUARY IS ALREADY 120,000 ABOVE THE AVERAGE FOR 1997, SO THAT POINTS TO ANOTHER VERY STRONG YEAR FOR 1998.

OTHER LABOUR MARKET INDICATORS ALSO SHOW HEALTHY GROWTH. THE HELP WANTED INDEX WAS UP 26% IN 1997 OVER THE FIRST 11 MONTHS OF THE YEAR. A TOTAL OF 234,000 PRIVATE SECTOR JOBS WERE CREATED. THE ONTARIO UNEMPLOYMENT RATE HAS COME DOWN AND NOW STANDS AT 8%. OTHER INDICATORS LIKE MANPOWER TEMPORARY SERVICE EMPLOYMENT SURVEYS ALSO INDICATE ONGOING STRONG DEMAND IN THE LABOUR MARKET.

ONE ELEMENT THAT CLOUDS THE OUTLOOK TO SOME EXTENT IS THE ASIAN FINANCIAL CRISIS. THERE ARE SERIOUS PROBLEMS IN A NUMBER OF ASIAN ECONOMIES. THOSE WILL HAVE AN IMPACT ON JAPAN AND THEY WILL ALSO HAVE SOME IMPACT IN NORTH AMERICA. IT'S IMPORTANT TO REALIZE THAT EXPORTS TO EAST ASIA ONLY ACCOUNT FOR 2.3% OF ONTARIO'S EXPORTS. THAT'S ABOUT 1% OF OUR GDP. SO WE EXPECT THAT TO HAVE LITTLE DIRECT IMPACT ON THE ONTARIO ECONOMY.

NEVERTHELESS, WE KNOW THE ASIAN DEVELOPMENTS WILL HAVE SOME IMPACT ON US ECONOMIC PERFORMANCE. CURRENT ESTIMATES SUGGEST IT COULD BE AS MUCH AS A 0.5% REDUCTION IN US ECONOMIC GROWTH, AND SINCE 90% OF OUR EXPORTS ARE DESTINED FOR THE US, THAT'S AN IMPORTANT FACTOR. OFFSETTING THAT IMPACT IS THE FACT THAT THE ASIAN PROBLEMS WILL TEND TO LOWER INFLATION IN THE US, WILL TEND TO PUT OFF INTEREST RATE INCREASES IN THAT ECONOMY, AND LOWER INTEREST RATES WILL THEN SUPPORT GROWTH IN CANADA.

WHEN WE LOOK AT THE INTEREST RATE OUTLOOK, WHAT THIS SLIDE SHOWS YOU IS THAT EXPECTED INTEREST RATES FOR 1998 HAVE RISEN AT THE SHORT END OF THE CURVE IN THE PAST COUPLE OF MONTHS, REFLECTING THE BANK OF CANADA'S EFFORT TO OFFSET THE DECLINE IN THE DOLLAR. AT THE LONGER END OF THE CURVE, 10-YEAR GOVERNMENT BONDS, YOU CAN SEE THAT IN APRIL OF LAST YEAR PRIVATE SECTOR FORECASTERS EXPECTED A 6.3% 10-YEAR GOVERNMENT BOND RATE; IN NOVEMBER IT WAS 5.9%. THE CURRENT EXPECTATION IS 5.7% AND THE CURRENT LEVEL IS IN FACT 5.5%. THE EXPECTATION IS THAT LONG-TERM INTEREST RATES AND LONGER-TERM MORTGAGE RATES WILL REMAIN AT VERY ATTRACTIVE LEVELS.

IN TERMS OF THE DOLLAR, YOU CAN SEE THAT LAST APRIL THE EXPECTATION AMONG PRIVATE FORECASTERS WAS A DOLLAR IN 1998 THAT WOULD AVERAGE NEARLY 76 CENTS. FORECASTERS HAVE GONE BACK TO THE DRAWING BOARD. THE AVERAGE IN NOVEMBER WAS 73; THE CURRENT PROJECTION IS 71.5. SO ECONOMISTS STILL EXPECT SOME MODERATE APPRECIATION IN THE DOLLAR OVER THE COURSE OF THE NEXT YEAR.

1130

We employ prudent assumptions when we go at our fiscal planning. What we've showed in this slide is how private sector forecasts have changed. When we produced our November outlook, we were projecting growth in 1998 for Canada at 3.3% and for Ontario at 3.5%. There was a margin of caution there. The private forecasts for Canada and Ontario at that point in time were 3.6% and 4.2% for Canada and Ontario respectively. You can see that since then, forecasts for both Canada and Ontario have come down marginally, three tenths and two tenths, to reflect concerns primarily about Asia.

What that points to is the need for prudent planning assumptions. We have four elements of prudence in our forecasts. We built in about a 100 basis point interest rate cushion to take account of risks that interest rates could be higher than forecasters expect. We used cautious forecasts for economic growth. You can see that currently our November projection remains about 0.5% below the private projection for economic growth in the current year. When we translate economic growth into revenue growth, we add another measure of caution in doing that translation. Finally, we provide for a $650-million reserve, which gives us a fourth element of caution in our fiscal projections.

As I said, our interest rate assumptions tend to be 1% above the private sector forecast and our reserve is equivalent to the revenue impact of about a 1.5% change in GDP or 6% of our sales tax revenues.

The minister touched on the fiscal impacts of the ice storm. Let me touch on the economic aspects. As you well know, eastern Ontario communities and businesses were hit hard by this storm. Currently, according to the Insurance Bureau of Canada, about 36,000 claims have been filed, for a total of nearly $100 million. The agricultural sector has been particularly hard hit. The Conference Board, for example, estimates that agricultural production will be hit to the tune of about $11 million. In the utilities sector, Ontario Hydro estimates it lost about 100 gigawatts of power in January. That's about eight tenths of a per cent of total power production in the province for that month, or $6 million to $8 million worth of power output. The manufacturing sector was also affected by the loss of power. Our expectation is that most of that impact will be recovered over the coming months.

As we go forward, we will see construction activity pick up as both Ontario Hydro and individuals and firms undertake rebuilding in the eastern part of the province, and that construction activity will offset some of the initial negative impact of the storm.

Mr Gourley: Mr Andersen will be presenting on the third quarter Ontario Finances.

Mr Colin Andersen: I'll be speaking to two documents. I think you have both of them. The first one is the third quarter Ontario Finances slide, and you should also have been provided with a copy of the Ontario Finances themselves.

To start into the slide package, a chart that you'll be familiar with and one that was in the minister's presentation as well outlines the balanced budget plan for Ontario and shows the progress to date. As the chart shows, the government is on track to eliminating the deficit and balancing the budget in the year 2000-01; 1996-97 was the second year in a row that the deficit target has been overachieved. You can see from the chart that this year, 1997-98, we're also well on our way to overachieving the budget deficit target. In the 1995-96 year, the budget deficit target was overachieved by $508 million. In 1996-97, the actual deficit was about $1.3 billion below the original target. At the moment, we're looking at a deficit of $5.2 billion for this fiscal year, which is $1.4 billion below the $6.6-billion target that was set out in the budget.

On to the next slide. These slides will go into progressively more detail about the fiscal plan, specifically with regard to the 1997-98 year. This one provides an overview of where we are on the deficit, with a comparison of the fiscal numbers to those that were put out in the budget and then those that were released today in the third quarter finances. I've already mentioned that the deficit, at $5.2 billion -- or $5.162 billion, as you see in the lower right-hand corner -- is down about $1.4 billion from the budget plan, and that's about $430 million lower than the second quarter results that came out a while ago.

To break that change down into its constituent parts, our revenue outlook, at $50.8 billion, is $2.4 billion above the budget plan numbers and about $525 million higher than the level reported in the Q2 Ontario Finances. As the minister mentioned, that revenue increase is primarily due to higher than originally estimated personal income tax revenue and the strength of the Ontario economy. I'll go into some of those in a little bit more detail in some of the future slides.

Just some summary comments about the total expense. Our total expense, at about $55 billion or $56 billion, is up about $1.7 billion from the budget plan and about $95 million from the second quarter results. Those changes are primarily due to an increased provision for restructuring and other charges and transitional expenses, both of which were already announced in the Q2 Ontario Finances.

Also included in the Q2 Ontario Finances was the fact that we are no longer going to be needing the reserve. Steve alluded to that reserve in his remarks. That is an amount of money that we put into our fiscal plan every year as part of the prudent budgeting practices we've adopted. It was a practice that was recommended by the Ontario Financial Review Commission. The federal government does a similar thing as part of its fiscal plan. The idea behind that reserve is that it's designed to protect the fiscal plan against unforeseen economic and fiscal risks such as changes to the economic outlook. At this point in the year, we're quite confident that we're not going to need that reserve, so we put it to the bottom line as of the Q2 Ontario Finances.

On to the next slide, which provides a summary of some of the revenue changes. To make it a little easier, we've split out the changes so that you can see what has changed from the budget, but as well what has changed since the last Ontario Finances were released. You'll see that the first column talks about changes from Q2 Ontario Finances and then the last column does the comparison to where we were at the figures that were released in the budget.

I mentioned that most of the change on the revenue front is coming on the personal income tax side, $630 million higher this quarter, and that's based on data we've received from Revenue Canada in respect of 1996 personal income tax assessments. The PIT forecast is now about $1.8 billion higher than we released in the 1997 budget due to stronger 1997 growth, but as well a significant amount coming from the higher 1996 assessments, which we're required to report in our 1997-98 fiscal year under the accrual accounting method that the province uses now.

There are no changes this quarter to retail sales tax, corporations tax or land transfer tax. All of the changes that you see there since the budget time essentially are reflecting fairly robust economic growth, and all of those were reported in the Q2 Ontario Finances.

1140

Government of Canada: There have been a few changes in our net transfers from them, a net $10-million increase this quarter. That's due to a couple of things. One of them is our expected share from the federal government for some of the disaster relief expenditures we're undertaking. It's a cost-shared program and the federal government provides us with a fair amount of money under that particular program. As well, every time the personal income tax numbers go up, our entitlement under the Canada health and social transfer goes down, so you see an offsetting amount of money on that side of things.

Income from government enterprises: That's where you would see some of the Ontario Lottery Corp income. The major change there is that it's down $90 million due to a revised implementation schedule for the video lotteries, and that is reflected in the Q3 Ontario finances that were released today.

The other revenue change is also in the gaming area, and that's the line where we show revenues from the charity gaming clubs. As well, the change that you see there reflects a revised implementation schedule for those.

The fairly significant change in other revenue that you see from the budget time, the $610-million figure in the lower right-hand corner, again was announced in Q2 Ontario Finances, but that's an amount of money that reflects that the province will be continuing to deliver on behalf of municipalities, for an interim or transition period, a number of programs that will become municipal responsibility under the local services realignment. Until the time when the municipalities are actually able to take over the delivery of them, the province will be billing them for those services, and you see that revenue reflected there.

On to the next slide, a summary of the operating expense changes. We've already talked about the ice storm relief, an extra $65 million this quarter on the operating side of the equation. You'll see a $10-million increase on the capital side that brings it to the $75-million number that the minister has talked about. That's broken down into a few parts: $55 million for immediate assistance through our Ministry of Municipal Affairs, and $10 million for the farming community that you would see in the Ministry of Agriculture, Food and Rural Affairs.

The increased education amounts that you see there are consistent with the announcement that Minister Johnson made last month with regard to stable funding. Those numbers are reflected there and have already been communicated to the individual boards.

Some good news on the social assistance front: continued caseload savings. The forecast is down 20,000 from initial projections due to some of the reform measures as well as improvements in the province's economic conditions, which have increased job opportunities.

Consistent with the improvements in the economic outlook, we're also seeing some savings in the public debt interest area, $40 million in savings reported this quarter, for a total of $144 million savings from the budget. That's a result of interest rates remaining below the cautious budget forecast assumptions that Steve already talked to you about that we use. We adopt a forecast that's about 100 basis points above the consensus of the private sector forecasters, and with economic growth being fairly robust, we're seeing some savings on that front.

I mentioned earlier some of the changes on the restructuring charges. All of those were announced in the Q2 Ontario Finances. An additional $900 million was put in, a provision at that point in time, in second quarter, bringing that to a total of about $1.5 billion, fairly consistent with the amounts of money that have been spent in the last two fiscal years: about $2.4 billion last year and about $900 million in the 1995-96 year.

Local services realignment: I already mentioned that under the revenue slide. This is the expense the province will continue to incur on behalf of the municipalities and we will be reimbursed by municipalities for that amount. You saw the offsetting figure in the previous slide.

The other significant change since the budget was pay equity. Consistent with the Q2 Ontario Finances release, the government will be spending an additional $140 million this year for one-time, retroactive pay equity costs for those agencies that are using proxy comparisons.

On to the next slide, which details some of the capital expense changes. I already alluded to the disaster relief amount. That's for public agency, then municipalities, for damaged or lost public property as a result of the storm. The other changes were already announced in the second quarter: again, local services realignment and some changes on the developmental services side of things.

On to the next page, a little more detail about the restructuring and other charges that have been provided for in this fiscal year. I mentioned that for 1997-98 the total provision now stands at $1.5 billion. That's higher by $900 million than was provided in the 1997-98 provision. This slide gives a detailed breakout of where we are with respect to the breakout of that particular amount. You'll see that basically most of that was already talked about in the Q2 Ontario Finances. Some of it was also included in the budget; the first couple of lines were in the budget. The health care restructuring refers to the ongoing hospital restructuring amount, a multi-year program under way to do some restructuring in the health care area.

There has also been some money put aside under the municipal capital and operating restructuring fund for local services realignment. Some of that money was reallocated in Q2 Ontario Finances in the minister's December economic statement and reallocated to a couple of funds that will be used to provide municipalities with assistance as they undertake some of the programs that will be moving over to them. I'm specifically referring to the special transition fund and the special circumstances fund there as well as the municipal restructuring fund. More details about each of those individual funds will be going to municipalities fairly shortly as to specifically how they can access those.

As well, the fall economic statement talked about highway transfer amounts. Some had an increase over amounts that had previously been provided for those.

New this quarter is the line that is about second from the bottom there, the city of Toronto financial assistance for the local services realignment. You see a $50-million provision there that goes against the additional $900 million that was provided in Q2 Ontario Finances. That's for a grant that will be provided to the city of Toronto in addition to some loan assistance to assist them with the local services realignment.

Still to be allocated before the budget: $735 million. More details will be coming on that as we work towards the budget. Any unused amount there would go directly towards deficit reduction.

On to the next slide. It's just a historical comparison, showing that between 1984-85 and June 1995, spending had increased at a much faster pace than growth in population and inflation. If spending had grown just according to population and inflation, you'd see that we would be spending more in line with the lower line on the figures. When the government took office in June 1995, there was a fairly significant level of spending that has been essentially reversed now in the last couple of years. Spending per person in 1997-98 will fall to about $4,908, a decline of 2% from 1996-97, and spending per person this year is down about 6.5% from the high of $5,300 or so recorded in 1995-96.

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As the minister alluded, the fiscal challenges are certainly not over. The government was spending about $1 million per hour more that it was collecting in revenue in June 1995. Just to update you on that figure, it's still spending, with a $5.2-billion deficit, about $600,000 more per hour than it's bringing in in revenues. On the PDI front, our interest payments are now accounting for almost one fifth of our total revenues, a fairly significant number. The last slide just reiterates the balanced budget plan and shows again that we're well on our way to meeting the balanced budget in the year 2000-01. However, we still have a fair way to go.

With that, I'll turn it over to Tony.

Mr Tony Salerno: I'm pleased today to provide the committee with an overview of the operations of the Ontario Financing Authority. To start off, I'd like to give you a sense of the key responsibilities of the Ontario Financing Authority.

First and foremost, our principal responsibility is to ensure that the borrowing and liquidity needs of the province are met cost-effectively and within policy and limits. We manage the province's cash flows, all the ins and outs that you've heard today. The other key responsibility is to coordinate all of the banking activities across ministries and agencies of the province.

The graph in front of you illustrates our achievement in minimizing public debt interest in the last two years. You can see that since 1995-96 the accumulated deficit has grown by $12 billion, an increase of 13.4%. Over the same period, however, the increase in public debt interest has been held to -- when I say "only," it sounds like I'm trivializing it, but in relationship to the growth in the deficit, $571 million growth, or 6%, is cause to say "only" in relationship to the growth in the deficit. This is a significant achievement. To be sure, the favourable interest rates that Steve spoke about have gone a long way to make this happen. For example, in 1997-98 the 30-year interest rates reached an all-time low, dipping for a little while below 6%. The Canada rates are still below 6% today.

Furthermore, a very happy occurrence is the fact that the Canadian rates have been and continue to be below the US rate right across the yield curve. This is the first time this has happened on a sustained basis.

While the interest rates have been and continue to be favourable, particularly in the long end of the yield curve, I think what has made it happen is effective management of the province's finances. First of all, it's important to realize that to minimize PDI, one could go a long way by reducing the amount that we borrow. Second, I think the OFA has been effective in executing the borrowing strategies for the province. A key component of the OFA strategy and minimizing the cost of the PDI, or public debt interest, has been to reduce the amount we need to borrow to meet the province's financing needs. We have done this in a number of ways.

We have reduced the level of liquid reserves by over $8 billion since 1995-96. With the improved fiscal situation, concerns about the province's ability to access markets have been reduced significantly. Liquid reserves can be reduced significantly while at the same time still meeting the cash needs of the province. In reducing the level of liquid reserves, depending on the steepness of the yield curve -- and let me just say what we mean by the yield curve. The yield curve is the interest costs across the spectrum of the term; in other words, ranging all the way from short-term paper or floating debt to the 30-year bonds.

Clearly, the greater the difference between short-term rates and long-term rates, the greater the saving in minimizing the amount of liquid reserves we carry. The liquid reserves are clearly a drain or a cost to the province in that you need a certain level of liquid reserves, but because we're borrowing long, by and large, and investing short, when we're holding liquid reserves there is a cost to those liquid reserves. In minimizing the level of liquid reserves we can operate with, we have achieved significant savings.

Also, through a concerted effort to rein in surplus funds from agencies across the government, borrowing was reduced by a further $300 million. These are funds essentially that were kept as liquid reserves, many liquid reserves within the various agencies, the Ontario Realty Corp, the casino corporations and others.

