Ministry of
Finance
Dr Bryne Purchase, deputy minister
Mr Philip Howell, ADM and chief economist, office of economic
policy
Mr Terry Hewak, director, fiscal planning branch
Mr Tony Salerno, vice-chair and CEO, Ontario Financing
Authority
Mr David Lindsay, president and CEO, Ontario SuperBuild
Corp
Mr Robert Siddall, provincial controller, office of the
controller
Ontario Road Builders'
Association
Mr Robert Bradford
Canadian Chemical
Producers' Association
Mr Richard Paton
Mr Norm Huebel
Mr Michael Hyde
Ontario Teachers'
Federation
Ms Barbara Sargent
Ms Ruth Baumann
Mr Peter Vandenberk
Ontario Coalition for
Better Child Care
Ms Mary-Anne Bédard
STANDING COMMITTEE ON
FINANCE AND ECONOMIC AFFAIRS
Chair /
Président
Mr Marcel Beaubien (Lambton-Kent-Middlesex PC)
Mr Ted Arnott (Waterloo-Wellington PC)
Mr Marcel Beaubien (Lambton-Kent-Middlesex PC)
Mr David Christopherson (Hamilton West / -Ouest ND)
Mr Doug Galt (Northumberland PC)
Mr Monte Kwinter (York Centre / -Centre L)
Mrs Tina R. Molinari (Thornhill PC)
Mr Gerry Phillips (Scarborough-Agincourt L)
Mr Toni Skarica (Wentworth-Burlington PC)
Substitutions / Membres remplaçants
Mr John O'Toole (Durham PC)
Also taking part / Autres participants et
participantes
Ms Marilyn Churley (Broadview-Greenwood ND)
Mr Dwight Duncan (Windsor-St Clair L)
Mr John Gerretsen (Kingston and the Islands / Kingston et les
îles L)
Mr Gerard Kennedy (Parkdale-High Park L)
Clerk / Greffier
Mr Tom Prins
Staff / Personnel
Mr David Rampersad, researcher,
Research and Information Services
The committee met at
1001 in room 151.
PRE-BUDGET CONSULTATIONS
The Chair (Mr Marcel
Beaubien): Good morning, everyone. I'd like to bring
this meeting to order. It is 10 o'clock, and I like to conduct
business on time.
There are two items that I
would like to bring to the committee's attention. For the record,
first of all, this committee will be meeting on February 1 in
Toronto, also on February 2, 3 and 4. On February 7, the
committee will be in Kenora, on February 8 we will be in Timmins,
on the 9th Brockville, on the 14th Chatham, the 15th Niagara
Falls and on the 16th we will be back here in Toronto.
Furthermore, I would like the
subcommittee to meet after today's session for probably a few
minutes. We have a couple of issues that we have to deal with,
and I'd like to have them cleaned up this afternoon.
The minister was supposed to
be here at 10 o'clock. I guess we can take a brief recess until
the minister gets here.
Mr Gerry Phillips
(Scarborough-Agincourt): How do you know it will be
brief?
The Chair:
Mr Phillips, that's a very good question. I hope the minister is
not stuck in a snowbank somewhere. So with this, we'll take a
brief recess until the minister gets here.
The committee recessed
from 1003 to 1006.
MINISTER OF FINANCE
The Chair:
If I could get your attention, we'll bring the meeting back to
order. First of all, on behalf of the committee, I would
certainly like to welcome the Minister of Finance. It's a
pleasure to have you here this morning, Minister.
Before we start with the
order of business of the day, Mrs Molinari, I think you have a
motion.
Mrs Tina R. Molinari
(Thornhill): I'd like to nominate Ted Arnott to be the
Conservative Party's representative on the subcommittee.
Mr Doug Galt
(Northumberland): I second that.
The Chair:
Any discussion on the motion? If not, all those in favour? Thank
you. Minister.
Hon Ernie L. Eves
(Deputy Premier, Minister of Finance): Thank you, Mr
Chair. I'm pleased to have this opportunity this morning to
address the standing committee on finance and economic affairs as
you embark on your consultations for the first Ontario budget of
the new millennium.