We've also moved to sensitize senior civil servants across the government to the time value of money. It sounds trivial, but often that lesson has to be re-emphasized. A dollar today is clearly worth more than a dollar tomorrow. What we've done to make them sensitive in a real way to this important concept is that effective cash management will form part of senior managers' evaluations. The objective here is to collect the province's revenues on a timely basis and to pay our bills, again on a timely basis, avoiding late payments but at the same time not paying in advance of the due date.

Through these measures, we have minimized the amount the province needs to borrow. Clearly, the less you borrow, the less you access the market, the lower the interest costs you will ultimately have to bear.

At the same time that we have reduced the amount we borrow, the OFA is securing the lowest effective borrowing rates for the province. We have an active investor relations program that ensures that when the province accesses the market -- whether it's in the domestic market or in the foreign markets -- we have a strong recognition, all of which will ensure a positive reception of the province's debt issues and will ultimately minimize the rate the province needs to pay.

This obviously has helped to create a diversified market for our paper, the provincial debt papers that we issue. You can equate it to a business: The more demand you create for your product, the better off you can be. In this case we've increased the price we can sell our product for, and as you increase the demand, the yield will ultimately drop.

In fact, as an indication of this, during 1997-98 the province enjoyed the tightest spreads over the government of Canada bonds, and by "tightest spread" I mean the difference of premium that we pay over the government of Canada rates. This premium has been, in fact, lower than when the province had an AAA rating.

As you can see in this pie chart that should be coming up, the Canadian market has been and continues to be the key source for funding the province's requirements. However, the province has issued in a number of foreign currencies, including the US dollar, which is our next biggest denomination, and the Japanese yen, and other currencies including the French franc, sterling, the Deutschmark and others. These markets will be accessed and continue to be accessed when it can be done in a cost-effective manner.

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In addition we continue to work with dealers in structuring products that meet the specific needs of investors. In this way we can access niche markets where we can effect a lower cost to the province. Just some examples of this: Over the last two years, we've issued 14 what we call "medium-term notes" in the Canadian market, for a total of $1.3 billion, which saved $60 million over a plain vanilla type regular issue. We've accessed others through 16 European medium-term notes and four Japanese-targeted issues, totalling $2.7 billion, again niche markets, for a total of $30 million in savings, again over plain vanillas or straight domestic issues.

We issued, for the first time, in 1996 our first French franc issue. We repeated that in this year's program. We went back to the French franc market. Between the two issues we raised $1.5 billion, again through judiciously managing the timing, because essentially it was done in a French franc issue to the French market in French francs. We managed the FX, foreign exchange, exposure we took on when we did the issue. Through judicious management of that and the interest rate, we stayed floating for a while and then locked it in when the interest rates were lower. Through these strategies on those two issues, we saved $97.5 million.

We have also put in place strategies to further reduce the costs of operation, in other words, the overhead we incur. We've also introduced in the past two years the concept of floating debt. In the past, for instance in 1996, when you netted out the level of liquid reserves, we actually had negative floating debt. This is something that in fact will create a drag on the cost of managing your debt, because generally floating rate is at a lower rate than long-term rate. We have now moved to a floating rate debt that is 9% of the total net of liquid reserves. This is still well below the 20% limit that's imposed on us, and again we will move that floating rate debt based on our interest rate calls to minimize at the same time the interest rate risk the province is faced with.

In terms of comparison with other jurisdictions, the federal government currently has floating debt of around 35%, and other provinces are considerably higher than us. What we've done here is gradually move to more floating debt while still minimizing the interest rate exposure the province is taking on.

Our foreign exchange exposure, as the minister indicated earlier, is absolutely minimal. Right now it's about half of 1%. It has been as high in the last two years as 2%. Our policy allows us to go up to 5%. It was higher when we had the French franc exposure.

Currently it's a good thing we are in fact at a minimal level of floating debt. You may have read about Quebec a couple of weeks ago. Where here we're reporting lower PDI, Quebec was forced to announce that their PDI was going up significantly because of the heavy foreign exchange exposure they have. That's not to be critical of the French position because at times FX exposure could result in considerable savings in public debt interest, but it's a matter of timing.

Other measures we've taken to lower the financing charges, which in turn reduce PDI, are that we have reduced the line of credit we have with the banks by US$2.75 billion and we've also negotiated lower rates for an annual saving of $1.5 million. We've negotiated and had a tender for a new banking contract where we've brought into our banking contract a number of other agencies of the government, including the LCBO for example, and through this we've managed to save another $1.3 million annually in our banking charges. Currently it's about $5 million annually; it used to be over $6 million.

We've also reduced the administrative costs of the Ontario savings bond campaign by $3 million over the last two years. This would have been added to the PDI costs.

The important thing to keep in mind is that these public debt interest savings have been achieved without exposing the province or enhancing the risk the province undertakes; in fact, at the same time we feel we've tightened and codified the policies and practices that the OFA operates under.

As the minister alluded earlier and as I've stated as well, the foreign exchange exposure is limited to 5% of total outstanding debt. The floating rate exposure has been set as a policy not to exceed 20% net of liquid reserves. We've established policies to limit our exposures to organizations that we deal with in terms of swaps. Swaps are exchanges of debt obligations. This is undertaken, for one, to limit or eliminate or hedge our foreign exchange exposure. This policy has been set so that we will not be dealing with counter parties that are rated less than A.

Our risk exposures are measured and monitored and are reported on a daily basis to our risk management committee. The OFA is in the forefront of measuring in an objective fashion the performance of our activities as we raise the money for the province. We monitor and report daily on the cost-effectiveness of our borrowing, risk management activities and other investment activities. We set benchmarks and measures against which we are measured.

In conclusion, I would say that as a result of the OFA's success in minimizing public debt interest, the government is able to devote more resources to priority areas, as the minister indicated, which are reducing the deficit, lowering taxes and/or reinvesting in priority programs.

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Mr Gourley: That concludes our presentations and we'd be happy to answer any questions.

The Chair: Thank you, gentlemen. We'll start with the official opposition.

Mr Monte Kwinter (Wilson Heights): Mr Gourley, I want to talk to you about a couple of things. You talked about the provisions that were made, about the jobs that were created. What provisions have you made? I've had many calls from constituents who are very concerned about the merger talks that are taking place; 6,000 jobs going here, another 6,000 jobs going somewhere else, another few thousand jobs leaving. There seems to be an impression that consumer confidence is growing. There certainly seems to be an impression that net new jobs are being created, and yet on the other side you hear some of these disturbing reports. Have you done any projections or do you have any idea of what is happening in the labour force as a result of what is taking place?

Mr Gourley: All of these forces that are at work certainly do influence consumer confidence. As to the particular announcement that involved a potential loss of 6,000 jobs, that's certainly a disturbing consequence of a merger, and of a takeover as it were, so that could affect consumer confidence.

What we have been talking about is in essence where it is today. We think the surveys that are undertaken on consumer confidence basically demonstrate where it is today. There isn't a lot of work done on trying to project where it's going to go because conditions, whether it be -- I'll use another example that's quite outside the influence of Ontario's economy, and that is the whole issue of United States action vis-à-vis Iraq. That will have an impact on economic behaviour, particularly in the United States, and because of our export trade relations with the United States, that will definitely have an impact on our economy, that whole consumer confidence and business confidence impact.

I might ask Steve Dorey, the chief economist, to talk a bit about the level of activity that normally goes on in the workforce as a result of normal consequences. When you highlight it out in terms of that 6,000 one, I would argue that's hardly a normal consequence, but there are a lot of businesses being created, a lot of businesses changing and converting, and that has an impact on job creation. We have not done specific studies to say, "This is where we see the major changes taking place," but we are forecasting at a macro level where the economy is going much as the private sector forecasters, so I would ask Steve to talk to both the overall outlook and the labour force impacts of these changes.

Mr Dorey: The net job figures we present are the difference between big changes that happen in the economy every month. Hundreds of thousands of people find new jobs or leave jobs or change jobs every month, so there is a lot of churning in the economy. One would suspect that with increasing international integration that may be increasing. One of the things I think that points to is the need for both businesses and individuals to be adaptable, to have the skills they need to move between jobs to take advantage of new opportunities and so on. I think that's part of the reason the minister was talking about the need for a focus on training, on increasing opportunities for youth through giving them added opportunities in technical schools and so on

Mr Phillips: Just to change the subject to gambling revenues, which I gather are going to be quite an important source of revenue, I noticed in the financial statements that the taxpayers have spent $1 million to set up an agency that will distribute the video lottery funds to the charities and spend another $1 million to set up a video lottery special communications unit, so I gather the province is ready to tramp the accelerator on video lottery terminals. What is our revenue estimate now for video lottery terminals for the upcoming fiscal year, and I guess also total gambling revenues? We now have the casinos fully operational. I gather we have the new Windsor casino opening this fiscal year. You've got the charity gaming houses opening. We're spending money on these communications units for the video lottery terminals. Can you give us the estimate on how much revenue we should expect in this upcoming fiscal year from video lottery terminals?

Mr Gourley: We haven't completed the final estimates process for the budget, but it's certainly in the order of hundreds of millions of dollars, and that will really depend on the final analysis of how the implementation of video lottery terminals will go on. Will it go on in a smooth manner? As we pointed out in the third quarter finances, we have had to reduce the estimate of revenues from this year because the implementation schedule was delayed.

We have been planning and hoping that by next year there will be more or less full implementation of the video lottery program, but it hasn't been finally determined as to exactly what pace it will take place at. That's a decision still to be taken and our actual estimate will depend on that. So the estimate we see in the budget may --

Mr Phillips: But it's hundreds of millions of dollars.

Mr Gourley: Yes, it is.

Mr Phillips: Maybe we could follow up. Again, I'm very sensitive on timing here, unfortunately.

Teacher pensions: I note that in the financial statements you record expenditures of $683 million last year, 1996-97, and $555 million in 1997-98, but on an actual cash basis, how much money has actually been paid by the taxpayers, the total is $800 million more than that.

Mr Gourley: Right.

Mr Phillips: When we look at our financial statements, on which we calculate the deficit, those financial statements record teacher pension expenditures by the taxpayer $800 million lower than the actual cash outlay. It seems, to a lot of people, odd that we don't see the $800 million of actual expenditures ever recorded in the financial statements; they're back somewhere in the footnotes.

What's the number we should anticipate for the upcoming fiscal year, as this committee is trying to wrestle with its advice on the finances, and should we expect a difference between what you plan to put in the books and what you plan to spend of somewhere around $400 million to $500 million?

Mr Gourley: The difference arises largely as a result of the difference between cash accounting and modified cash accounting, which we were previously on, and the accrual accounting. If I can put it this way, the smaller number, or the number that we have been reporting in the past few years, is actually the calculation of the obligation that the government has undertaken for that particular year. If you like, it's the value of the benefits earned by teachers, less their contributions and less a couple of other adjustments. It's essentially the value of the pension benefit earned, so it's the commitment made by teachers. That's the accrual notion, that you attribute to the year in which a particular obligation is undertaken the cost of that obligation.

The cash obligations arise, as you know, in part from paying to the fund the actual contributions that the government makes, since it matches teacher pension contributions, but in addition the special payment in respect of the unfunded liability, and I believe there's one other charge that I don't have at my fingertips. At any rate, the total is, as you point out, higher in cash terms than it is in the expensed or terms reflected in the accounts.

I point out that the public document, the expenditure estimate, includes the cash value. Those are voted at the present time on a cash basis, so the higher amount is the amount that's actually appropriated by the Legislature, the cash amount. That cash comes from the consolidated revenue fund. The cash reporting of the province's activity is actually part of our ongoing reporting, so it is reported. It's just reported, if you like, as supplementary information; so what are the actual cash transactions going on? The difference you've noted here is one that's particularly striking, but it's no different from other circumstances or other situations where accrual accounting requires that we record the value of the obligation the province has entered into in the year in which it was entered into. It's, if you like, costing of the value of the benefit in the right year.

The Chair: Mr Silipo, you have about three and a half minutes left on the second round.

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Mr Phillips: What is the total time?

The Chair: We're going to 1 o'clock.

Mr Phillips: I meant for each caucus.

The Chair: You have about 15 minutes per caucus. Mr Silipo?

Mr Silipo: I just wanted to doublecheck a couple of figures to see if I've understood them. In the first package, the presentation by Mr Dorey, the jobs chart, is the 234,000 jobs shown at the right end of that chart what you're projecting the growth will be over the next year?

Mr Dorey: No. The 234,000 is the number of private sector jobs created over the last 11 months. That's the job creation from February 1997 to January 1998.

Mr Silipo: So that's an actual number. What are the projections?

Mr Dorey: We revise our projections twice a year. We produce projections in November that go into the fall economic statement, and again revise them for the budget. In light of the strength of jobs, particularly in January, we will undoubtedly have to revise these numbers, but the projection for job growth for 1998 is in the order of 2.8% to 3.5%. The 2.8% would work out to about 140,000 jobs, so that would be about 140,000 to 200,000 or so in terms of annual average, year over year. Those will obviously have to be revised before the budget.

Mr Gourley: Just to clarify, that data was in the fall economic statement projections.

Mr Silipo: Thank you. As to the changes we've seen in revenue over I guess the last couple of years, certainly reflected now in the third quarter statement, first of all the big chunk of it is, as you noted, the personal income tax moneys that have flowed from the federal government. Can we expect that there will be further changes to that between now and the end of the fiscal year?

Mr Gourley: Typically, not a great deal. There could be. These would be what I'll call anomalous adjustments. At this point in time the vast majority, over 99.5%, of the returns have been processed, but occasionally, in my experience at any rate, there have been adjustments to reflect appeals. The appeals experience has been different, and that could bring $10 million or $40 million.

Mr Silipo: But most of it has come in, then.

Mr Gourley: The vast majority of it. I don't see hundreds of millions of dollars, for instance, on the horizon.

Mr Silipo: All right. The $610 million under "Other revenue" -- I missed that part of the presentation; I had to step out. Could you just tell me again what that is?

Mr Andersen: The $610 million refers to some of the reimbursement of the local services realignment amounts, and that's for the programs that the province is going to continue to deliver on behalf of the municipalities. It falls in there.

Mr Gourley: So there is an expense and the revenue offsetting that expense.

Mr Silipo: When we look at the pattern that we've seen on the books over the last couple of years, in my perhaps simple way of looking at things and the way in which I think the average person out there might look at this, what we've had is -- I know you talk about being cautious and conservative, I presume just small-c conservative, in your estimates of the revenues, but we have a pattern over the last couple of years that then shows up on the deficit targets. The numbers vary, but it's from $1 billion to $1.5 billion a year in difference between the original targets and then what actually happens at the end of the year. Have I got that right?

Mr Gourley: That's correct. My comment would simply be that one has to recognize that in all of the targets, going in we know that there's a $650-million reserve, so $0.7 billion -- if you believe there is not going to be a problem with the economy, you automatically know the target is going to be overachieved by $700 million or $650 million. That's a given if you believe that.

If you believe there is going to be a problem in the economy, then that still allows them to achieve the target, with the tolerance being an error in our prudent and cautious forecasting of 1.5% on real gross domestic product growth. So there is already a level of caution built in, and Steve mentioned the three others, the interest rate assumptions that we make and so on, all of which have additional caution built into them. We've got lower forecasts, we've got a reserve, and we've got other assumptions that compound the caution, if you like.

Mr Silipo: Looking at this in as straightforward a way as one could look at it, one of the things that continues to puzzle me, coming at this certainly more recently than many people around this room, is that when we look at those numbers and we see on the one hand anticipated growth or projected growth when we go back two or three years to the beginning of the government's term, projected growth from then into this year and into the next couple of years, and yet when you look at the numbers on the page, they show revenues year after year as actually being lower. Wouldn't that strike the typical person as a little bit odd, that a government that is saying the economy is growing is at the same time saying we are going to get less revenue? And then in fact what we find out when all the numbers are in is that revenues aren't down --

Mr Baird: They are what?

Mr Silipo: -- because then you'd get the numbers in that aren't put in in the first calculation. Explain to me the logic of that, or explain to me how I would explain it to a typical constituent of mine who looks at this in a logical way and says, "If you're telling me that the economy is growing, why am I not seeing in the first cut at the books that the revenue is actually going to go up?"

Mr Gourley: I think the primary rationale for the government's approach has been to avoid circumstances in which it promises to meet a target, it promises to fund hospitals and school boards at announced levels within the various envelopes that have been announced, and then if the economy doesn't turn out to generate all of the revenues that we have estimated the economy would do, in the middle of the year we would have to tell those same hospitals and school boards: "Sorry, we've miscalculated. The revenues aren't there. You have to cut back in-year." That has been an advantage of the prudence and caution that is built in.

It's true that it has been hundreds of millions of dollars in additional revenues that have come in. That has meant the government has overachieved its deficit target, so it has applied it to the deficit target, or restructuring charges essentially, but it has also meant that hospitals have been able to count on the budget allocations they were given, universities the same, and the same is true for school boards. The public sector generally has been able to count on the level of funding that was announced initially, as opposed to trying to make an in-year adjustment.

Mr Silipo: But it also could have meant, given the pattern of year over year the actual revenues having proven to be much higher than the government initially said they were going to be, the government had the choice of being clearer about that at the front end and/or not cutting expenditures in areas like health care and education.

Mr Gourley: The government did have those choices, but I believe at least in the documents that we have been talking about here we have been trying to be clear about the level of prudence and caution for the very reason of needing to protect the priority programs, as the minister describes them, and to ensure that those resources are there, because to announce that funding levels will be X, whatever they are, even if it's new money, and then to have to take it back in-year is problematic for everybody.

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Mr Silipo: We have --

The Chair: I'm going to have to interrupt you there, Mr Silipo, because your time has run out.

Mr Baird: I wanted to discuss consumer confidence. I have the revenue numbers and the consumer confidence chart from Mr Dorey's package.

Consumer confidence is on the rise, and I know my colleague Mr Silipo was talking about the taxation revenue. I have on page 10 of the second document, Ontario Finances, the third quarter report, retail sales tax revenues up, corporation tax revenues up, gasoline tax revenues up, fuel tax revenues up, land transfer tax revenues up, mining profit tax revenues up, overall up by more than $1.2 billion in terms of tax revenue, without -- in fact, with reducing taxes, not raising them. What's the relationship, in your judgement, between that and consumer confidence?

Mr Gourley: Perhaps I shouldn't talk about my own personal spending patterns, but at any rate I know I've made a few purchases on the basis of my general view of things that are happening. Some of that retail sales tax is attributable to people just feeling better. It's also reflected in investments. As people invest and create jobs, obviously those jobs that we've been talking about are going to result in more people paying income tax. They'll be paying at a lower rate than previously, but they'll be paying income tax. That is growth that you see in the personal income tax, the retail sales tax.

I think the corporations tax is simply a function of companies doing better, investing in people, creating jobs and as a result making higher profits and therefore paying more tax.

The land transfer tax: Mr Dorey's presentation and in fact the minister's presentation talked about housing starts, the confidence that's represented in that. That is a very delicate area because it does truly reflect, I'll say generally in the case of housing starts, young people's view of the future, whether they can take the risk of investing in a home. So it has not been a one-month phenomenon. In fact, it has been a sustained phenomenon, this improved market for new homes. That's reflected in the land transfer tax. The resale market has been very good, with the exception of the one last month, but it has been very good over the past year. All of this to me reflects people's renewed confidence.

It's all working together to create an environment. I don't think there's any one single factor you can point to and say: "If you want to improve consumer confidence, lower interest rates. If you want to improve consumer confidence, reduce taxes." I don't think there's any one factor you could point to and say, "Aha, that's the real trigger." It's the combination of all of these things feeding on each other, much as the reverse. When the reverse is true, people put their hands in their pockets and companies won't invest, companies won't hire, people won't move and it just works in reverse. Fortunately, we have a situation in which the consumer confidence and business confidence are running parallel to each other, although I think the consumer has been leading the business confidence indicator somewhat. So consumers are feeling more confidence, and as they've felt more confident business has become more confident.

Mr Baird: I noticed the Liberal member for Ottawa South said: "They" -- the taxpayers -- "have more money in their pockets and therefore they have a lot more money to spend. Tax cuts increase domestic consumption." Of course, the Liberal member for Ottawa South is John Manley.

The consumer confidence index: What is your forecast for the coming year, 1998-99? Is it expected to continue to rise in relation to consumer spending?

Mr Dorey: We don't formally forecast consumer confidence. One of the things we know is that consumer confidence tends to be affected by employment and to some extent interest rates. Those are the two key variables in terms of consumer confidence if you track them over a period of time. Since we expect continuing solid job growth and moderate interest rates, we would expect to see consumer confidence continue to rise.

Mr Gourley: I would just make one comment, if I could, on the issue of interest rates. I would say that there are differences between interest rates that change, I'll say frequently, by small amounts over time, and a large shock, if you like, in an interest rate change. That can have an impact. Those can have different impacts at different times when combined with other circumstances in the economy. As Steve says, we do not forecast consumer confidence.

Mr Arnott: I raised with the Treasurer the issue of debt reduction, something that I feel is very important and that the people in Wellington county are very concerned about. In his statement he indicated that Ontario's debt-to-GDP ratio was for many years between 15% and 18% and has now rocketed upwards to around 30%. Are you aware of the C.D. Howe study which has looked at the federal debt and come to the conclusion that a more appropriate level of debt to GDP would be about 20%? This is something that came out about a month ago or so. Would you concur that around 20% of debt to GDP in Ontario is a more appropriate level as a goal to shoot towards?

Mr Gourley: I'm going to ask perhaps both Steve and Tony to comment on this as well, but my comment would be that this whole issue is a matter of debate. Some people feel that you should eliminate debt entirely, and that is certainly a rather extreme position, but whether a 20% -- and here we're getting into an issue of targets or directions as much as anything. The important statement, at least as far as I'm concerned, is that it be reduced, because I think Mr Andersen's presentation showed how sensitive we are to foreign debt and short-term debt and long-term interest rates and so on.

Mr Andersen pointed out that 20% of our revenue is now going to pay public debt interest as opposed to ongoing, current programs. That is probably not a long-term, sustainable path. The federal government is in the order of 35 cents out of every dollar collected going to public debt interest. Those two differences are rather stark when you compare them to the early 1970s, when both governments were at about 11 cents or 12 cents out of every dollar going to public debt interest. That sort of level, some level of debt is sustainable. Whether it's 20% or not, I'd be happy to have the debate rage on because it means that people are not arguing about the direction; they're arguing about the quantum of the end point. But clearly, whether we are at 20% or 22%, if you're standing at 30% today and you want to get to 20%, that's got to be a laudable goal. Whether it's the right goal or not, I don't think anybody knows the answer to that question.

Steve and Tony, do you want to comment?

Mr Dorey: There's no perfect number. We know that what matters is combined federal and provincial debt. That number is close to 100% of GDP at this point. The Maastricht criterion for membership in the European monetary union is 60%, and that's a useful number because obviously that will cloud international perceptions of whether we're a high-debt country or a low-debt country relative, for example, to the countries that will join that union.

Mr Gourley: So the issue of what is the right number I think is open for debate, and C.D. Howe's challenge, what amounts to a challenge, and they've done comparisons looking at the long-term sustainability of program, but I think there is a general feeling within the population that debt is a problem. What I would dearly love to know is whether it's public debt or personal debt that is the primary concern of individuals.

Mr Arnott: Or a combination of both.

Mr Gourley: Or a combination of both. But I think people are all too well aware of public debt. The federal government certainly has certainly gone a long way to making that an issue, as have all provincial governments. I think that's good public policy if we can be sensitive to it.

Mr Arnott: Quite a number of provinces, of course, have pursued debt retirement policies to the logical conclusion, which is to pay off the whole debt. I think you need to have some measurable goal and work towards that goal in order to achieve anything and perhaps maintain the discipline that's required over a number of years. We've gotten into this debt mess in this country over a 25-year period, and it's going to take some discipline over quite a number of years to get us out of it, in my view. The province of Alberta, I understand, is almost to the point where it will be retiring its entire net debt, which is certainly an enviable position for them, and it's a course of action that I would recommend as well for Ontario.

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Mr Gourley: We just have to move some of those oil and natural gas resources to Ontario to help us out with our discipline.

The Chair: Mr Kwinter, you have about three and a half minutes.

Mr Kwinter: Mr Gourley, if you recall, when we had our Hydro meetings we were very concerned about the Hydro situation in relation to Ontario's guarantee of that debt. I noticed that in the minister's presentation to us he estimates that $75 million is committed to disaster relief. That doesn't include Hydro, and I assume Hydro is a major, I don't want to say "beneficiary" of that storm, but they're going to have to pay a lot of that money. I don't assume they insured; they must be self-insured. What is that impact going to be on their debt, and how does that reflect on the province's obligation?

Mr Gourley: I don't have at hand all the detailed impacts, but I believe it's in the order of $100 million or so that could be -- I'm looking to staff. The level of damage that was sustained by Ontario Hydro in terms of transmission lines and its facilities and so on I think was in the order of $100 million or $110 million. That's a lot of money, obviously, by one storm, but to be frank, in the scheme of the total debt burden of Ontario Hydro, that's not a large amount. It's certainly a large single-event loss and all of those sorts of things, but it doesn't increase dramatically the level of risk that the province has in its guarantee, nor does it jeopardize, in my opinion, any of the financial forecasts or projections that Hydro has put forward.

Mr Phillips: The question is how the province records education spending in its books. The province now has 100% responsibility for setting the budgets of all the schools in the province, it raises 100% of the revenue now, yet I understand from some comments that the province doesn't plan to record 100% of the expenditures -- it plans to show $6 billion of expenditures off its own books -- and it doesn't plan to show the property tax revenue on its own books in spite of the fact that it sets the rates and orders municipalities to collect the money and orders municipalities where to send the money. Has the Provincial Auditor commented on this plan, and is the Provincial Auditor in agreement with not showing the $6 billion of expenditures on the provincial books?

Mr Gourley: We have been discussing this very issue with the Provincial Auditor. The issue turns on a number of factors, including ownership and control and the degree of independence, if you like, of the school boards in this case, because they are an elected body with the responsibility for determining the allocation of the resources provided to them.

As you point out correctly, the province has the capacity to influence their revenues, to dictate their revenues, but the province does not in a direct way, other than through the proposed fair funding formula, influence the specific decisions they make as to whether the resources they receive will go to classroom resources, if I could put it that way, versus facility resources or some other resources, school board administrative buildings, that sort of thing, as opposed to schools. The province does not have the decision-making -- "power" is perhaps not the right word, but it does not decide how the local school boards are going to spend the resources available to them. That is a significant difference, the fact that --

Mr Phillips: My question is, though, has the auditor commented on it?

Mr Gourley: No he hasn't because, to be frank, we have not yet released the fair funding formula. That is something the Ministry of Education is working on. The nature of that formula will turn on this very question. The funding formula itself will determine the level of resources. To the extent to which it simply creates a number and says, "Here's your allocation for your particular board reflecting the needs of your board and the costs that are incurred by your board," if all it does is generate a large number which is then taken by the board as their revenue base and they determine whether they're going to spend it on teachers' wages or other staff wages, clearly, certainly based on our discussions, I think the accounting opinion would be that this should not be recorded as a provincial revenue and a provincial expense.

Mr Phillips: Carried to its logical conclusion, you'd take all this spending off the books.

Mr Gourley: No. Our grants are a function of provincial contributions, so you wouldn't take that off. That's not actually their spending; that's our contribution to their revenues, if you like. When they take them in, they'll have two streams of revenues: provincial grants and local education tax revenues.

Mr Silipo: One of the big changes in the expense side that shows up in the third quarter statement is under the restructuring, the additional $900 million. You may have covered this before and I missed it. First of all, could you just cover quickly for me what that is for, and secondly, how much of that, now I guess $1.5 billion, do you expect will actually be spent before the end of the fiscal year?

Mr Gourley: Mr Andersen's presentation provides a detailed breakdown of all of the restructuring, and it's on the third slide from the back of his presentation.

Mr Silipo: There we go. Okay. So just my second question about --

Mr Gourley: He enumerates all of it, although I'd point out, in response to your question, there is still unallocated -- second line from the bottom --

Mr Silipo: Right, $735 million.

Mr Gourley: Yes, $735 million.

Mr Silipo: So at least that money has not been allocated --

Mr Gourley: Has not been allocated yet.

Mr Silipo: -- and may not be spent.

Mr Gourley: Well, it's possible, and in fact Mr Andersen's comment said if it is not spent, then presumably it could go to the deficit bottom line.

Mr Silipo: Right.

Mr Gourley: However, I'd like to differentiate. Let's say that money, it is decided, is to be spent in the form of a grant or a restructuring expense that will be incurred by a particular municipality or in hospitals, for example. We could actually expense that money as a grant but the local institution may not choose to actually spend it until some time later.

Mr Silipo: Right. I understand that is part of what's allowed under the present accrual system. I appreciate that. The timing is just a little bit more flexible and to be determined on the basis of other considerations, of course.

Mr Gourley: If it's for an ongoing purpose, it can only be expensed in the year in which the operating expense was undertaken, but if it's for restructuring, it can be expensed --

Mr Silipo: Okay. Beyond that $735 million, the balance of that, can you tell me from the different categories where there might be some large numbers of moneys that actually have not been spent?

Mr Gourley: I don't have a detailed, up-to-date analysis on the health care restructuring. That's the largest expense we have recorded. I think to date the pattern we show has been supported by our analysis and supported by what is going on, but that is something that has to be reviewed as we go through the year. I believe there may be some review of that particular amount. All of the other amounts I fully expect to be expensed over the course of the balance of the year.

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Mr Silipo: Okay. Along the same lines but with respect to last year's budget and, for that matter, even the previous ones, are there amounts of money that have not yet been spent under the restructuring category from previous years?

Mr Gourley: Yes, I believe health care restructuring again, and there may be some municipal --

Mr Andersen: There are a few areas. The bulk of that money has already been spent. You'll recall that there was some money, about $173 million, provided in 1996, 1997 and 1998 for housing. All of that has gone out to the providers. On the transportation front there is about $200 million in reserves and about $76 million of that has already gone out; there's another $124 million that should be going out relatively shortly. On highways, there was about $350 million committed in 1996-97 and another $50 million this year. All but $8 million of that has already been flowed to municipalities and I think most of the $50 million has as well.

Mike mentioned that health care restructuring really is the one where the cash flow hasn't happened a lot yet. There were provisions of $970 million last year and $450 million this year, and I believe Minister Witmer announced, I think it was in December, about $154 million in cash has already gone out to hospitals for that amount. As Mike mentions, the hospital one is really the one where there is the most significant difference at the moment. However, there are very detailed plans with respect to that restructuring and that was what enabled us to book those expenses to the year we were able to book them to, and the auditor has signed off on those.

Mr Phillips: I want to return to the gambling revenue thing where you talk about hundreds of millions of dollars. I'm just trying to get a perspective on the numbers. Charities are going to get $100 million from video lottery terminal revenue, and that's 10% of the gross video lottery terminal revenue, which tells me that the total gross video lottery terminal revenue is $1 billion. Is that $1 billion for all the machines, for the machines going into charity gaming houses, for the machines going into charity gaming houses plus racetracks?

The second point is, if the charities get 10% of the gross gaming revenue, what does the province get?

Mr Gourley: Ultimately, of course, it depends on the total number of machines that are actually installed, but the perspective we've been using is in respect of all video lottery terminals. That's what we've been trying to reflect in the province's financial reports. But there is a difference between video lottery terminals at racetracks and video lottery terminals in charitable gaming --

Mr Phillips: You calculate the $100 million. What's it on?

Mr Gourley: I'm going to ask Mr Andersen if he's got it.

Mr Andersen: Just doublechecking here.

Mr Gourley: We can get back to you on that. I'm sorry, I don't have it right at hand.

Mr Phillips: It would be very helpful to our caucus and I suspect to the committee to know the gaming revenue projections, because obviously they've been done. As a matter of fact your 18K -- is that what you call the securities commission --

Mr Gourley: That's the securities commission form number.

Mr Phillips: It had some revenue estimates in there, which have subsequently changed. So I know you've done the number. Charities are promised $100 million. How did you get to the rest of the break?

Mr Gourley: I can provide that to the committee.

Mr Silipo: I want to come to another area that I think was covered mainly by Mr Salerno in his presentation around the public debt interest. To make sure I've got this clear, first of all, you're talking about a number of things you've done to minimize the cost of borrowing. I think that by and large those are very laudable approaches. But on this question of what we actually are doing with the public debt interest, I just wanted to be clear that in fact -- you used the word "minimizing" -- we are paying this year compared to last year more money for public debt interest, apparently because the debt is larger this year than it was last year. So that's the case.

The other point in the presentation that I found interesting was the comment on the low interest rates. I just want to be clear that I understood this because I think there was a comment Mr Salerno made with respect to the impact the lower rates are having on the cost of borrowing, and in fact that that's a positive thing in the sense of obviously lowering the costs of borrowing. He said something about being even lower than when the province had an AAA rating. In other words, there is a greater impact where the interest rates are than where the province's rating is at in terms of determining the cost of borrowing. Is that a fair summary?

Mr Salerno: The reference point is the government of Canada rates and the province over time could pay a varying level of premium over the government of Canada. Currently, or last summer, it reached an all-time low where the premium on the 10-year bond was about 15 basis points over the government of Canada for a 10-year bond. The 30-year premium was as low as about 17 basis points over the government of Canada. That varies significantly. That can vary for a number of factors. The view that people have on credits in general, but specifically the fact that the province is dealing with its deficit problem, has gone a long way to recognizing the creditworthiness of the province and indeed that spread, that premium has been coming down.

Mr Gourley: Compared to what it was when we were AAA, Tony. It was at an all-time low last summer, but when we had an AAA, what might have been the spread, I think I know the answer.

Mr Salerno: When we were AAA back in the early 1990s, the last time, we were between 25 and 35 basis points over.

Mr Gourley: A basis point being one one hundredth of a percentage point.

The Chair: Thank you very much, gentlemen. We appreciate your presentation. We will stand recessed until 2 pm.

The committee recessed from 1257 to 1402.

ONTARIO CHAMBER OF COMMERCE

The Chair: The first presenter this afternoon will be the Ontario Chamber of Commerce, Mr Robson. Introduce, if you would, sir, the people with you. You have 30 minutes, and we'll utilize what time you allow us for questions, if that's acceptable to you.

Mr Doug Robson: Thank you, Mr Chairman. I'm Doug Robson, as you said. To my far left is William Laidlaw, who is our volunteer chief. He's our chair and CEO. Next to him is Atul Sharma, who some of you may know. He used to work here at Queen's Park until Christmastime with Gerry Phillips. Atul is our chief economist and director of communications. Mr Laidlaw is going to address you first.

Mr William Laidlaw: Good afternoon, Mr Chairman. I'll be making some introductory remarks about our vision for Ontario, and Doug, president and chief operating officer, will outline our specifics.

Our vision for Ontario is that it should be the best jurisdiction in the world, the best jurisdiction in which to live and to raise your family, the best jurisdiction in which to be educated, the best at taking care of its elderly and those in need and, most importantly, the best place to invest your money and the best place to start a business.

I believe there is no reason why Ontario cannot create an environment second to none that attracts the engines of growth for the new millennium: knowledge-based industries, high-tech firms and research companies.

In order to make Ontario the best jurisdiction in the world, change must become a way of life for us. We must continually strive to do better and not be satisfied with our past achievements. To make Ontario the best jurisdiction in the world in which to invest and to start a business, it must be competitive. The current government has put Ontario on the right track, but we need to do more. Many of our recommendations are geared towards making Ontario more competitive.

The second but related item to make Ontario the best jurisdiction in the world is for Ontario to create an environment for investment that lets companies grow and be prosperous. We recognize that Ontario businesses can only be prosperous when Ontarians are prosperous. We rely on a well-educated labour force; we rely on a growth-oriented climate that allows Ontario businesses to prosper; we rely on employed Ontarians to buy our products and services.