This committee plays a major
role in the development of the province's economic and fiscal
agenda, both through its own deliberations and by providing a
forum for the people, organizations and businesses of Ontario to
contribute their ideas and express their views.
The third-quarter economic
accounts that we are releasing today add to the growing body of
evidence that our plan of stimulating growth through tax cuts is
working. Ontario's economic and fiscal policies are fuelling the
most vigorous economic growth this province has enjoyed in over a
decade. In the third quarter of 1999, Ontario's real GDP grew
7.1% from a year previous. This is the most rapid economic growth
in the province in 11 years. For 1999 as a whole, we expect that
growth will be 5%.
After years of lagging
economic performance, Ontario has taken its place in recent years
as a global growth leader. Our economy is growing faster than the
rest of Canada or any of the G7 industrialized countries.
Tax cuts help to spur
economic growth, create jobs and boost consumer and investment
spending. Tax cuts are the key to ensuring that Canadians will
enjoy rising incomes and living standards and to ensuring that
individuals will choose Canada as the place to work, save and
invest.
Cutting taxes, including
personal income taxes, is the single most important act that
governments can take to create a more dynamic economy with
stronger growth both today and in the long term.
Since coming to office, this
government has announced a total of 99 tax reductions for the
families and businesses of Ontario. However, despite Ontario's
tax-cutting achievements, taxes are still too high both in
Ontario and across the country.
Ontario has already reduced
the personal income tax rate by more than 30% on average and has
committed to another 20% cut over the next five years. The first
step, the first 5% reduction in Ontario's general personal income
tax rate of the 20%, was delivered in July 1999. Yet Ontarians
and other Canadians still feel that they are overtaxed, and they
are right.
The personal income tax burden in Canada has been
rising in recent years, largely because of federally imposed
bracket creep.
Ontario has taken action to
ensure that the provincial personal income taxes paid by
lower-income taxpayers do not continue to climb as a result. Due
to the government's personal income tax cuts and enrichments to
the Ontario tax reduction program, 100,000 Ontarians no longer
have to pay any Ontario income tax.
A total of 1,205,000
Ontarians benefit from the Ontario tax reduction program,
including 650,000 who pay federal, but not Ontario, personal
income tax.
The federal government now
takes over 60% of all PIT paid by Canadians. Personal income
taxes as a percentage of GDP are higher in Canada than in any
other major industrialized country.
By reducing the federal tax
burden, Ottawa would boost economic growth and job creation that
have been generated by Ontario's tax cuts. For this reason, we
are calling upon the federal government to reduce personal income
tax by at least 20%, phased in over the next five years.
Both the government and the
private sector forecasters are confident that economic momentum
generated by Ontario's policy over the past few years will
continue.
The average private sector
forecast is now that Ontario will grow by 3.7% in 2000. I might
add that if you took only the forecast that came out in the month
of January, that number climbs to 4.1%. This exceeds the growth
expected for the rest of Canada or any of the G7 countries.
It is important to emphasize
that almost 80% of Ontario's strong economic growth since we came
to office is due to domestic spending-spending that is directly
stimulated by tax cuts.
While exports are critically
important to the Ontario economy, some analysts have mistakenly
concluded that all of Ontario's economic growth has been due to
export growth, and thus that tax cuts have not had any effect
whatsoever. However, when net exports-exports minus imports-are
examined, it becomes clear that external trade has been
responsible for only about 20% of Ontario's economic growth over
the past four years.
One of the strongest areas of
domestic spending growth has been in business investment.
Our tax cuts for individuals
and businesses-including reductions in personal income taxes,
corporate small business taxes and the employer health tax-and
the climate created by reducing red tape in regulation have
stimulated business investment by increasing the competitiveness
of the Ontario economy.
Lower personal income taxes
make it easier for employers to attract and keep the talented
staff that are so vital in a technologically driven economy.
Lower taxes allow business
owners to keep more of what they earn, encouraging them to
increase both investment and hiring.
Tax cuts that boost
competitiveness and investment have also increased Ontario's
export potential, which is important because trade and growth of
trade remain vital to our economy.
Tax cuts also stimulate
domestic spending by providing individuals and families with more
money to spend on things that are important to them.
In 1995, before the tax
reduction program began, middle- and high-income Ontarians were
among the highest-taxed individuals in the country.
As a result of our personal
income tax cuts, every taxpayer pays less Ontario tax, but the
percentage of savings is greater for those with low or moderate
incomes. For example, taxpayers with incomes of up to $16,200
will pay 62% less Ontario tax on average when the 30% and 20%
Ontario income tax rate cuts are implemented, and thanks to
enrichments to the Ontario tax reduction program.
Middle-income Ontarians now
pay the lowest rate of provincial personal income tax in the
entire country. The rate of provincial tax on higher-income
earners is the second lowest in Canada, after only Alberta.
This has left our taxpayers
with more money to spend and invest, which in turn boosts our
economy. This creates more jobs, and in turn creates even more
economic growth.
Tax cuts have made a real
difference to every working family in Ontario. A two-earner
family of four with a household income of $60,000 saved $1,510 in
Ontario personal income tax in 1999.
Since the beginning of 1996,
the real disposable income of Ontarians has risen by more than
$20 billion. In the previous four years, by comparison, Ontarians
did not see any increase at all in their disposable income.
The increases in take-home
pay and economic growth are reflected in this province's surging
consumer confidence and spending.
The Conference Board of
Canada reports that the consumer confidence index for Ontario is
at an 11-year high. Since September 1995, this index has risen
32% in Ontario, which is roughly double the increase for the rest
of the country. Consumers in Ontario have boosted their spending
by 16.6% since then.
The housing market is at
record levels. In 1999, Ontario housing starts rose 24.9%,
reaching the highest level in a decade. Toronto-area home resales
rose to 59,000, the highest ever on record.
I think the debate is over;
tax cuts do help create jobs.
In addition to boosting
spending by consumers and businesses, this government's economic
and fiscal policies have helped make it easier and more
attractive for companies to invest in Ontario and hire new
employees. The result is powerful private sector job growth in
the province of Ontario.
Since we set out our
tax-cutting plan in our first throne speech in September 1995,
Ontario has gained 642,000 net new jobs, most of them full-time
private sector jobs. This is close to 47% of all the jobs created
in Canada over that period of time.
We are on track to meeting
our five-year goal of 725,000 jobs by the end of this year.
Indeed, more people are
working now in the province of Ontario than at any time in
Ontario's history.
By contrast, from January
1990 to September 1995, Ontario lost nearly 50,000 jobs, while
the rest of Canada gained 350,000 jobs.
Ontario's unemployment rate
is down to 5.6%. Before we began our tax reduction policies, the
unemployment rate was 9.4%.
Although the current youth
unemployment rate is down from 15.4% in 1995 to 11.9% in December
of last year, there are still far too many young people
unemployed.
Tax cuts will continue to
create jobs, further reducing the unemployment rate for workers
of all ages.
In addition, Ontario spends
$217 million on labour market programs for 214,000 youth, an
increase from $189 million for 190,000 youth last year.
We are also helping people
break the cycle of welfare dependency by stimulating private
sector job creation and by helping people on welfare take
advantage of new job opportunities. Our reforms have helped
468,924 people leave the welfare rolls since we came to
office.
However, the federal payroll
tax burden continues to grow. This is killing jobs in Ontario and
across the country. Ontario workers and employers will pay some
$560 million more in federal payroll taxes in 2000 than they
paid last year. This is at a cost of 22,500 jobs to the Ontario
economy. That figure is based on a paper issued by the C.D. Howe
Institute that estimates that for every $1-billion increase in
payroll tax, there is a result of a loss of up to 40,000
jobs.
Rising payroll taxes have
become pervasive. As you can see on the chart, since 1995 payroll
tax increases have cost Ontario up to 45,000 jobs, with half of
this total attributable to this year alone.