So you see, Ontario's prosperity is also our prosperity. Our job at the Ontario Chamber of Commerce is to ensure Ontario's prosperity and we will be pushing all three parties to incorporate these ideas into their platforms.

The Ontario Chamber of Commerce has played a vital and pivotal role in putting forward public policy for Ontario since 1911. The Ontario Chamber of Commerce is a member-driven organization. We have two categories of membership: (1) local chambers of commerce and boards of trade and (2) corporate membership. I am a corporate member and work with Glaxo Wellcome.

We have 10 committees looking at Ontario issues affecting business. The committees include employer-employee relations, education, energy, environment, international trade, tourism, health and government finance. We represent 55,000 businesses across Ontario and 187 chambers of commerce and boards of trade, many of which I'm sure you're familiar with in your own particular ridings.

I mention some of our history because it's important for committee members to understand that we are committed to being a key part of the political process by putting forward public policy ideas. Some of those we will talk about today. You'll be hearing more about our election platform following our annual general meeting in Owen Sound May 1 to May 3. I'm looking forward to that. We will be focusing exclusively on the upcoming 1999-2000 provincial election. All three party leaders have been invited to speak, and I hope, as usual, they will be there. You will be hearing more from the Ontario Chamber of Commerce, as we restructured our organization and updated our mandate. We are now focusing almost exclusively on public policy development and advocacy.

I'll now turn it over to Doug Robson.

Mr Robson: Thank you, Mr Chairman, for having us here today and being here to listen to us. We appreciate that we're the first group up and we consider it an honour.

The OCC is a balanced, non-partisan organization which is interested in putting forward our members' views to key public policy decision-makers like yourselves. Prior to the 1995 election, we issued our election platform in a document entitled Ontario Today and Tomorrow: An Agenda for Renewal. That started in 1992. I'm happy to report that many of our ideas were mirrored in both the PC platform and the Liberal platform. Obviously, we weren't too surprised that some candidates were not championing many of our ideas. Our election wakeup call, which was done in 1994 --

Mr Silipo: You're still a non-partisan group.

Mr Robson: That's right -- which provided a quick comparison of party platforms and the OCC position on key business issues, was widely distributed and reproduced.

Generally speaking, the Ontario government has made some bold steps forward in ensuring that Ontario is back on track. By that, we mean that Ontario is once again competitive and conducive to business and growth. We agree with the government's philosophy of doing more with less.

The education reform is something we applaud: the changes to standardized report cards, limits to class size and, most importantly, the stopping of the upward spiral of tax increases to pay for education.

With regard to energy reform, we're very much in favour of competition in the electricity market and we're happy to see Energy Minister Wilson moving quickly in that direction.

With regard to the Labour Relations Act, we feel there's a more level playing field there.

Overall, the direction of the government is one that we support. There have been many positive changes that have made it possible for business to thrive. However, it is important that Ontario continues to do better, that it continues to improve and to become more competitive.

I'd like to highlight some specific recommendations that we believe would make Ontario more competitive than it already is and help to create a climate for growth and for prosperity.

The first recommendation, which I believe you have in front of you, is that we feel Ontario must reach a zero deficit by March 31, 2001, which is the current promise. But if the goal is achieved even faster, that is, accelerated to March 31, 2000, we feel that's even better. Nothing is more important to Ontario's economic future than ensuring that the government meets its commitment to balance the budget. The minister announced this morning that they had an extra $2.4 billion, compared to their budget plan, and the deficit is $1.4 billion lower than expected. We believe that the government is in a position to accelerate their deficit reduction to zero by a full year.

The second recommendation is to continue with the personal income tax reduction. The government's commitment to a 30% personal income tax reduction has helped make Ontario a competitive jurisdiction again.

The third recommendation is a biannual review of regulations to ensure that they're up to date and not a burden on business. In that vein we applaud the work of the Red Tape Commission. We'd like to see a permanent system to remove and sunset antiquated regulations. We feel this would help create a climate which would allow business to thrive and allow Ontario to be prosperous.

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With regard to legislation and the education taxes, we'd like to see education to sunset the Minister of Finance's power to set the education tax rates unilaterally. Some of you may have heard us say this before when we spoke on the Bill 160 hearings, but the Minister of Finance, through Bill 160, can now set approximately $6 billion worth of education tax unilaterally. Corp taxes were raised about $5.9 billion in the last fiscal year, 1996-97. The idea of setting corporate income tax by regulation is out of the question, and that's why we believe so strongly that it's inappropriate for the government to set the business taxes by regulation. The rates should be subject to the same legislative approval process as the provincial budget is, in our opinion.

Another recommendation is that we resolve the current business education tax inequity between Toronto and the rest of Ontario. Minister Eves announced on Thursday at an Ontario Chamber of Commerce executives' meeting, at which we were pleased to have him, along with member Gerry Phillips and member Tony Silipo, that he was maintaining business education taxes at their current levels. While we don't want the government to decimate Main Street Ontario for the sake of Bay Street, the government has to recognize the importance of Toronto to this province and this country and help resolve this situation. The offer to match dollar for dollar Toronto's reduction in the municipal election tax portion is hopefully a solution that can help start resolving this currently inequitous situation.

I gather the minister today confirmed that the government's ultimate goal is to have a uniform mill rate set for businesses, and we encourage the government to move quickly towards that goal.

In terms of energy, we would recommend that we ensure the creation of an open, competitive electricity market by January 1, 2000. As I said before, Minister Wilson appears to be moving quickly in this area and we would like to encourage him to see the process completed before the next election. It's a very complicated process, as many of you know, and this is something we have a huge interest in because we believe it takes away the competitive advantage. We do not believe that Hydro is as competitive as it could be, and it hasn't been for about 10 years.

Recommendation 7: We'd like to see some more clarification of what options municipalities have to compensate for the lost BOT revenue. The removal of the business occupancy tax has caused some concern among our members. Many are seeing their rent increase by 40%. Just as an aside, the chamber rent went up $1,000 a month because of this. It's all to cover the anticipated reallocation of the BOT on to the realty tax.

With regard to social services such as social assistance and social housing, the chamber does not feel it should be paid for through the property tax system, but rather through income tax. We'd like to see the government ultimately remove social services from property tax. We believe it is a mistake to pay for social services through property tax. The government's own chair for the Who Does What panel agreed that it would be wrong to pay for social services through the property tax.

With regard to education, we feel the government should consider reinstating early childhood education through junior kindergarten. All studies that we're aware of indicate that moneys invested in ECE pay dividends in the long run through less crime, less drug abuse and a better-educated workforce. As employers of graduates from our education system, we have an interest to see the government develop a policy on early childhood education.

Lastly, we'd like the government to start thinking about what should be done with the surplus after the budget has been balanced. Our recommendation is for the government to focus on reducing the debt. We feel reduction of the debt must be our first priority. Our debt has more than tripled since 1985; it has gone up significantly since 1995 and it will peak at $117 billion before it can be reduced. As you know, it's currently at about $107 billion. Likewise, the current debt-to-GDP ratio is about 30%. We fully support having that brought in line to its historic Ontario level of 15% to 18%.

That concludes my remarks. I hope we've left enough time for questions by your members.

The Chair: Thank you. We have approximately five minutes per caucus and we'll start with Mr. Silipo.

Mr Silipo: I was just noting -- this is a bit of an aside but I will put this on the record -- that there are probably at the end of the day more of your recommendations that I agree with than disagree with.

Mr Baird: Hear, hear.

Mr Silipo: I thought that was worthwhile actually stating on the record. There are some that we disagree with strongly, but that's part of the process too.

Seriously, I appreciate very much the comments you make, particularly with respect to things like removing social services and social housing costs from the property tax; fixing the problem the government has caused on the business occupancy tax. I gather that the minister has said he's going to introduce another piece of legislation. That will be the third one now but hopefully that will fix it. We'll see what happens.

It still won't deal, I guess, with the varying rate that still will be applied. In other words, the municipalities still will not be able to in effect have in place the same system or similar systems to what they have now. It will mean that smaller business, as I understand it, will still end up paying more -- and a number of the other recommendations here around the importance of things like junior kindergarten and early childhood education.

The question of not taxing by regulation I think is a crucial point and I certainly agree with you there.

I'm just going to ask, in terms of a question, about a couple of the things where we may not have as much agreement -- but I also wanted to emphasize that I appreciate the fact that there are a number of areas where I think it's worthwhile to note that we would agree with you that action on those things needs to happen -- this question of accelerating the deficit.

It's not so much that I disagree with the statement as you have put it. I actually think that what you're forecasting here is exactly what the government is going to do. What bothers me is the kind of almost sleight-of-hand way in which they're gone about doing it. We were talking this morning with the finance officials about kind of continuing to underestimate at the beginning of the year the revenue that will come in, to then be able to say later in the year: "Look at how well things are going on. We now have an extra $1.5 billion that we can reduce the deficit by." My approach would be to say, why not just be up front about that? Why not put that at the front end?

The question I would have for you coming out of all that is: You're of the view, are you, that the tax cuts the government has implemented are actually worth the cost to us in terms of the cuts those mean to health care, social services and education? It's a loaded question, but you can deal with it any way you wish.

Mr Robson: I don't quite see the linkage that you see. I think it goes back to, in my view: The best welfare is a good job. We see that this province is on a roll like it hasn't been on for a long time, if you talk to the economists. There are graphs and numbers that haven't been like they are now for 30 or 40 years. You talked earlier about whether the economists could predict how things were going to go. I think when things go well in government finance, going down the hill, getting rid of debt and so on, moves incredibly fast compared to building it up.

My point to you is that in the end we'll have a much better system -- social security standpoint -- if we continue reducing government spending the way we have been.

Mr Silipo: Right.

Mr Robson: I don't know if Bill or Atul have a comment on that.

Mr Laidlaw: The thing I see is that things are going well but more has to be done. I want to encourage the government to continue on with the path they've taken to make this province even more prosperous. The reality is that we have a 68-cent, 69-cent dollar, we're relying on a US economy, and unless the federal government and the provincial government make more fundamental changes, we could be in trouble if there's a recession.

Mr Silipo: I'm not trying to argue with you with respect to the importance of reducing the deficit; I want to be clear about that. What I'm getting at: Is the cost of the tax cut itself worth the price we are paying, as I would put it, for the cuts in other areas? In other words, there would be job growth, I would argue and others have argued, regardless of the tax cut. We can argue about whether it would be the same or not, but there would be job growth none the less. On the other hand, the money the government is putting out in the 30% tax cut is money that's borrowed, and therefore that's adding to the debt, adding to the ongoing cost of government to provide for that, and it means various cuts in important services like health care. That's the issue that, if time allows, I would like you to address more directly.

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Mr Atul Sharma: I can take a shot at that. The tax cut has allowed Ontario to become competitive once again across North America and throughout the world. It's a situation where businesses will now again look at Ontario as a jurisdiction in which to make some substantial investments. As Doug mentioned, having a job is probably one of the best social programs we can have. With more investment by businesses in Ontario, we would hope that would also, in turn, create more jobs and help out people who are currently unemployed or on welfare.

The Chair: That's the end of that round. For the government, Mr Baird.

Mr Baird: Thank you for your presentation. We'll certainly take note of your recommendations and reflect them as we undertake this process. I appreciate the time you took to put the package together.

We've seen a number of signs of a rebounding economy, increasing consumer confidence. I noticed that one poll by the CFIB had small business owners in Ontario being the most optimistic in the country. Clearly there's something going on in Ontario that's not going on in the rest of the country, because of the solid job growth, because a majority of the jobs created in the country have been created here in Ontario. Do you think the provincial government's economic policies are playing a major role in the job growth and in the growth of the economy?

Mr Laidlaw: I can tell you that we're a large multinational company, soon to become possibly even larger, and the signs that your Premier sends out are very positive. It's open for business; it's a government that believes in creating an environment for business to grow and prosper. That helps a lot, along with what the feds are doing -- I mean Paul Martin and his initiatives -- plus the fact that we have a very tremendous growth period in the United States. You're sending out the right signals, you're communicating with business leaders, and that gets around in international circles. The previous government tried their best -- it was difficult -- but they weren't big on working with business. You are, and that's important.

Mr Robson: If I may, Mr Baird, there's another thing and it relates to what Mr Silipo was asking about: synergy. When you put all these things together, including the tax cuts, there's a synergy here. If you look at five years ago, the early 1990s, in my view Ontarians were in despair, despair over their future and their financial condition, and they are not there now. All these things work to create a good feeling in Ontario. I think people in Ontario now know they have a future and they have a sense of what that is. They didn't have that in 1991, 1992, 1993.

Mr Baird: The issue of consumer confidence is obviously central to economic growth. Do you think the income tax reduction has played a substantial role in that and in the growth of the business community and the growth in the labour market? Do you think stopping the tax cut at this time would hurt or help economic growth and job creation?

Mr Robson: I would answer you by saying that by not stopping it you'd help spur it on, which is what we're advocating here.

Mr Baird: The Minister of Finance has made a proposal to the federal Minister of Finance with respect to youth unemployment. Youth unemployment is a strong concern for many of us across the province. We all agree we've got to do more in that area and see better success. If the federal government could be convinced, as Minister Eves has tried, to waive employment insurance premiums for young people in their first jobs, between 25 and 30 or up to age 29, would that be something the chamber would support and would think would help in job creation?

Mr Laidlaw: Mr Martin appeared before the Canadian Chamber of Commerce two weeks ago and we had a pretty candid discussion. He asked: "What does it take to hire young people? Tax cuts? Incentives?" The measure we got across to him, I think, is: "Allow business to grow. Allow us to be prosperous. Allow us to be profitable." "Profit" is not a bad word. When you're profitable, you hire more employees, you hire more students. Let's do that and let's focus on creating that environment. From a tax standpoint, from a regulatory standpoint, from a standpoint of government we can afford, right now I think we're overgoverned at a federal, provincial and municipal level. The duplication is unbelievable. Focus on those areas and the companies then will grow and you'll have your problems rectified, in our estimation.

Mr Kwinter: In your recommendation 6 you encourage the government to proceed as quickly as possible with the open, competitive electricity market. I am wondering whether the chamber has taken a look at the issue of the stranded debt and how that is going to be handled, whether that's going to mean there are going to be higher electricity rates or higher taxes, and what your response to that is.

Mr Robson: I don't think we have a considered response. We're well aware of what's called stranded debt and we're as concerned about it as I think anybody else is. We take part in a lot of different organizations with regard to energy. I am not an absolute expert on it except to say that we don't feel we can hamper anybody else who wants to get into the process with that debt, so that still doesn't give you an answer. Atul, did you have a comment?

Mr Sharma: I would just like to add that this issue is actually being looked at by one of our committees and there is a lively discussion on what should be done with the stranded debt. In fact, it also revolved around whether or not there really is a stranded debt. Hopefully in the near future, once we have a full discussion on the issue, we can give you a little bit more of a clear answer on that.

Mr Phillips: I am trying to get a handle on the importance of the property tax issue for the chamber members. There are three or four issues at play right now. There is the business occupancy tax which is, I think without exception, being put back on the realty tax across the province and there are some fairly significant shifts that therefore occur. I think in 1997 banks paid 70% business occupancy tax. Small business -- I'm generalizing -- paid about 25%. Now they're going to average I guess around 40% or 42%, so you'll see some quite substantial drops in property taxes for people like the banks and quite substantial tax increases for small business.

Then we had the announcement made at the chamber last Thursday. The province now sets the majority of property tax rates for business, because they set the rate on education property tax, and we saw that the range would go from one community that would be paying, for a building valued at $500,000, $5,000 a year provincial education tax and a building here in Toronto, for example, would be paying over $21,600, I think, more than four times the rate.

What I'm trying to get from the chamber is, how important are property taxes to your members, and in their business mix, how important is that? What kind of priority do you think the provincial government has to put on rectifying those problems over whatever period of time it is?

Mr Robson: It's always, I think, an important component of someone's overhead. The concern we have is not dissimilar to what you're talking about, Mr Phillips, that if you get a sudden change in the ratio regarding what used to be business tax and what's now going to be called property tax, that can really impact someone's overhead very quickly.

It was always my understanding that there were going to be graduated changes in the system. Maybe I missed something, but I thought there was a lot of talk about nobody getting a sudden change, that it would be a graduated thing. If nothing else, I think they should look at easing the process because businesses don't like surprises any more than politicians do.

The Chair: Thank you very much for your presentation, gentlemen. We appreciate it.

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ONTARIO CATHOLIC SCHOOL TRUSTEES' ASSOCIATION

The Chair: The next presenter is the Ontario Catholic School Trustees' Association. Mr Daly, would you care to introduce the people you have with you, sir.

Mr Patrick Daly: Yes, thank you, Mr Chair. To my right is Patrick Slack, the executive director of our association. To my left is Carol Devine, the director of political affairs and media relations.

Founded in 1930, the Ontario Catholic School Trustees' Association represents the 29 Catholic English-language district school boards. Collectively, these boards educate over 600,000 children from junior kindergarten to grade 12/OAC.

As outlined in our brief, the mission of all Catholic school boards and their schools is to create a faith community where religious instruction, religious practice, value formation and faith development are integral to every area of the curriculum. This is in addition to providing a complete curriculum as defined by the Ministry of Education and Training. In Ontario, Catholic boards provide this education according to the constitutionally determined rights of Roman Catholic parents.

We appreciate very much this opportunity to present this brief to the standing committee on finance and economic affairs. It is our intent to identify funding issues that have an impact on the quality and equality of educational opportunity available to all elementary and secondary pupils in Ontario.

As outlined on page 2 of our brief, in the executive summary, the brief is broken down into two areas: part A, which deals with the new funding model, and part B, which addresses issues related to the financing of school capital and construction.

Turning to page 4, on behalf of the Ontario Catholic School Trustees' Association, I want to indicate how pleased we are with the provincial legislation passed in 1997 which reforms the way elementary and secondary education is financed in Ontario. We strongly endorse the legislative changes made by the Education Quality Improvement Act of 1997 in regard to the use of residential and non-residential assessment for education. It has long been our position that the ability of the education system to deliver to students in Ontario programs and services mandated by the province should not depend on the local property taxes available to the school board. We believe the question of the tax mix to be used should be determined by the province, provided the constitutional rights of Catholic school boards are respected.