The recent 15-cent cut in EI
premiums will offset only 45% of the scheduled increase in CPP
contributions this year. Moreover, EI premiums are still too
high. The cumulative EI surplus continues to mushroom and grow
and by the end of this year is expected to reach over
$31 billion. This is far more than is required to balance
the EI account over any terrible business cycle. In fact, the EI
chief actuary himself indicates that the EI account needs a
surplus in the range of $10 billion to $15 billion, not $31
billion, to meet its obligations, even in the event of an
economic downturn.
1020
Ontario has called upon the
federal government, as indeed have other provinces, to reduce EI
premiums to below $2 per $100 of insurable earnings. This is a
level identified by the EI chief actuary as sustainable, which
would fully offset the CPP contribution increase which took
effect on January 1 and would ensure no further increase in the
federal payroll tax burden this year.
Payroll tax cuts, especially
to EI premiums, are effective in creating jobs because they lower
the costs of hiring, can be implemented quickly and benefit low-
and middle-income workers the most.
Ontario has reduced the
employer health payroll tax for all businesses and completely
eliminated it for both small businesses with payrolls under
$400,000 and self-employed individuals. As a result, 88% of
Ontario's private sector employers no longer have to pay this
tax.
The federal government
collects more revenues than it needs to match its spending. As a
result, the federal government, by its own numbers, is expected
to accumulate a $112-billion surplus from this fiscal year to the
year 2004-05.
While the federal government
continues to report surpluses, the provinces are responsible for
delivering programs subject to the greatest demands and cost
pressures, such as health care, education and other social
programs.
Between 1994-95 and 1998-99,
the federal government cut $6.2 billion in annual Canada health
and social transfer cash entitlements, the program that supports
these important priorities. The 1999 federal budget restored only
$2 billion of that $6.2 billion in this fiscal year and will
restore only a further half-billion dollars in 2001-02.
Ontario estimates indicate
that the federal government has the fiscal room to restore the
CHST funding to its 1994-95 level, as well as cut its personal
income taxes by at least 20%.
Full restoration of CHST and
a 20% reduction in personal income taxes is achievable, along
with a CHST escalator clause in concert with the removal of the
equalization ceiling, which is of concern to many Atlantic
provinces; an infrastructure program, which the federal
government has mused about; and the employment insurance premium
reduction called for by Ontario and others.
The federal government should
not use its growing surplus to reintroduce the kinds of
shared-cost programs that were available to Canadians in the
1960s and 1970s. Those programs leave provinces vulnerable to the
unilateral federal action of cutback and do not provide provinces
with the flexibility to meet their own needs.
The federal government should
focus on Canadians' priorities for health care, education and
other social programs. This could be achieved by coordinating
federal transfers with provincial policy objectives in these
areas. It would also ensure the most efficient use of taxpayers'
money and could be done in a fair and equitable manner.
For Ontario, that means the
federal government should respect the provinces' responsibilities
and should treat all Canadians equally. For example, the CHST is
a block transfer which gives provinces the flexibility to deliver
health and other social programs in an integrated and efficient
way in their own jurisdiction, but it is not equitable. In
1999-2000, Ontario will receive a lower per capita CHST cash
entitlement than every other province except Alberta.
This is truly inequitable.
Federal spending programs should not be used to equalize
government resources outside of the fiscal equalization program.
This is a plea that we have made many times, along with other
provinces, to the federal government. If you want to change the equalization programs,
then let's talk about that, but let's not have every transfer
program between the federal government and provincial governments
with an equalization component, as is the case today.
Similarly, the federal
government must respect provincial tax policy equality in shared
federal-provincial tax fields such as personal income tax.
The benefits of the personal
income tax collection agreement with the federal government no
longer outweigh the constraints it imposes on provincial policy.
As recommended in the Provincial Auditor's annual report, Ontario
will seek amendments to the agreement to ensure that it serves
Ontarians' best interests.
The restrictions placed on
the province include an inability to participate in or influence
decisions about the enforcement of our own Income Tax Act or to
implement Ontario-specific measures without the approval of the
federal government. Our government plans to take greater control
of our own personal income tax system to preserve the benefits
Ontario taxpayers have gained from Ontario government tax
reductions.
Ontario has promised to
establish a made-for-Ontario personal income tax system. We will
move to a tax-on-income system in which Ontario's personal income
tax will no longer be linked to federal tax and subject to hidden
tax increases within the federal system. In a tax-on-income
system, Ontario will levy its personal income tax as a percentage
of taxable income as opposed to basic federal tax, as is the case
today. Ontario would be able to set its own brackets and tax
rates and establish its own block of non-refundable tax
credits.
In embarking on this course,
Ontario expects that it will have the same flexibility as the
federal government has over its personal income tax
system-flexibility to design Ontario's tax system to meet the
specific needs of Ontario taxpayers. I might add that Ontario is
not the only province that has this point of view. However, if
the federal government's administration of personal income tax
does not permit Ontario to achieve this policy independence and
autonomy, Ontario will move to a system that does support
Ontario's goals.
We wholeheartedly agree with
the Provincial Auditor on this issue. This is another reason
Ontario is moving to a tax-on-income system as soon as possible,
with the expectation that Ontario will have the same policy
flexibility as the federal government. To his credit, Minister
Martin-after much lobbying, I might add, from all the
provinces-announced on January 25, last Tuesday, that provinces
could move to a tax-on-income system.
In addition to maintaining a
competitive fiscal and economic environment, our future
prosperity depends on our making continuous and more strategic
capital investments to sustain our economic competitiveness.
SuperBuild is spearheading and paving the way for the biggest and
boldest infrastructure building program in Ontario's history.
Through SuperBuild, not only the province but our partners in the
private sector and broader public sector will invest in the
innovative and improved infrastructure for a stronger, more
competitive economy.
The government is investing
$10 billion in SuperBuild over a five-year period of time. This
investment will be used to lever at least $10 billion in
additional investment from our infrastructure partners in the
private sector and broader public sector.
Through SuperBuild, the
government will build new relationships with our municipal and
broader public sector transfer partners. Together, and by
focusing on shared objectives, we can raise our collective
ability to invest more strategically in Ontario's infrastructure
and to attract more investment partners from the private sector.
Through SuperBuild, the government is taking on the role of
investor, partner, facilitator and leading change agent. We are
open to any and all ideas. It is a new world and we have to
rethink the way we do things.
The government's first-year
investment in SuperBuild is $2.9 billion. About three quarters of
this investment is being placed in highways, colleges,
universities and health care. Approximately $936 million is being
invested in provincial highway systems, especially in the
strategic trade corridors that link Ontario's export-driven
industries to our international gateways and border
crossings.
Investments totalling $742
million will expand and modernize college and university
infrastructure. This once-in-a-generation expansion will make
sure our post-secondary system can provide a space for every
qualified and motivated student in Ontario. The size of this
investment has been explained to me as the equivalent of building
three new Queen's universities or four new Durham colleges, all
in the course of this fiscal year.
This year, SuperBuild is
investing up to $504 million in health capital for hospitals,
long-term-care centres and mental health facilities. SuperBuild
is also investing in technology infrastructure.
Ontario's economic and fiscal
policies have also contributed to significant progress in
restoring the province to a sound financial footing. Ontario is
on track to meet the balanced budget plan deficit targets
originally outlined in the November 1995 fiscal and economic
statement, including a balanced budget in the fiscal year
2000-01. In fact, for the fifth year in a row, we are on track to
overachieve our deficit target.
1030
Last year, we reduced the
deficit to $2 billion, which was $2.2 billion lower than the 1998
budget deficit target and $2.8 billion lower than the original
target for 1998-99 set out in the balanced budget plan.
The third-quarter Ontario
finances that I am releasing today report a deficit of $1 billion
for this fiscal year, which is $1.1 billion lower than the 1999
budget forecast, $1.6 billion lower than the original balanced
budget target for this year and $25 million lower than the
deficit outlook reported in the second-quarter Ontario
finances.