We go on to endorse the govemment's plans for the new funding model as outlined in the consultation document, Excellence in Education: Student-Focused Funding for Ontario, which was released on May 21 of last year. We support, again strongly, the five principles on which the new funding model is to be built, which we outline in our brief for you.

We are extremely pleased that fair and non-discriminatory funding for every child in Ontario is now a legislative requirement in our province and not merely a promise. Our expectation is that the soon-to-be-released funding formula will meet this test of fairness. This leads to our first recommendation. For the record, we indicate that the government of Ontario is to be commended for its leadership in proceeding to implement a new funding model that achieves equity in educational opportunity for every child in Ontario.

On page 5 and the top of page 6, we outline the crucial issue for us regarding the recognition of constitutional rights. Our association again appreciates the government's recognition of these rights as introduced in Bill 160. There are many specific references to the constitutional rights of Catholic separate school boards in the Education Quality Improvement Act, and we outline them for you in our brief. I will just highlight a couple.

First, the act states very clearly, and the amendment to section 1 makes it clear, that separate school rights are to be respected in the exercise of power under the statute by the Education Improvement Commission and by cabinet. Second, as I indicated, section 234 sets out a requirement of fair and non-discriminatory funding. The final one that I will refer to, a very important one for Catholic school ratepayers, division B of the act concerning education taxes continues to rely on the designation system. Catholic school boards will continue to require supporters to identify themselves and the school support continues to confer attendance rights, which again is an essential matter for us.

On the second half of page 6, we want to indicate and impress on you our strong belief that education needs to continue to be a priority in Ontario. We appreciate the minister's and the government's recent announcement regarding stable funding. We are pleased that additional dollars are also being provided to recognize transitional costs regarding the amalgamation of school boards. This responds directly to a resolution from our association at our annual meeting last year.

We believe the funding of education must continue to be a high priority. Although moneys may reasonably be reallocated from one area to another within the total funding envelope for elementary and secondary education, no further cuts should be made to education funding. We want to again indicate our belief that the issue of equity and fairness is linked directly to adequacy in funding. Our second recommendation, therefore, is that the government reaffirm education as a priority in funding.

We then go on to speak about an essential issue for Catholic boards in terms of the new funding model, and that's the issue of autonomy and flexibility. That clearly will be an essential issue for our boards to ensure we are able to promote and maintain the mission of our Catholic school systems.

The funding model must allow sufficient flexibility to enable each local board -- Catholic or secular, English or French -- to fulfil its unique mission and mandate. Our third recommendation, therefore, reads that there be adequate unconditional funding provided in the new funding model to enable Catholic school boards acting as local and autonomous governments to accommodate local needs and priorities and to address the unique mandate of Catholic schools.

This leads us to the next issue, which is one that is very important to Catholic schools in Ontario, and that's junior kindergarten. The educational and social value and the cost-effectiveness of junior kindergarten are unquestionable. Opportunities to develop a strong foundation and socialization, thinking, problem-solving, language, literacy development and physical coordination emphasized in junior kindergarten are especially critical for those children who find themselves in situations that limit physical, social and perhaps intellectual growth.

Junior kindergarten is an integral part of education in Catholic schools -- I say that as a parent with a daughter in junior kindergarten today -- and therefore should be funded as part of the mandatory program in the new funding model. This leads to our next set of recommendations that junior kindergarten be recognized as an essential component of the learning program, that junior kindergarten operating costs and accommodation be recognized for funding in the same manner as other regular programs and services and that any savings from the restructuring of education should be reinvested in a comprehensive early childhood education program.

Part B of our brief outlines our interest in the area of capital and our belief that capital is an essential component of education funding. We outline our support for the Student-Focused Funding for Ontario paper which proposes a new approach that integrates funding for the operation, maintenance and construction of elementary and secondary schools under pupil accommodation grants. We endorse the two principles for pupil accommodation set out in the paper, namely, that the provincial government will be responsible for providing adequate financial resources to school boards and that school boards will be responsible for providing school facilities for their students, and for operating and maintaining their facilities as effectively and efficiently as possible.

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On page 10 of our brief, we indicate to you two recommendations concerning capital: that the government continue to recognize capital as an essential component of the new funding model for elementary and secondary education; and that pupil accommodation grants be sufficient to enable school boards to meet market conditions surrounding the lease of non-school buildings.

On page 11, we outline a deep concern of Catholic school trustees and boards across the province, and that is our hope that the new funding model will include the cost of the large debentures that some boards in Ontario now carry. Catholic school boards have had a significant part of the overall debenture costs in the province due to significant enrolment growth, which, as you know, is beyond our control. Our boards have been unable to match public school boards in local revenue to pay for the local share of construction costs because of the difference in commercial and industrial assessment available to them. If no funding support is available to cover these debt charges, Catholic boards would have no option but to divert funding from the classroom to cover these costs, which obviously we do not want to do.

We therefore recommend that the government recognize the unequal burden of debenture debt and associated debt service charges in the pupil accommodation grants.

The last issue we speak to is the purchase of land available for new school construction. On pages 11 and 12, we indicate to you very strongly the constitutional right of Catholic school boards to site and locate our facilities. I won't read that for you but will leave that for you to read at your leisure. We strongly indicate, though, that we do not believe a distinction can be drawn between the delivery of education programs and services to pupils and control of the physical facilities in which they are delivered. It is therefore important that sufficient funds be available to purchase school sites where the Catholic school boards need those facilities.

Our final recommendation reads that as part of the pupil accommodation grants the province continue to provide for the purchase of school sites as required by Catholic boards.

In conclusion, we appreciate the opportunity to appear before the standing committee. Catholic school boards in Ontario have the responsibility of educating approximately one third of the students in Ontario schools.

We are pleased to support government efforts to change the way in which elementary and secondary education is funded. We believe the changes to the way residential and non-residential assessment are used to fund education will provide equity and accountability for both students and taxpayers. We look forward to learning the details of the allocation model by which funds will be distributed to all boards.

Our brief urges the government to fund education as a provincial priority. The new funding model must ensure boards the autonomy they require to address local needs, must affirm the importance of junior kindergarten as part of the regular program and must fund sufficient instructional places in a capital program for school boards. Finally, it must also provide Catholic boards sufficient flexibility to fulfil the unique mission and mandate of our Catholic school system.

The Chair: Thank you, sir. We have approximately five minutes per caucus. We'll start with the government caucus.

Mr Baird: Thank you very much for your presentation and the time you took to put it together. I might make two comments and then ask a question. Part B of your submission with respect to capital as an essential component to the education of our children is certainly one I'm well aware of, in a growing board, the former Carleton board. That's certainly a big issue in my community, and not just in Barr Haven where they're building a high school demonstrably cheaper than it would normally cost due to some very innovative models the Roman Catholic school board has employed. As well, I know in Stittsville they're having an overcrowding situation, so that's certainly a very acute problem and issue to many of us, particularly me in my part of the province. I'm certainly acutely aware of that and appreciate your comments and so I'm going to keep those in mind, as I know my colleagues will as well.

The other thing I noted on page 2 of the executive summary of your report was your support for the new equitable funding model. I wanted to ask you -- it's not a surprise; they've been very vocal about it. The Ontario English Catholic Teachers' Association has undertaken the legal challenge of that funding mechanism under the Education Quality Improvement Act. As you outline in your brief, there are some seven or eight places right in the legislation where the rights of Catholic governance are clearly spelled out in the act. Is it the position of your association to support the government in that litigation? Have you taken a position on that?

Mr Daly: We've taken a position, subject to a final analysis of the funding model when it's released in the next few weeks, hopefully, that if it provides in the submission the flexibility and autonomy that we require as well as the equity that it requires, we would be in a position to support that new funding model going forward.

Mr Baird: If you did, what would happen? What would the situation look like? Would we go back to an inequitable funding formula?

Mr Daly: If that funding model didn't proceed? Is that the question?

Mr Baird: No. If the funding model did proceed and yet if the Ontario English Catholic Teachers' Association's legal challenge were to succeed somehow, would you prefer to go to an inequitable funding model?

Mr Daly: No, absolutely not. That's why we've indicated our strong support for the funding model as outlined in the bill. That's clearly, we think, in the best interests of the students within all assessment-poor school systems in the province of Ontario, as well as the teachers who work within those systems.

Mr Baird: So it would be the position of your association not to support the Ontario English Catholic Teachers' Association in its legal challenge?

Mr Daly: If it meets the requirements that I indicated earlier, yes.

Mr Baird: And what, in your judgement, are they?

Mr Daly: That the equity --

Mr Baird: That's guaranteed in legislation

Mr Daly: Yes, I know it is, but until we see that in the final details: the equity, adequacy and the flexibility. If it meets those standards, then we will support the model going forward.

Mr Baird: On equity, it's obviously in the legislation, throughout the legislation, as you point out in your brief. On adequacy and flexibility, what specific nature do you require for your continued support of that bill?

Mr Daly: We outlined in our brief very clearly our conviction that there must be a significant amount of unconditional grants within the funding model to allow Catholic boards to maintain and promote our mission. That would be some form of block funding, and we wait to see that. We believe that will be the case.

Mr Baird: You would disagree, then, with a cap on administration expenses, if we wanted to say there would be a cap on administration expenses at school boards?

Mr Daly: No, we would not. We would not disagree with that, as long as it was a reasonable cap.

Mr Kwinter: I'd just like to get a clarification about your debenture problem. I notice you've got debentures of over $1 billion and it takes $280 million a year to service that. How is that calculated?

Mr Daly: The $1 billion is the total, not just the Catholic boards. That's the total of all boards in the province of Ontario. The $280 million, I assume, not being a finance superintendent, is the principal and interest costs related to carrying those debenture costs each year. That's not just the interest; that would be the principal and the interest.

Mr Kwinter: It just seemed to me that you were paying a usurious rate.

Mr Daly: Oh, no.

Mr Kwinter: Have you had discussions with the ministry about addressing that debenture problem?

Mr Daly: On numerous occasions, yes.

Mr Kwinter: Where do they seem to be coming from? What are they proposing, or are they proposing anything?

Mr Daly: We've had some good discussions with them in terms of the varying impacts on school systems throughout the province and they have committed to us that they are looking at it. I think it's one of the reasons why perhaps the funding model has taken a little longer than some would have liked. It's a significant issue that needs research in terms of coming up with a responsible solution, but I believe we'll see that in the funding model, and they are aware of it.

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Mr Phillips: I'm trying to get a sense of your priority on junior kindergarten. Currently, if the government doesn't change its approach to this, what do you see as the future of junior kindergarten in Ontario, and what is required by the government financially to accommodate your concerns here?

Mr Daly: What we are recommending strongly is that junior kindergarten receive the same level of funding as all other mandated programs in the province of Ontario and that this be included in the grants that boards receive. That's the expectation and the recommendation that we're making. If that were not to be the case, obviously boards would have to make some difficult decisions in terms of, if junior kindergarten, then what not? So hopefully they'll include that and allow boards to make that decision. Currently I believe there's only one Catholic board that does not provide junior kindergarten. All the others do; 28 of the 29 do.

Mr Phillips: You didn't comment on the priority your organization would place on that.

Mr Daly: Very high. It's an extremely high priority in terms of education, and the mission of Catholic education to have children at that young age is crucially important.

Mr Phillips: Can you give us a sense of the unconditional funding that you feel you need within the formula? I'm just trying to get a sense of, when we finally see this formula, what would be seen as acceptable to your organization.

Mr Daly: We have not set a number, obviously, without knowing the details, but our recommendation and discussions that we've had with the minister and ministry officials have been that within the grant that boards receive, a significant component of it must be left to the discretion of the local board to allow for specific situations and local situations that will vary across the province. Every indication from the minister and his staff has been that that's what we'll see, and whether that's in some form of block funding, what we have indicated to him is not to make the funding model so prescriptive that there would be little or no autonomy.

Mr Phillips: I'm always cautious on capital projects because governments of every political stripe try to find creative ways to fund capital, often leasing. There are creative ways of funding capital. The problem is that it's just a different way of borrowing money. You're going to face some accommodation squeezes, I would speculate, in the future. Has your board thought of creative ways of handling capital? Are you leasing schools, for example? I know you use a lot of portable schools, but --

Mr Daly: We don't call that one of the creative ways; that's the least creative way.

Mr Phillips: Necessity or whatever it is, yes. But has your organization explored some of those more creative ways? Is that something we should be looking at, or is that potentially another debt trap for us?

Mr Daly: Yes, it is something that we have looked at as an association, and I know Catholic boards as well as public boards across the province -- Mr Baird mentioned the one at Carleton that has proceeded in a creative manner, and there's one in Waterloo, the first in Ontario, if I'm not mistaken, that's a leaseback. I know that we, together with the Waterloo Catholic board, will be analysing that financial situation very carefully to see if it was in the best interests of the board and that community.

We are exploring all options, but I think your caution is a good one in terms of the long-term financial impacts of some of the creative ways that are being looked at. We need to analyse them very closely, but yes, they are being looked at and some pilot projects are now under way.

The Chair: Thank you. I must interrupt you there. Mr Silipo.

Mr Silipo: One of the issues that has been raised with me with respect to capital funding under the new board structures is that given that we now have across the province fewer boards which cover a larger geographic area, if the government continues through the ministry to apply the traditional way of deciding when a board is entitled to capital dollars on the basis of what space they deem you have available, what you will find is more and more situations where the space that might be available in small chunks or in entire facilities -- it tends to be more in small chunks -- may be available at the other end of the board's jurisdiction to where you need it. Is that a concern that you're picking up at all from any of your school boards?

Mr Daly: It is in terms of a caution that we have taken forward to the ministry that we accept and support the fact that boards have to make efficient use of the space -- clearly that's a given and we support that totally -- but within that there have to be distance factors and perhaps some factors unique to a specific community that I'm not aware of here today that will have to be taken into consideration. Distance clearly is one of them. We couldn't suggest in some cases to bus children 10, 20 or 30 miles and call that surplus space.

Mr Silipo: The point that you have made with respect to junior kindergarten, obviously you know that I personally, and we as New Democrats, strongly support that. I don't know whether you were here earlier, but the Ontario Chamber of Commerce is also advocating that position, so who knows? The government may try to play heroes and reinstate something that they've cut before the term is over. We'll see what happens on that. Obviously I think we all understand and appreciate the educational and social value of having that particular program reinstated.

I wanted to ask you a bit more about your comments on the new funding formula. I understand what you were saying around making sure it allows enough flexibility for boards to be able to make decisions about spending in a way that addresses the individual needs, but what I wanted to ask you about was more on some of the fundamentals.

You're clearly saying you support what the government has done so far insofar as it is purporting to be moving to a more "equitable" funding formula. I want to understand more fully to what extent or how much your support for that direction is based on your understanding or position or wish that in fact that be done within, if not the envelope funding that we had, then at least, as you say here today, no further cuts. In other words, is in your mind the principal separated or part of what happens to the funding envelope? Would you see that it would be equitable if in fact what you had at the end of the day was a much smaller funding envelope for the whole education system, and within that what you would see as being some greater sense of more equitable funding? Does that achieve equity, or is the only real way to achieve equity by at least making sure that the present envelope doesn't shrink any more than it has?

Mr Daly: Yes, it's the latter way you've expressed it, and that's that under the current amount spent, those available dollars be distributed equitably throughout the province and that no further cuts take place.

Mr Silipo: From the figures that you have seen or the various kinds of models that you have seen, just within the Catholic school system, what kinds of shifts would you expect to see in terms of boards that are now receiving a certain level of funding from grants and the property taxes? What kind of shifts in funding would you anticipate would take place between boards?

Mr Daly: In terms of dollars and percentages?

Mr Silipo: Yes.

Mr Daly: I don't have with me specific figures, but I know that from the lowest spending boards, whether Catholic or public, there's considerable difference -- a 30% or 40% difference -- in the amount spent to the highest spending boards in the province. In some cases the changes would be significant from the lowest to the highest, but within a given community, I think on average Catholic boards spend approximately $1,000 less per pupil than their coterminous boards. You could take that as probably the average. But the same would be true -- and this is a very important issue that we try to make people aware of -- of the lower spending public boards. There are many assessment-poor public boards in the province as well that will benefit by the equitable model. They will gain, as will, we think, all of the Catholic boards.

The Chair: I'm sorry, but I'm going to have to interrupt you there. Thank you very much, Mr Daly. We appreciate your comments and your submission.

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ONTARIO UNDERGRADUATE STUDENT ALLIANCE

The Chair: The next presenter is the Ontario Undergraduate Student Alliance, Mr Martin. Welcome. You have 30 minutes to make your presentation, and what time you don't use, we will attempt to utilize with questions.

Mr Richard Martin: I will attempt to make my remarks somewhat briefer than that.

The Ontario Undergraduate Student Alliance represents 110,000 students at universities across Ontario. We speak to you today on behalf of students at the University of Western Ontario, the University of Windsor, Brock University, the University of Toronto, the University of Waterloo and Wilfrid Laurier University. We appreciate this chance to discuss with you the financial situation of our schools and their students.

Ontario universities receive about 66% of their operating income from the province of Ontario. This has declined from 74% in 1991-92. In 1995 the newly elected government cut operating grant funding to colleges and universities by 15%. To be fair to the current government, cutting funding to Ontario universities is not new, but rather an acceleration of a long-term trend. In 1977-78 university operating grants were almost 8.1% of the total provincial budget. They have now declined to about 4.9%. Though Ontario is perhaps the wealthiest province in Canada, we are dead last, 10th out of 10, in our funding of universities. Even Alberta, despite recent major cuts, still spends 10% more per student than Ontario. Public universities in the United States receive 40% more funding than Ontario schools.

The result of the underfunding of universities is clear. The number of courses available is declining every year, buildings are poorly maintained, staff are overworked, essential facilities such as laboratory equipment and library books are outdated and inadequate, professors retire and are not replaced, and class sizes of 300 to 500 have become increasingly common.

In an effort to help compensate for the drop in government spending, the province has allowed dramatic increases in tuition. Since 1990 tuition fees have risen by 62%. This has led in turn to a huge increase in student debt. In 1990-91 the debt of the average student on graduation was about $9,000. Next year it is expected to reach $25,000.

But I did not come here today to tell you how much less is being spent on education. I came to point out that despite these changes, despite all the grief they have caused, government savings in post-secondary education have been insignificant.

I would like to draw your attention to the chart I have circulated. This is taken from a report to the Senate of Canada made by Mr Terence Young, the former parliamentary assistant to the Minister of Education and Training. It shows a breakdown of provincial spending on post-secondary education between 1995 and 1998. It reflects a 15% cut in operating grants to institutions, but the bottom line is that at the end of this period total spending on this sector had dropped by less than 2%. The chart demonstrates something that should have been axiomatic but that somehow seems to have been forgotten: The more you raise tuition fees, the more you have to spend on student aid.

I believe one reason this has been forgotten has to do with the unrealistic assumptions made by many people with respect to the possibilities of an income-contingent loan repayment system. The essential point of such a plan is that students are given money while at school, and after graduating or leaving school they are asked to pay back their loans as a proportion of their income. The program would be flexible so that those who had low incomes after leaving school, or inconsistent incomes, would not be required at any point to pay back more than they could manage. It would also have the possibility of focusing government subsidies on those who need them most, because it focuses not just, as the current plan does, on how much money one needs while in school, but on one's actual ability to repay that money after graduation.

For these reasons, the Ontario Undergraduate Student Alliance has long been on record as supporting the principle of income contingency. We believe it offers the possibility to make both more fair and equitable spending on student aid. But people on both the left and the right have made unrealistic assumptions about what would be possible with this program. It has been supposed that one could effectively shift a large part of the cost of education on to students and that this kind of loan arrangement would make it possible for them to carry it. I would have to say frankly that I think many students have failed to attack this as vigorously as they might. Many students on the left have simply accepted that this is feasible, and not argued that the plan was a bad idea.

But modelling, and some modelling has already been done by the federal government, will show that these assumptions were simply never realistic. In fact, one of the reasons some of the models which were until recently being considered by the provincial government have now been opposed by all other provinces and by the federal government, and also by the banks -- an interesting point -- is precisely that these assumptions about how much students could carry under such a regime have been proved to be unrealistic. I think the role of the banks in this discussion is particularly worthy of note. The banks are responsible for administering the loan program. They have a pragmatic approach to how much of a loan any individual can carry and they given stern warnings to the Ontario government that it simply isn't possible for many students to carry the kind of debt load which has been foreseen in some provincial plans.

We return to the chart. This shows the high cost of student aid when one begins to deregulate the system. But this is only, of course, past years. We are now talking about a much more severe kind of deregulation. Exactly what was meant by the recent Treasurer's announcement on this subject is still somewhat unclear, but we do know that a number of university presidents are lobbying hard to be able to set whatever fees they like in most of their programs. The obvious problem, of course, is that if they do this, there are one or two possibilities. Either those fees will be covered by student aid or they will not. If they are not, then we have an obvious problem of accessibility, a situation in which students' ability to attend university will depend very much on their financial background.

But if they are covered by student aid, then it leads to another kind of problem. It means much greater increases in government spending on student assistance. We've seen already how much higher than expected are the results the tuition increases thus far have led to. Each year, spending on student aid has far exceeded the estimates provided by the ministry. Each year, they have had to go back to the Treasurer partway through the year in order to receive more funding to cover the program, and that was with relatively minor increases in tuition, increases of 10% a year typically.

With deregulation, we could see increases far greater than that, and the result could be precisely the opposite of what advocates of privatization have advocated. It could mean that those schools that are most private, in the sense that they are least regulated, and are charging the highest tuition are therefore receiving the greatest amount of government subsidy through the student assistance program. The government has recognized this is a possibility and its intention, at this point, is not to raise loan limits to cover those students who are in deregulated programs. Instead, following a recommendation by the Smith commission last year, it has required that universities set aside 30% of tuition fees above current levels and use that as a means of helping students in financial need.

There are a number of problems with this. First of all, 30% might have been adequate in the past to meet the level of unmet need, and by "unmet need" I mean the need which is recognized as being unmet by the ministry's own rather optimistic calculations. But there is no reason to think that would be enough in an unregulated environment. Obviously, the higher tuition fees go, the more you will have to pay to each student on assistance and the more students will be on assistance. The number of students who receive OSAP has increased by 15% in just the last few years. It will also mean a decrease in the percentage of aid that can be repaid in the long term. We are already seeing debt loads approaching $25,000, and when you begin to calculate the interest on that, the remorselessness of compound interest, you can soon see how many people will find their debts are getting out of hand.

I want, therefore, to urge the members of this committee to support the recommendations taken by the Smith commission last year to restore funding of Ontario universities to at least the national average of our provinces, to make the necessary reforms to student aid, but to make them without making pie in the sky assumptions about how much students can bear under a different regime.

I might close by telling you about an experience I had several weeks ago. I happened to be in a residence building at the University of Toronto when the news was on. There were some 20 people there watching the news. A member of the present government was explaining the need for cuts by saying his government would not allow the next generation of students to be saddled with debt. There was a brief pause and then a burst of laughter. No one had to explain what the problem was here. Obviously, students know about the deficit and we know who's going to deal with it in the long run. We also know we have no hope of doing that without a high-quality and accessible educational system.

I urge the government to take the measures that are necessary to provide adequate funding both to universities and their students to arrest the precipitous decline from both quality and accessibility which has occurred so far.

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The Acting Chair (Mr E.J. Douglas Rollins): Thanks, Mr Martin. We have approximately five minutes per side and we start with the Liberals.

Mr Phillips: That was very articulate. I appreciated it. Can you help paint a picture of how the universities currently are operating and how they operated, let's say, three years ago? My recollection was that tuition fees three years ago were, I don't know, 23% or 24% of the operating cost to the university.

Mr Martin: You would have had to go back a bit farther than that to get numbers that low. I'm not sure exactly. I believe around six or seven years ago it would have been in that range. It has now increased to the point that next year more than 40% of universities' operating budgets will come from tuition fees. Just to put that in context, before the last election the Progressive Conservative Party released a document in which they said they thought it would be fair if students paid 25% of the cost of their education. So we're now about to be paying 40% and there are some people who seem not to think that's enough.

Mr Phillips: I remember that. That's why I thought it must have been 23%, because I thought they were going to move it up to --

Mr Martin: There was actually a mistake. They were dealing with numbers, statistics, a couple of years old at that point. It was already higher than 25% when the last election occurred.

Mr Phillips: So currently students would be covering roughly --

Mr Martin: At the moment it's around 37%. The tuition increases which have already been announced for next year, even if one makes the most conservative assumption about how much of that latitude will be used by universities, would put it over 40%. It's worth noting in this connection that on average private institutions in the United States receive 39% of their funding from tuition.

Mr Phillips: I think we are going down a road at a very fast clip without having any idea where we're going. I know that in many of the US private institutions there are also heavy endowments which provide substantial financial assistance to students that none of our universities come close to matching here.

Your feeling is it could be as much as 40% right now. I also find mildly interesting your comment on the students' debt, that the government recognizes there is a need to provide assistance to some students so they're going to ask the students to contribute a little bit more to provide more assistance to their fellow students. It's an ironic twist on the challenges young people face.

Help me out again with the student support number here of $527 million. Can you define that for me once again, just what that represents?

Mr Martin: This number represents certain assumptions, calculations that the government has made about the interest subsidy which will be given out on this year's loans. I should explain that under the current system students do not pay interest on the loans they receive as long as they are still full-time students. Once they leave school, interest begins to be charged. So there is a cost to the government of subsidizing loans during the period they remain in school, and that's part of this number.

Part of it is for loan forgiveness. At present the system functions in such a way that if you receive more than $7,000 in a loan in a given year, you do not need to pay back the remainder, which is, one could say, a commonsense way of keeping debt loads under control. Of course it's still possible under this to get $28,000 in debt after a four-year degree. It's also important to realize that that's not covering all the expenses for some students. This government is the first in many years not to have raised loan limits at the same time as increasing tuition, so the amount of unmet need in the system has grown dramatically in the last several years.

The Acting Chair: Thank you. We move now to Mr Lessard of the NDP.

Mr Wayne Lessard (Windsor-Riverside): Thank you very much. I thought the last story you gave in your remarks was an interesting one, that is, that this government seems to be doing everything to ensure that the youth of the future don't get saddled with the debts of previous governments and are doing everything in their power to eliminate the deficit, but in doing so, they're asking young people who are students and other people who are really least able to handle it to shoulder that debt, in my opinion. And in order to try to accommodate students who are going to be shouldering that debt, they've announced that they're looking at an income-contingent repayment program. You referred to that to some extent in your remarks, said that the banks don't support that; however, your organization does seem to support it, but you were very cautious in that support. I was wondering if you could elaborate on some of that caution. It appears to me that what this is going to do is stretch out the payments for students who are unable to make substantial payments on their loans, and therefore those students who have the lowest income will end up having to pay the most back for their education.

Mr Martin: You certainly raise a valid point, and this has been raised by a number of people in the current debate. Income-contingent loans could mean a lot of different things. There are a lot of different ways of constructing a system in which there is some connection between students' payments after graduation and their income. Certainly OUSA has supported the principle of making some connection, but we would not support every possible version of such a system, nor would the banks, nor would other student groups.

The key point, I think, is that you need to make a distinction between short-term need and long-term need. There needs to be some recognition that people may need substantial amounts of money to attend university and yet be able to pay back all or most of that after they leave; in other cases, students will need to borrow more than it will ever be possible for them to pay back, particularly when the effects of interest are taken into account. In order to be either fair or efficient, we need to have a student aid system that recognizes that distinction, which the current system does not.

But I would suggest a further distinction between an ICLR program which simply makes a link to income in the sense that you would be given more time to pay off your debt and one which actually targets subsidies to those who are most in need of them. It's the latter form of ICLR which we would support, and of course the subsidies would need to be adequate. Details such as interest rates, the amount of money you would need to make before you would have to begin making payments, the total number of years you would have to make payments before outstanding debt would be forgiven -- all of these things are crucial details.

I believe the federal government will shortly be announcing a number of measures which they have decided to call income-sensitive in order to avoid this particular debate, but from what I've heard of them they seem to me to be very pragmatic and sensible. They are looking at income-based remissions. The key idea here is that students would be given a grant, in effect, after they've graduated. At some length of time after they've graduated -- I'm not sure whether it'll be two years or five years, something of that sort -- grants will be given to those whose high debt-to-income ratio makes it seem that their current debt load is unmanageable. This meets our criterion of focusing subsidies on the people who really need them. It also meets the criterion that ICLR is not simply a way of eliminating subsidies; it's a way of focusing them where they're needed. That seems to us a useful approach to take.

But the idea that if you have an income-contingent loan plan, then you no longer have to invest any money in subsidies for student aid is simply unrealistic. Again, the banks have been very clear about that. They're not interested in the plan, partly because they're not interested in having large numbers of students who are unable to pay their loans.

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Mr Lessard: Have you been involved in any discussions with the current government about any of the proposals they're considering? They said they're expecting this to come into effect in September.

Mr Martin: We have not yet seen any details about a plan for this September. I would have to say this is a great concern for us. We have been given promises by the minister that we will be consulted, but we have not yet been given any real information about what the government's plans are or about what it's considering. We certainly feel that we could play a constructive role in those discussions and would like to be more involved in them.

Mr Lessard: One of the things you referred to was the privatization of post-secondary education, and I want to take that one step further, not just privatization in the sense that students are going to be paying for the entire cost, perhaps, in some types of programs, but perhaps the corporatization of universities. If increased tuitions are not going to be able to be met by students and therefore operating costs by universities aren't going to be met, are universities going to be looking for other sources for that funding and to the corporate sector, and does that cause you some concern?

Mr Martin: I think this is something one has to be wary about. I would say that at this point we have not reached a situation in which universities have compromised their mission by accepting government support, but certainly the pressure is increasing for them to do that. So it is a concern. To take the other side of it, there are a number of major American universities which receive very substantial corporate support, the kind of corporate support our schools can only dream of, and I think there's an argument to be made that that has actually given them more freedom. Places like Harvard and Yale are rich enough that they can turn down a grant that comes with too many strings attached.

The Acting Chair: Thank you very much, Mr Lessard. You've run out of time. Now to the government side.

Mr Baird: I enjoyed your presentation, particularly your comment at the end about students knowing about the deficit and that very much it will be the young people of today who are paying off the accumulated debt that previous governments of all three political parties have built up. In addition, I'm certainly well aware of rising tuition rates. In my four years in university, I can recall that I had double-digit increases in the first two years, and under my colleagues in the official opposition I was told they were going to be eliminated, tuition was going to disappear, so it would be okay for my third and fourth year. But of course they continued to go up at a double-digit rate for me, so I certainly appreciate that.

You mentioned an income-contingent loan repayment plan. I know that's something your organization, going back many years, has been supporting. You're one of the early supporters of it. In an income-contingent loan repayment plan, you talked about unrealistic assumptions. Would you have a problem with a differentiated tuition policy, in conjunction with an income-contingent loan repayment plan, that allowed those fields -- Algonquin College in my constituency has one of the programs for dental hygienists. They graduate 36 a year, and they go on to making more than $35,000 a year. Upwards of 90% or 95% get jobs within six months, So it's a very good program that leads right into the work world. Someone said, "Listen, perhaps those folks could pay an extra $500 or $1,000 a year towards the cost of their education," freeing up money for other areas.

Queen's University in Kingston has deregulated and privatized their MBA program. It's $20,000 a year and you get a money-back guarantee. If you can't get a job making at least $50,000, I think it is, you don't have to repay the loan. So it's almost their own income-contingent loan repayment plan. Are those some things your group would be willing to consider and look at?

Mr Martin: As you know, this is no longer merely a hypothetical question; it has actually begun to occur. There are executive MBA programs at more than one institution in Ontario now in which students pay the full cost of the tuition; or rather, it's more often the case that the companies they work for pay the full cost. I think executive MBA programs are probably in a very special category. I'm not sure how far one could go in extending the same principles elsewhere.

The recent announcement by the Treasurer included the statement that universities would be allowed to charge what they want for certain programs which led to high incomes and virtual guarantees of employment after graduation. One can see the sense in this. I can also see that already university presidents are scrambling to interpret it as broadly as possible. I know that the president at Western announced to his board recently that he planned to privatize or to deregulate a long list of programs, including music, for example, which does have a high cost of delivery but certainly does not lead, on average, to a high income. This is the sort of thing that concerns us most, that that sort of pressure is going to lead to programs that really don't lead to high incomes.

It's also worth noting that even with programs like medicine or law, you're not just looking at the cost of that particular program. You normally don't get into these programs until you've already got a degree and until you've already got a debt load, in many cases. So when you're making these calculations, you have to look at the total cost of getting that degree, which might be seven or eight years in university.

Mr Baird: I just wanted to conclude with a comment. I guess the challenge is, how can you refocus? Youth unemployment is a real concern for everyone. How do we make the universities and the colleges change champions in terms of reallocating their resources into those areas of the economy that are going unfilled -- the high-tech, computers, computer programming, computer engineering, electrical engineering -- those type of programs where there's a real shortage of jobs, particularly in my part of the province? How do we allow them to re-engineer themselves as universities? Right now, it pays them to graduate more arts and science graduates and not to respond to where maybe the demand is, not just among potential students but the labour market as well. I know that's a real concern.

Mr Martin: This is an issue. Of course, as I'm sure you know, the recent announcement tried to deal with that issue by saying that tuition increases could be justified where there was a case for producing more people in a certain program because of demand for jobs in that area, but there's also a certain twist to this. There's an obvious irony in thinking that you will encourage more people go to into a certain program by raising the tuition fees.

Mr Baird: As well as by opening more spots. I know in computers in Ottawa-Carleton there are upwards of 3,000 jobs going unfilled. Nortel is hiring 5,000 people in the next four years and they just can't find them fast enough. If we could grow those programs at local universities and even the University of Waterloo to help meet that demand, that would be part of the answer. It's really not in the universities' interests to re-engineer themselves and to fill those spots, because they're a lot more expensive and they get the same tuition for them.

Mr Martin: Certainly I think you raise a very important point. The funding formula obviously creates certain incentives and certain disincentives and it's worth re-examining from time to time whether these are taking us in the direction we ought to go. We don't really have time to get into that in any detail here today, but we did actually produce a paper which dealt with that a number of months ago and suggested certain changes in the funding formula that might be appropriate.

The Acting Chair: Thank you, Mr Martin, for your presentation. It's been well received.

ASSOCIATION OF CANADIAN PUBLISHERS

The Acting Chair: I call the next person, Stoddart Publishing Co, Jack Stoddart, chairperson.

Mr Jack Stoddart: Thank you very much for the invitation to present today. I'm not sure whether the invitation was to cover all the cultural industries in the province or book publishing, so I'll try and do both, but it's kind of a broad scale.

First of all, the cultural industries are not the arts: the ballet, the opera, the symphony and the theatre. They're really the entrepreneurial companies, and it's the industry that takes creative material and makes commercial properties -- ie, books, records, film, magazines -- for public and institutional consumption. We create employment and our products create sales in the billions of dollars in Canada. It's a very significant portion of the business that's done in this country. Jobs tend to be high grade and they create wealth in this province.

We produce commercial materials that, because of small markets, the specialized subjects, sometimes require assistance. That's where the Ontario Arts Council, among others, come in and play an important part in our industries.

Jobs in the cultural industries are good jobs but they're also portable. You think of the number of people who have moved to Hollywood as actors; that's an example. On the other hand, when you get the infrastructure right for an industry, you repatriate or keep those people in Canada or you develop a lot of new talent. It's no coincidence that Toronto is known as Hollywood North and we've earned that reputation as the number two producer of films in this country. When you have the infrastructure right, you often can create a whole lot of employment and wealth in a province and we've done it well here.

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Education and specialized training are very important to our industries, and in this case our community colleges and universities have played a very important part, along with institutions such as the CBC and TVO, in the training of people in the creative and technical abilities for our industries.

Creators' incomes are usually erratic. If you think of an author, often they will write one year with no income, they will be published perhaps the next year and then it will be three years before they publish again. If their income off the writing of a book was $20,000 or $50,000, almost all that income comes into one year, so then there is very little spread.