This deficit outlook is
more than 90%, or $10.3 billion, below the $11.3-billion
potential deficit the government inherited when it assumed
office. The improved deficit outlook is due to
higher-than-forecast tax revenue resulting from the exceptional
strength of the economy
and the cautious nature of budget projections. Revenues have
increased $1.7 billion since the 1999 budget and $745 million
since the second-quarter outlook, mainly due to increased tax
revenue and higher federal transfers for social housing as a
result of the recently signed Canada-Ontario social housing
agreement.
At the same time,
expenditures have increased by $1.1 billion since the 1999
budget and $720 million since the second-quarter outlook, mainly
to accommodate priority needs.
Major spending changes in
the third quarter include a $200-million increase in OPSEU
pension plan expenditures, and $196 million each in additional
funding for hospitals and resulting from the Canada-Ontario
social housing agreement. There is also a $106-million increase
for child welfare.
Mr Chair, the balanced
budget plan is on track, and I look forward to introducing a
balanced budget this spring. However, our commitment to sound
fiscal policies and spending controls will not be relaxed when
the deficit is eliminated. Once the budget is balanced, we will
start paying down the debt, beginning with a minimal repayment of
at least $2 billion over the current mandate of this
government.
Once the budget is
balanced, we will also ensure that it remains balanced. The
Taxpayer Protection and Balanced Budget Act, which received royal
assent on December 14 of last year, will prohibit future
governments from incurring deficits except in extraordinary
circumstances. This is one of the toughest and most comprehensive
pieces of legislation of its kind in Canada. Beginning with the
2001-02 fiscal year, Ontario governments will be required to
balance their budget every year, except in very limited
circumstances which are clearly spelled out in the legislation.
If the budget is not balanced, cabinet salaries will be reduced
by 25% for the first deficit and 50% for the second deficit and
each consecutive deficit thereafter.
Taxpayers are also
protected from new taxes and rate increases in the province's
major taxes. The new law will require the government to obtain
the approval of voters in a referendum before introducing a bill
that would impose a new tax or increase tax rates except where
they are part of a revenue-neutral package. The taxes covered by
this legislation make up 97% of Ontario's taxation revenue.
In conclusion, I trust that
the information I have provided today, and the ideas and views
you will hear from Ontarians in the days ahead, will prove useful
to this committee as it conducts its pre-budget consultations and
develops its report to the Legislature. Our government is always
open to new ideas on how to build a stronger and more prosperous
Ontario.
While we take pride in our
achievements to date, we are keenly aware that our future
successes depend on sound management of the province's economic
and fiscal affairs. We will be using the upcoming budget to
continue implementing the economic and fiscal policies that have
proved successful to date at putting Ontario back on track.
We look forward to hearing
from the committee and from Ontarians across the province on how
we can further our agenda of creating jobs, strengthening our
economy, improving the investment climate and laying the
foundations for Ontario's continued prosperity.
Thank you, Mr Chairman.
The Chair:
Thank you, Minister Eves. Each party will have 30 minutes for
questions and responses. However, Mr Christopherson has informed
the clerk that he was a witness to an accident this morning; he
might be delayed. He would still like to have his 30 minutes. So
we'll start with the opposition. Then, if Mr Christopherson is
not here, we'll go to the government side, and then hopefully Mr
Christopherson will be here. So, with no further comments, Mr
Phillips.
Mr
Phillips: I appreciate the minister being here and look
forward to beginning the debate.
Let me start with the issue
of health care spending. The government is spending about $20
billion this year on health care. Is it the government's view
that that's the adequate amount of spending on health care in
Ontario?
Hon Mr
Eves: I don't suppose, Mr Phillips, that any amount
could be regarded as the perfect amount to be spent on health
care. It's certainly far in excess of what we promised, if you
remember, going back to the 1995 election campaign. We understand
and appreciate the fact that health care is Ontarians' and
Canadians' number one priority and that's why we have committed
to increasing health care spending by 20% over a five-year period
of time during the course of the current mandate of this
government.