This point was made recently with the federal equivalent of this meeting today. It's in the new recommendation. There is a copy attached to this presentation for the federal tax system, that they will elongate the time of averaging for tax purposes for artists and writers and creators in general.

Ontario is by far the leading developer of wealth in Canadian cultural products and our tax base reflects that. We pay a lot of tax in this province. We would, however, be much more successful if we encouraged, by tax means probably, creators from around the world to settle in this great province. It is something that Ireland did many, many years ago for writers and they developed a huge array of writers who moved to Ireland, for tax reasons, I will admit, but created a real base of talent in that country. Canada and Toronto in particular are so well positioned for exploiting the North American market and having a better tax base from these people that I think it might be an idea worth exploring.

The recommendations on this part of it are to give the creators a fairer tax system by using a longer income averaging system, and to investigate the possibility of a tax system to attract international authors and cultural industries to take up residence here and pay their taxes here rather than primarily in the United States, which does have a lower tax rate.

I am the chairman of General and Stoddart Publishing and the president of the Association of Canadian Publishers. In book publishing we do well over $2 billion a year in sales as an industry; not as a company -- I wish it were -- but as an industry.

Canadian authors make up over 30% of those sales, however, and that's really quite an achievement. On the film side, you see 2% of film time is Canadian production and you see magazines etc. Nobody comes close to that 30%. Our writers have stepped up and done very, very well in this country.

More important, the consumer who makes the choice out in the market has chosen to buy Canadian and that's a huge change from 15 and 20 years ago, when it was probably 3% to 5%. We've had a great success in developing our writers and the acceptance of the materials that we publish.

The Ontario government, through the support of the Ontario Arts Council, has helped to create a vigorous and successful industrial base, among other programs, of course, that previous governments have had. We've been very successful in developing our cultural base as well.

I am sorry that Marilyn had to leave, but the new book publishing tax credit for first-time authors is a good example of a tax system that was put in place in the last budget and is just coming into effect now. We're very positive on this. We think it was a great step forward, in our times of restraint, to use the tax system to develop the publishing of first-time authors. I think it will work very, very well.

Last year they also put into place a book export program, which was to develop the selling of Canadian books to the US market. We're sitting on the doorstep obviously of a huge, huge market with the same language, by and large. Unfortunately, it was only a one-year program and I don't think you can develop export on a one-year, one-time basis. But it was an imaginative program and is having an effect presently.

Our recommendation is that we continue the book publishing tax credit system, which I believe is scheduled to continue, and reintroduce the export initiative for a minimum five-year program. It takes that long to develop foreign markets, but that market is so significant that the income to Canadian operating companies would be very substantial.

I would recommend a closer working relationship with the department of heritage, at the federal government level, in the development of programs might be beneficial. Often there is duplication or an awful lot of research goes on that is really duplication, so I think a closer working relationship with this, being by far the largest province as far as book production and income would be concerned.

I also suggest, and perhaps there would be questions later -- I won't go into detail at this point in time -- there is a need for the publishing industry to get new investment. We don't make enough to achieve reinvestment within our own industry, and an equity tax program similar to what they use in the mining depletion allowance to build the mining industry or in the software development programs over the last five years would be a very interesting thing for all cultural industries, not just for book publishing, and I think it would be well spent and a good move forward.

I'm going to touch on education as it applies to book publishing, as opposed to education as education. If I could just give you a couple of minutes of background, starting around 1910 the provincial government wrote the textbooks, or the employees, I guess, of the government wrote the textbooks, and retailers such as Eaton's manufactured and sold those textbooks to the public. In the 1930s Circular 14 was passed, so that the provincial government now wrote the curriculum and publishers competed by publishing books suited to the curriculum. Circular 14 mandated Canadian authorship and production and these books were given preference over foreign editions or books. Parents bought the needed textbooks and Ontario built the best educational system in Canada which was at that time, for many of those years, superior to that of most of the US states as well.

In the 1960s the province moved from parent-purchased to government-supplied texts as part of a child's education. The province supplied the funding of the school board after the school board had selected from the Circular 14 list. In the early 1980s, however, the government ceased paying for textbooks directly and the school boards started to fund some of the textbook purchases and to make do with old text in order to pay escalating overhead costs and teachers' salaries.

Students are working primarily, today in our schools, with five-to-10-year-old textbooks or photocopies of parts of books and teachers' notes that school boards have cobbled together for learning materials. Today Ontario spends approximately $12 a student on learning materials, books and audiovisual and all that, compared to $40 per student mandated in Alberta and $45 in Newfoundland. There's a paper attached which gives further documentation, including some US examples where the spending is substantially higher.

Unfortunately, our educational system today is considered at the low end of the achievement scale in Canada, and I think that's something any government of Ontario has to address. I know the current one has strong opinions on how to do that.

I'd ask, what good are modern facilities and good teachers if a third pillar of education, learning materials, is out of date or is a hodgepodge of information? You just can't run a massive school system and have a good education system and leave it up to old textbooks and photocopies of teachers' materials.

Recommendations: We recommend that the province quickly mandate that a given percentage or a per student dollar allocation of funding be spent on learning materials so that we can start to rebuild the prominent position we once had as a province in education and so that our students, our children, have a fair and good education.

There's also a major review of the education system going on, as people are aware, and we hope in that model, whenever it comes out, that something similar to Circular 14 is retained for both educational and financial reasons. Clearly, the use of Circular 14 with Canadian manufacturing and Canadian authorship has meant untold thousands of jobs and millions and millions of dollars, on an annual basis, in taxation and employment. That's been a very important part in building this province over the years.

I'd like to touch on TVO for just a moment. It is a valuable and important contributor to our education system and will be even more important in the future. The ability of TVO to produce quality video and digital education programs I hope is understood. As the world moves more to electronic educational materials, TVO is positioned not only to serve Ontario students well but to commercially exploit the investment that Ontario has already. made.

Our recommendation is that TVO continue to receive sufficient funding to enable it to enter the next millennium as a world leader in educational programming.

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In the last part I would like to comment on the MAI, which may seem funny in the budget process, but I don't believe it is. I don't think any financial review or budget would be appropriate this year without considering the effect of the MAI on our economic future and on the ability of the government to make policy or laws that are binding.

The MAI will clearly reduce competition and free enterprise in Ontario and will be of benefit only to a very small handful of global corporations. Corporate taxation for the province will be decreased, perhaps not in the first year of it but certainly on a longer-term basis, two and three years from now.

Global corporations pay tax where taxation is least. They brag about it. They adjust their books so that they pay tax where they don't have to pay as much. Ontario doesn't have the lowest tax rate, and that's a concern in this question of, are we going to go with global corporations or are we going to go with Canadian corporations?

They also go with their employment to areas of lower income levels, and again Ontario tends to have a relatively -- although with the dollar today it's a little better balanced, another situation.

The MAI will also deplete our ability as a province to set and enforce elements of employment standards, environmental standards, fair and effective taxation and regulation of how business is done in this province. All these issues will affect the economic ability and taxation ability of any provincial government.

I was in Ottawa last week. The environment committee of the House of Commons had a review of the MAI situation. As you know, that is also an all-party committee, and what was absolutely astounding was that no party walked out of that meeting that wasn't up in arms against what they heard about the MAI. The strongest opposers of it were the Reform Party. The Liberals on the committee and who attended, the language they were using was -- it's something that very few people have in-depth knowledge of. We're being told by bureaucrats: "Oh, it's fine. Don't worry about it." I would beg to differ.

The recommendation is that the provincial government quickly set up a task force or subcommittee to investigate the effect of the proposed MAI treaty on the province and to make recommendations quickly for use in the budget process.

In conclusion, you've seen a huge building of the cultural industries, including book publishing, film and sound recording, in the last decade, maybe 20 years. We're one of the leaders in the world, actually, certainly as a city and as a province, in what we have achieved in all those categories. Unfortunately, an awful lot of the tax money doesn't stay in this province. For their American sales, the artists all register in the States with their corporations, so you don't see that tax money. There are ways that the cultural industries, I think if we looked at the tax system properly, and I'm not talking about incentives only -- but with fair play this province could raise a huge amount more taxation on the artists that are both Canadian and Ontarian. Since 90% of all the cultural industries are based in Toronto -- or Ontario, but primarily in Toronto -- we've got a big vested interest in what happens on these issues. Thank you.

The Chair: Thank you very much, Mr Stoddart. We'll start with the NDP.

Mr Silipo: Thank you very much, Mr Stoddart, for a very comprehensive presentation. Let me start with the last issue you addressed before your conclusion, and that is the MAI, because it is something I don't think we have even begun to give the kind of attention it needs in terms of the implications it might have for us here as an Ontario jurisdiction, so I appreciate your suggestion to us, your recommendation that we look at some kind of committee or task force to take a look at this. That's something, hopefully, we'll be able to pursue.

To come back from there to some of the other specific points you made, first of all, with respect to your comments on education, the point you made about textbooks, that it's one of the major pieces around spending that we need to fix, I was very much interested in your comments around the proportions or the per student amounts that are spent across the country. When we look at what's happening to the funding of education, we can see that the textbook example you've given us is in fact typical of the overall expenditure. On a per capita basis, we spend less on education than does Alberta, for example, which I gather is at something like 29% of public expenditures; we spend at around 16% of overall public expenditures. Is it fair to say then that what would be needed, in your view, is a real investment by government, particularly, as you've said here, in the textbook area, which I know you're primarily addressing, but perhaps as part of that in the broader area of education?

Mr Stoddart: There are also some backup sheets that give a lot of other information having to do with different states, and then there's an interesting article attached from something called the Educational Marketer, which is a trade paper of the educational -- and you'll see the same questions being raised in the United States and state by state. When you lose your textbooks, when you lose the grounding in a large educational system of having common learning materials for students, you really lose the direction. When we decentralize the control and change the funding to the municipality or to the school boards away from the central, we've really lost that control. If we don't find a way to get that back, I think we waste a lot of teachers' time.

School boards now hire the teachers for the summer to write the texts for the students in the fall. It's an awful waste of time having 52 school boards or however many it is all writing new textbooks every year. It's bizarre. If the books are too much, maybe the government and the industry have to sit down and say, how can we do this more efficiently? I'm sure there are other ways to do it than the way it's being done.

The second thing I would add is that the pressure now seems to be to go and get American consultants to tell us how to run our educational system, and their recommendation will almost universally be to go to American textbooks that are tried and true and probably cheaper today. That concerns me as a citizen as much as being in the publishing industry. Our textbooks over the years represent the makeup of this province, the racial makeup etc; they represent the learning curve we want our students to go through. You ensure that teachers follow curriculum and make sure that students learn what they have to if they have to follow a curriculum.

The easiest way to do it is that if you only have three or four textbooks that fit that curriculum that are approved, you know that not everybody's going to be on the same page on the same day, but at the end of the year everybody's going to have covered that same material. I would defy anybody to prove that's happening today under the system it's in. It's been a depleting system for 20 years, so it's no one government or one party that's caused it, but the problem is clearly here now and we've got to address it.

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Mr Arnott: Thank you, Mr Stoddart, for coming in today and for the comprehensive presentation you've given us. You mentioned that the book publishing tax credit for first-time authors is being very beneficial, at least --

Mr Stoddart: It will be.

Mr Arnott: It will be very beneficial. You gave credit to Marilyn Mushinski for initiating that proposal. How will it benefit our writers in Ontario?

Mr Stoddart: I think it was partly a response to the closing of Coach House and the closing of the ODC program of financial assistance etc. One of the concerns the industry raised at the time was that the least profitable books you publish are first-time authors. If you've got a choice of doing authors who can make you some money or authors who maybe deserve to be published but -- you know, for the first two or three books, they're just never going to make money. Sometimes you have to do that developmental work. The first book's often the hardest, and that's why I think it was well targeted. Nobody's going to get rich on this program. It doesn't discriminate against anybody. Authors have already been published and already had their first shot at it. I think it's a very positive step and I think it was a good move. I know the current minister has taken it forward quickly and put it in place.

Mr Arnott: Thank you very much for that.

You mentioned what they're doing in Ireland to try to encourage writers to move there from abroad. What exactly are they doing? They're setting preferential tax rates specifically for --

Mr Stoddart: I'm not sure their exact model is what we want, but basically they said to the creators, in this case the writers, "If you want to come and live in Ireland and be part of a cultural base" -- it's a cumulative thing: The more films you do, the more you're going to do, the more great writers you have. It's no wonder that now probably four or five of the great women writers live in this country, because over the last 25 years those have been developed under a lot of our programs. That's what Ireland did many years ago, but they used the tax base and they said, "You can do your worldwide income here." The problem is you also have to move there on a permanent basis. Not everybody wanted to live in Ireland; many did. It helped create a cultural milieu that was great.

I think Toronto is a wonderful place to build an entertainment or cultural enterprise out of. Our access to the US market is terrific. I really think we could attract an awful lot of artists, writers and performers to have their base of operation in Canada, with the right tax situation. I don't think it's going to cost the province or the country a thing, but it could add greatly to what we have. That was the example.

Mr Arnott: Like Mr Silipo I was concerned when I learned that in Ontario we're only spending approximately $12 per student on elementary textbooks and $18 for secondary student textbooks. When you compare that to various other provinces and states, it seems very low. I guess it underlines what the government has been saying for two and a half years, that we have to try to find ways to eliminate waste and administrative overlap in our education system in order to drive the resources into the classroom. Certainly, that has been our objective with many of the changes we've undertaken. I think the government would agree with you that more work needs to be done in this respect.

Mr Stoddart: I think the key to it, though, is if you just leave it and hope it happens, it won't. You can look state by state or province by province. When there haven't been mandated spending levels or a percentage of the budget that's absolutely firm, then when a school board has the choice between raising salaries or buying the textbooks, they will almost invariably raise the salaries because they're looking at that person day by day. If there is no choice, what you will do is build the learning materials, one of the three bases of education, back into the system.

I don't think our students should be using five-, 10-, and 15-year-old textbooks. That's atrocious. Would you read books that were published 10 years ago, or watch television programming or whatever? This is our educational system. If people don't believe that's true, we will put lots of documentation on the table that it is true too many times in too broad a scope. We have to do something about it, and that does take money.

Mr Kwinter: Mr Stoddart, I appreciate your presentation and certainly support your support for the cultural industries. I happen to have a daughter, by the way, who is a first-time author. The book is being published in two weeks.

Mr Stoddart: Congratulations.

Mr Kwinter: Not only is she a first-time author, the first book she wrote, the first publisher she went to picked it up and is publishing it in Canada, the United States and the UK, so that's pretty good.

Having said all of that, I am a little concerned about some of the things you're advocating. Not that I don't agree, but I think we're into a totally different era. I have a four-year-old grandson. He comes out to the house, sits down, turns on my computer, gets the Internet and starts doing things. I look at him and I say: "What is this guy? Is he a reincarnated midget or something? How can he do all of these things?" All of these kids are doing exactly the same thing. To me, I hate to say this, but I think the role of the textbook is going to disappear. It's just a matter of time when teachers will have everybody at a computer, everyone will be at a monitor. They will get their material that's produced by TVO or by anywhere else that it's produced. It will change, it'll be animated, it will have all kinds of things, and that's where they'll do their reading. I don't know whether you feel that's going to happen or you think this is pie in the sky, but I've been around long enough to see the transition, to see what people are doing with computers in the classroom and at home, and it's nothing short of revolutionary. Do you have any comments on that?

Mr Stoddart: Yes. Let me give you an example. When radio came out it was going to kill reading, and when television came out it was going to kill radio, and when computers -- with every new generation of entertainment or learning material, technology, it's always said that it's going to wipe out reading. Well, we're stronger than we've ever been. As a world -- the reading levels -- you have to read, and read well.

I deliberately used the words "learning materials" as opposed to "books." I think there are some categories of learning materials that are electronic or digital or whatever word you want to use -- I think there are areas of that that are absolutely true.

On the other hand, there are an awful lot of them where we don't believe it is. There has been a fair amount of study done in some of the US states where they went very extensively into computers four and five years ago. BC did several pilot projects in computer learning. IBM and Microsoft, all kinds of people, just put whole schools of computers in for nothing; just go and test it and whatever. The results are really not very good. I'm a little baffled. Maybe we haven't learned how to use some of this technology properly. Maybe teachers don't know how to use the technology. Maybe the teachers are too old to learn how to use it. When your kids teach you how to use the computer, maybe it tells you a little bit about it.

The bottom line is I would bet that for the next decade at least books will be the primary learning material that we'll go through. If we ramp up to more digital computer screen usage, so be it. I don't have any problem because publishers are into that business as well. It always seems these revolutions take much longer than everybody thought. Computers were supposed to dominate our lives in the 1960s. Well, they are in the 1990s.

All the statistical data I'm seeing -- I think there's some attached in that article. Because that was part of two articles, I'm not 100% sure which is in there. It touches on that and indicates there's been a lot of great disappointment in the use of computers in the school environment.

If you go all one way it's wrong; if you go all the other way it's wrong. In certain ways they're great learning tools, but if you try and teach history, for instance, or reading or mathematics, there are some really big questions as to the success they've had. As I said, it may be the program; it may be the software; it may be that we haven't learned how to use the programming properly.

To go that whole revolution of going all computers for teaching materials, you'd probably need a lot fewer teachers as well to do that. The investment for our province is going to be so huge in the next decade. The use of textbooks is a very cheap cost by comparison, until we prove the textbooks don't do the jobs in the vast majority of categories that we teach in elementary and high school. I think computers in university are far more useful.

For the kids growing up today, the kids who are, let's say, five or under, computers are what books were to us when we grew up. I think that's the generation we've got to start paying attention to. I don't think that at high school level today all the kids use computers. It's not as ingrained as some other things. Until we teach the teachers how to teach with electronics, we've got a problem with it if we spend fortunes on it. I don't think we'll get a good return on it.

The Chair: Sir, I'm going to have to interrupt you there. I thank you very much for your thought-provoking presentation.

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LAURA PIATKOWSKI

The Chair: The next presenter is Mrs Laura Piatkowski. Welcome.

Mrs Laura Piatkowski: Thank you very much. I actually was going to start my presentation with "ladies and gentlemen," but there are no ladies on this. Gentlemen of the committee of pre-budget consultations, my name is Laura Piatkowski and I'm here to speak to you on several budget issues.

The first of these issues is the cost to the taxpayer for an unneeded, unnecessary and costly health procedure: abortion. As you may or may not know, this procedure is an elective surgery whose only interest is to eliminate the child in the woman's womb. Under the Canada Health Act, the province has the option of not funding these operations. As pregnancy is not an illness or disease, these surgeries are not necessary. During the previous government's tenure, not only abortions were funded, but the clinics outside of hospitals and the doctors -- abortionists -- who worked in them. The cost in 1993 was a total of $25,450,680 for 45,000 abortions. That year, the Minister of Health, the Honourable Jacqueline Alvarez, gave $50,000 to Dr Morgentaler to train doctors in this procedure. When I asked about this at the town meeting in Brampton sponsored by the MPPs for Brampton, the Honourable Tony Clement and Joe Spina, they said the government was not training doctors of abortion. Maybe you can check if this is still a part of the abortion funding. I do hate being lied to on so important an issue. Every child is a gift from God. We, the people of Ontario, are paying $25 million to return that gift unopened, and we cheat ourselves of a child's potential.

To put the cost in perspective, I will give you a comparison from the budget of 1997. Under the title "Supporting Safe Communities," the minister responsible for women's issues will receive $27 million for four years to break the cycle of violence, but violence by abortion receives $25 million a year each year for the next four. Another comparison is in investing in jobs for young people to get needed work experience and income: $6 million to help 40,000 young people, but $25 million on 45,000 abortions each year and the loss of our future, as our children are our future.

I know health care funding exceeds $17.8 billion, so $25 million may seem like a small amount, but the money could be spent on nurses in hospitals so patients would not be in the hallways because of staff shortages. Those who argue that most people either favour abortion or are indifferent because of apathy are the same people who do not wish to pay for them. Their attitude is, "It is her decision, and if she wants an abortion, she, not the taxpayer, should pay for it."

The $25 million does not include the health cost of complications from abortions. Immediate complications could be haemorrhaging, infections and perforation of the uterus. By the way, abortionists send these patients to their own doctors and/or hospitals for treatment, with no follow-up from them. I guess it reduces their cost of operation and liabilities. It also doesn't cover the cost of future health risks such as breast cancer, tubal pregnancy, sterility -- which sometimes leads to in vitro fertilization -- and the mental health aspects of guilt, depression and possible suicide.

Another budget item concerning the abortion issue is the prosecution of conscientious objectors to abortion. The initial cost of the injunction against these persons was $778,000 by the NDP government. However, this government is spending money each year on the continuing prosecution of these people. At issue as well is the freedom of speech being denied those views that do not agree with the killing of the unborn. I thought a difference of opinion was what made us unique in the tolerance of a free society. Abortion, however, being a profitable business, cannot tolerate the competition of those who believe in the sanctity of life from conception to natural death, or at least that is my perception of this issue.

The next issue I wish to address is the funding of Catholic schools in Ontario. Because of the recent rulings in Ottawa regarding Newfoundland and Quebec, I believe the government of Ontario will try to eliminate the two-school system. However, the education of our children by teaching Christian values as part of but not separate from their lessons each day will go a long way in saving money for the government. The argument that the cost is too great to maintain a two-school system depends on your belief in a God-oriented or a secular education. When God is taken out of the schools and parents are forced to work outside the home to pay for a market-driven economy, the children suffer. They lose their sense of right and wrong, their respect for themselves and other people and the property of other people, have low self-esteem, and feel dispossessed by society. The cost in terms of help for these children will outweigh any cost savings in the education budget.

Why are we considering having a curriculum for our schools set by persons in the United States? Are we so concerned with the mighty dollar that we allow another country to set our lessons? Are there no Canadian scholars, educators or persons capable of setting Canadian courses for Ontario? We need to set our priorities in this endeavour and sell Canada -- its history, geography, arts and sciences -- not sell out our children's minds to American values.

The next issue is gambling casinos and video lottery terminals. Gambling is as addictive as drugs and alcohol, and governments are the biggest addicts. They are promoter, regulator and beneficiary of gambling. They set up clinics and resources for prevention and treatment of addicted gamblers, but this addiction will escalate beyond government projections. The introduction of VLTs and their easy access will lead to an increase in use as a recreational activity, with increasing numbers becoming victims as pathological gamblers.

When Premier Harris was in opposition, he was against gambling on the principle that it would be detrimental to families and communities. Now he is pushing for more casinos in places where they were rejected by the communities. The coercion used by the Minister of Consumer and Commercial Relations, the Honourable David Tsubouchi, to impose casinos on communities shows how addicted the government is to easy money. To say communities will benefit is an excuse to put casinos and VLTs in places where entertainment dollars are scarce, and could ruin local economies. Please rethink this imposition of a tax on the poor who feel they need to try for a jackpot because they cannot afford the tax incentives given to the upper middle class and corporate business, like RRSPs, capital gains relief and tax deferrals.

The last issue I wish to address is the market-driven economy. Banks, corporations, doctors, lawyers and sports figures all say they charge what the market can bear. The government seems to agree with that statement. They are asking us to believe we are better off than before. Well, look around and smell the coffee, for there are more people now who live in poverty, are homeless, unemployed and just getting by than ever before. Obscene salaries of executives and professionals and high corporate and bank profits are weighing down the middle class. Governments are, or were, the voice of the people, but no longer. High profits and tax shelters for the 5% of people earning $250,000 or more are seen as the uncaring society that hoards its wealth allows people to starve in a land of plenty. May your budget give more to people in need and less to those who can afford a tax increase. I applaud the government for its 30% tax cut and hope they can see their way to help those still in need.

Thank you for your time and attention, and I pray God will guide you in your deliberations on the budget. Respectfully submitted.

The Chair: Thank you very much, Mrs Piatkowski. We have approximately one minute per caucus, and we'll start with the government.

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Mr Jim Brown (Scarborough West): Thank you very much for coming and drawing attention to an important issue, which is the abortion issue and the amount of money that's spent on abortion. I'd like to tell you that there are many people in the government who agree with you on this issue, although you seem to be a little cynical about that. There are people who agree with you.

Mrs Piatkowski: I actually put a petition that was sent to the Legislature and was read on the last day before the break, and it was concerning the abortion funding issue.

Mr Jim Brown: I'm glad you brought it to our attention and I hope you will keep on bringing it to the attention of government, both this government and any future government.

Mr Kwinter: I just wanted to let you know that earlier this afternoon we had a presentation from the Ontario Catholic School Trustees' Association and they certainly seemed to be supportive of what was being done for them in the education field. I understand your concerns, but it seems to me that they seem to think the problem is addressed. I don't think they feel that they are at risk. They want more funding, as everybody else does, but I don't think the basic problem is of concern to them. But I appreciate your comments, I appreciate your raising these issues with us, and I thank you for it.

Mr Silipo: Mrs Piatkowski, I guess just one question. On the last comment that you make in your brief around the tax cut in terms of your support for what the government is doing, and that's obviously fine and fair, do you also support the way in which the government has gone about implementing their tax cut? By that I mean the fact that when you look at the taxpayers across the province, half the taxpayers in Ontario earn under $33,000. That half of the taxpayers gets about $598 million, or proportionately 17% of the value of the tax cut. On the other hand, the top proportion of taxpayers, the top 3%, people who are making over $100,000, get 18% of the money. Does that sound like that's the fairest way to apply the tax cut?

Mrs Piatkowski: It probably wasn't a fair way to apply it, but I think they felt they had to show faith with everybody and decided that this was the best way to do it. I don't agree with some of it, but at least they were willing to try to make it more comfortable for those -- that everybody could use it.

The Chair: Thank you very much for your presentation, Mrs Piatkowski.

WALTER PITMAN

The Chair: The next presenter is Mr Walter Pitman. Thank you for coming, and welcome.

Mr Walter Pitman: First, thank you for this opportunity of speaking to this pre-budget consultation. I really have only one story to tell. I represent a group of people who have devised a campaign against child poverty. It's led by Rabbi Arthur Bielfeld and his congregation as rabbi at Temple Emanu-El, joined by the congregation at Holy Blossom and at Lawrence Park Community Church. The idea is to get a very large number of people -- it's several hundred now -- who are prepared to pledge that they will return their tax cut to in fact engage programs to deal with, you might say, the effects of child poverty, whether it be through the MAZON organization in the Jewish community or through the United Appeal beyond that.

We realize this can do very little, but it seems to me that at this point in time this committee is dealing with priorities, and surely this should be a priority of this committee, even more than the speech from the throne, which sets general policies. One can tell where our government is going essentially by what happens in its budget.

In 1989, on November 24, a resolution was passed in the House of Commons, Canada. It was supported by every political party: "This House seeks to achieve the goal of eliminating poverty among Canadian children by the year 2000." We're two years away from 2000. We now have 500,000 more children in poverty; we now have 1.5 million across Canada. That's measured, of course, by using Statistics Canada income cutoffs. We now have more children in poverty in Canada than any other country in the western world except the United States.

I realize that international comparisons are always questionable, but I think this is something which is surely of concern to all of us. You might say, "What has this got to do with the province of Ontario?" If you look in statistics, the percentage increase from 1989 to 1995, when we had the last statistics, in Saskatchewan it's 3%, in Alberta it's 34%, in Ontario it's 99%. In other words, in this province we are seeing the greatest impact of child poverty. It seems to be invisible. We don't see the children on the streets as we walk down Yonge Street or across Bay or wherever we are in Toronto with their hands out. But we can see it from crime statistics. Violent crime has gone down quite substantially. What's gone up? Vandalism, house break-ins, car thefts, teenage suicides, violence in schools. This is called psychosocial morbidity. It's what happens when young people feels there's no hope in a society in which they find themselves. Since that resolution was passed in 1989, we've learned a great deal.

For example, we've learned that children who are in poverty invariably end up with health problems that affect their future. Their life chance is severely affected by what happens in those early years. We discover, for example, that if you invest in children in their early years, it pays back seven times. In other words, it's fiscally irresponsible not to ensure that children do not exist in poverty. Dr Fraser Mustard has been the one who has looked at the poor health of children and its effect on life chances, but almost every social worker or counsellor has looked at the effect of investing in children and what happens as a result over the years.

We've learned a great deal about learning. We've learned about the human brain and we've discovered that in the first three or four years of a child's life, the connections get made in the brain. I hate to use a mechanistic example, but it's like a huge computer. Half of the connections are already there when they're born. The rest of the connections are made in those early years. We've lived through our lives, most of us, believing that you could always catch up, that is, you could always get the five- or six- or seven-year-old after they've had a terrible early childhood and make up and make amends. What we're discovering now that this doesn't happen. The windows open when they're the age of one or two, or a few months in fact. The windows then close. If we don't make an intervention at that point, we may very well never be able to make an intervention later.

This is why it's so predictable, what happens when you don't do something about child poverty. It happens very predictably. We've realized, for example, that children have multiple intelligences. The schools only really measure literacy and numeracy, but these intelligences relate to their spatial concepts, their musical concepts, their understanding of themselves, their understanding of others, environmental intelligence, spiritual intelligence -- a whole range of those things that allow for them to live out their lives as productive and essentially as advantaged human beings.

If we don't do something in the early years about all those formative intelligences which Howard Gardner of Harvard has outlined for the last 10 years and there has been an enormous amount of research on, if we don't do something about that, then it really means that those children will live out their lives at a much less advantaged level. It's not just a matter of hoping we can do well. It we don't do something, we pay and we pay very, very heavily. Over the last number of years we've dealt with the deficits and the debt. One realizes the importance of doing that. One might differ on how it might have been done and over what length of time it might have been done, but the even greater legacy will be thousands, hundreds of thousands, maybe millions of children who will go into our economy, go into our society, severely disadvantaged as a result of how we in this country deal with our children and our children in poverty.

The bootstrap programs in the United States have all been looked at. Remember those inner-city programs in which they've tried to use the schooling system as a way of bringing those children up. In every case they have said it's too late. If you try to do it in grade 1 or 2 or kindergarten even, it's too late. You have to intervene very, very early.

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That's why I say that in this province we need desperately a life cycle strategy, which has been suggested. We now have dealt, in our society in the 20th century, with those people over 55 or 60. We've dealt with people who are unemployed, perhaps not very well, but we've done that. We've dealt with young people in many cases. We're trying now to develop systems of scholarships and so on to help people in universities. We haven't done very well in that area either, but we've done nothing in this area of really intervening on behalf of children in poverty. That's the big, black hole which exists in our social security system. We are now in need of a blueprint in terms of dealing with this problem, funding to ensure that there are junior kindergartens in every board.

A few months ago there was a wonderful article on why and what has happened there, where they intervene as soon as the baby arrives home, at the neighbourhood level. They bring in nursing services and educational services and social services, all these things to ensure that the diet and the learning opportunities are there. We live in a learning society. Ironically, with TVO and all the libraries and all the learning services we have, essentially the rich are the ones who benefit and the poor are the ones who never get the chance. There's a huge banquet there, but they never really learn about it unless we intervene at that level.

We've learned of the need for health education and doing that at a neighbourhood level. There are all kinds of ways in which we could use libraries at the neighbourhood level to go out and deal with -- if we needed to put teachers on the streets, we'd be better than simply adding more and more money to the institutional system if we really wanted to do something about this kind of problem.

Heaven only knows we've got problems in the area of environment, we've got problems in the area of the arts, and I've listened this afternoon with great interest to people talking about those things. This in fact is a part of that. We should be dealing with the environment with this group of people as well, with those children who, because of their poverty, will become less environmentally sensitive. They will get less effect of artists and inspiration from artists and all the things the arts can do to make their lives more abundant. Once again it's the well-to-do who do better and the poor who do less well.

It's a global problem. It's going on all over the world. I realize, as the last speaker said, that we have a market economy. We have a federal government that should be dealing with a comprehensive child benefit and advance maintenance payments and all of these things. It seems to me that here in this province, when we have the worst record in the entire country, this is surely where there should be a turnaround, where we should be marching back and dealing with that as the highest priority in the budget that is coming forward in the next few weeks.

The Chair: Thank you very much, Mr Pitman. We have approximately two minutes per caucus and we'll start with the official opposition.

Mr Kwinter: Mr Pitman, I apologize, but could you just tell me what that 99% figure relates to?

Mr Pitman: The 99% is the percentage change, from 1989 to 1995, of the number of poor children. The increase in Ontario is 506,000 in number, and that's a 99% increase since 1989.

Mr Kwinter: So it has doubled since 1989.

Mr Pitman: That's right. Exactly.

Mr Kwinter: I'm curious to find out how successful your program is. I commend you for it.

Mr Pitman: It has just begun. We're just gathering names now, gathering people. It has only been in the last few weeks that we've been able to get started on this.

Mr Kwinter: Do you know that when the Minister of Finance announced his tax cuts, he made provisions on the tax form that if you didn't want it, you could give it back to the government? I think there was very little take-up on that.

I have to admit that I haven't talked to everybody, but I haven't found very many people who notice any great difference, because what one government takes on one hand, another government disposes with another hand and everything goes along. When you talk to people and ask, "Have you ever noticed your tax cut?" they say: "Not really. I haven't seen a tax cut."

I commend you. I think you're bang on. I think what you're doing is absolutely right. I just have some concerns if you think you're going to be able to really make a difference, from a funding point of view, by doing it that way.

Mr Pitman: I said at the beginning that all we're doing is trying to deal with the impact of child poverty. We're doing nothing about the problem of child poverty and the reality of child poverty. You're absolutely right. This is why this has got to be a government commitment.

Mr Silipo: Mr Pitman, thank you very much for your comments. You mentioned, of course, the child benefit. I have to tell you that one of the regrets I have from my years in government is that we didn't proceed with the establishment of the Ontario child benefit as we had wanted to do and certainly as I had wanted to do as the minister responsible for Comsoc at the time.

The prevailing reason at the time, as I am sure you know, a view that prevailed in government, was that we couldn't afford the $500 million it would have taken to begin that investment because of the loss of tax revenue from the reduced tobacco tax at the federal level, which flowed through to us. But it clearly remains, in my view, one of the clearest and strongest directions that needs to be pursued because it is the way to break that cycle of dependency on social assistance in a very real way, not in simply cutting rates of benefits etc. Now that government revenues are up and are continuing to go up, it seems to me that governments, both provincial and federal, don't really have any reason not to be able and willing to proceed in that direction.

Mr Pitman: I agree. That's the black hole in our social security system and it has to be dealt with.

The Chair: Thank you, sir. Government members, Mr Baird.

Mr Baird: Thank you very much for your presentation. Your points are certainly well taken. The study from 1989 to 1995 that you commented on showing a 99% increase in fact underestimates it. If you look at the number of children they said were living in poverty in 1995, there were actually 35,000 more children living on welfare at that exact time in 1995. So according to that study, there would be 35,000 children on welfare who weren't in poverty, which astounds me.

Obviously there is a two-track approach. One is, how do you specifically go after and provide programs to children at risk, early intervention, breakfast nutrition programs, something we've worked on, a Healthy Babies program, early intervention there? Those programs are important and they can help, but the absolute priority, the single biggest thing you can do for a child living in poverty, is to get their mother or father, their parents, their caregivers a job, to create an economy that creates those jobs.

Mr Pitman: Oh, absolutely.

Mr Baird: That's a big priority for us, because when people fall unemployed, the first people to be affected are children. That's got to be a priority, not to the exclusion of the other but simply to do your best on both, particularly, though, for children at risk. You mentioned a number of cases, and Dr Fraser Mustard certainly has done a lot of work in this regard. In fact, in our Common Sense Revolution one of only two areas where we said we would spend more money rather than less was on the child nutrition program, the breakfast program. It is a sad commentary on our society that we would need it, but none the less is an issue which required a response and continues to do so. Your points are good, positive thoughts and we certainly should reflect on them.

The Chair: Thank you very much for your presentation, Mr Pitman.

The next presenter is Susan Smith. Is Ms Smith available? Ms Smith not being available, we will stand recessed until tomorrow morning at 9:30.

The first presenter at 9:30 tomorrow morning will be the Royal Bank of Canada.

The committee adjourned at 1628.