Mr
Phillips: I'm just trying to get an idea: Is it your
view that that's what the government feels it should be spending
on health care or does it feel it should be spending more money
on health care now?
Hon Mr
Eves: I think it's the government's point of view that
that is the appropriate amount to be spent during this fiscal
year, recognizing that that pressure increases all the time and
that we'll have to increase it in the future.
Mr
Phillips: What I'm just trying to get at: In terms of
your debate with the federal government, is it your view that
regardless of what the federal government does, the $20.2 billion
is the appropriate amount to be spending?
Hon Mr
Eves: If the federal government was willing to restore
CHST payments more than it has, then obviously we would direct
that money, as we did in last year's increase from the federal
government, toward health care funding.
Mr
Phillips: How much more do you think we should be
spending?
Hon Mr
Eves: I think you could spend $20 billion more a year if
you had it.
Mr
Phillips: I'm trying to get what you believe we should
be spending in Ontario.
Hon Mr Eves: I believe that what
we're spending right now is the maximum that we can afford to
spend, keeping in mind other priorities of government besides
health care.
Mr
Phillips: So is it your view that we should be spending
more but we don't have it, then?
Hon Mr
Eves: I suppose you could spend 100% of the budget on
health care. I don't think people driving in every day would
appreciate that, nor would anybody going to school, nor would
anybody on social assistance, because there wouldn't be any money
for that.
In a government, as I'm
sure you're aware, you have to determine your priorities. The
amount that health care takes of the provincial budget in all
provinces is growing every year and it continues to grow. We are
spending what we think is an appropriate amount this year with
the amount of revenue that we have.
Mr
Phillips: You didn't understand. One of the pieces of
advice I'm sure you're looking for is what we should be spending
on the health care. I take from your comments today-correct me if
I'm wrong-that if you had more money you would spend more money
on health care, that there are some needs that aren't being met
or that you're spending-just give me a kind of a direction. Are
we spending what in your judgment is the appropriate amount or
would you prefer to be spending more money but don't have it?
Hon Mr
Eves: I suppose if we had figures meaning nothing, $5
billion more in revenue, or the federal government decided to
restore CHST payments 100%, sure we could spend more money on
health care. You can always spend more money on health care.
Mr
Phillips: You could, but-
Hon Mr
Eves: If that number was $41 billion, you could still
spend more money. You could reduce the waiting lists from
whatever to whatever. I mean, you're always going to have that
argument. You could take any program in government, as a matter
of fact, and make that argument: "Is that enough? Is it 110%
supplying the needs of a particular area of endeavour?" The
answer would always be, "No, of course it's not." You could
always spend more money in any area.
Mr
Phillips: I realize you could spend more, but you don't
feel that there is the need to spend more money right now in
Ontario.
Hon Mr
Eves: I think the government of Ontario is spending an
appropriate amount of money for the amount of money that it has
coming in, having regard to other priorities that Ontarians have,
such as-
Mr
Phillips: If you did have more, where would your
priorities be in health care?
1040
Hon Mr
Eves: I guess you'd have to get a more detailed answer
from the Minister of Health. I think you can always direct more
money to important areas that we all are aware of. I think the
Minister of Health has recently responded, for example, to
emergency room funding; I think she has responded to cancer care
in the province. Those are two obvious priorities in the health
care field where more money could be spent.
Mr
Phillips: To change the subject a little, on the tax
issue there has been some discussion recently on the merits of
flat taxes, and I gather you would have looked at that and
reached some conclusion on that. Do you have any advice for us on
the conclusions your ministry has reached on flat tax?
Hon Mr
Eves: We have looked at flat tax when the Alberta
government-and before that, as a matter of fact. As you know,
it's not a brand new idea. Mr Buckley, Mr Pocklington and others
have had it around for many, many years, on both sides of the
Canada-US border.
In some respects it perhaps
is attractive. On the other hand, it's not a very progressive way
of taxing people. Obviously, those people who make more in
society should pay more in terms of a higher rate. That's just my
personal philosophy and belief; others may differ. I'd be
interested to hear what people appearing before the committee
have to say in the course of its deliberations, and we of course
will be doing our own pre-budget consultations, as the Ministry
of Finance does every year in budget preparation. In fact, they
start very shortly and will continue on right through almost to
budget time.
It's an interesting
proposition. However, I think Canadians and Ontarians have become
used to a progressive taxation system where the higher your
income, the higher the rate of tax you pay.
Mr
Phillips: In terms of setting up your own tax system, I
gather, if I can read between the lines, that your judgment is,
based on the comments you've heard from the federal minister,
that they appear to be heading towards being able to accommodate
your concerns about more flexibility for Ontario, but within one
income tax collection service.
Hon Mr
Eves: Right.
Mr
Phillips: So that may not be an issue any longer, based
on-
Hon Mr
Eves: A made-for-Ontario tax, to me, doesn't necessarily
mean, and in fact hopefully doesn't mean, your own tax collection
system. I would like to think, as indeed every other province-the
finance ministers of the provinces unanimously recommended to the
federal government that we be allowed more flexibility within the
tax collection system. In my conversations many months ago now
with Mr Dhaliwal, the former minister of revenue federally, he
indicated to me that he thought that would be possible, that the
tax collection system that the federal government is setting up
can really do everything from distributing benefits, which it
does in some programs apparently in the province of British
Columbia, to collecting taxes in 10 different provinces in 10
different ways. I think that is what is needed, because obviously
the economies of each of the provinces aren't similar; they are
not based on similar industries and sectors. It would be
ludicrous to suggest that the province of Prince Edward Island,
for example, has the same taxation needs as the province of
Alberta, or BC the same as New Brunswick.
All that the provincial finance ministers really
are asking for is the same flexibility that the federal
government has within its system of taxation policy for its
citizens. I believe that can be accommodated within a central tax
collection system. That always has been my preference and remains
my preference today. I often compliment Minister Martin. I would
hate to think where the Canadian economy would be without him at
the helm over the last five, six or seven years, and I've told
him that personally. Sometimes it's embarrassing for him, so he's
embarrassed yet again today. However-
Mr
Phillips: We'll keep it quiet.
Hon Mr
Eves: And I was heartened, quite frankly, by the fact
that last Tuesday the federal government saw fit to move the
tax-on-income date-not all provinces will take advantage of this,
but I believe perhaps as many as half will-in this taxation year,
to have tax-on-income in this taxation year, the year 2000, as
opposed to 2001, which had been the federal government's previous
plan. As a matter of fact, as recently as about the middle of
December, when the finance ministers met with Minister Martin in
Ottawa, the federal government was quite adamant that they would
not entertain any such possibility. So we understand that for
this year, the taxation year 2000, there can't be the same type
of flexibility that the federal government could build in through
its tax collection system in 2001, 2002, 2003, and as we go I
think we can get more and more flexibility. If we can, we will
certainly be happy to be accommodated within that one federal
system.
Mr
Phillips: It sounds like that problem might be over.
The government has said
that on the spending side, "We will save one cent from every
dollar the government spends in each of the next two years." Can
you tell us what that means? Is that your plan, to cut spending
by one per cent?
Hon Mr
Eves: I think that's an objective, a target to find as
many savings as we can, an ongoing exercise that I believe the
government should be conducting every fiscal year to see where it
can run the operations of government more cost-effectively and
efficiently and provide better services to Ontarians.
I don't think it should be
read as a rigid target. If we don't meet it in one particular
year bang on, I don't think the roof is going to cave in; I don't
think it's the end of the world. But I do think it's a target
that all ministers should be striving for as we go through our
fiscal planning process for each and every ministry every
year.
Mr
Phillips: Does it mean that spending will be 1% lower in
the following year than it was in the previous year? Is that what
that means?
Hon Mr
Eves: That's not always possible, but that certainly
would be the target.
Mr
Phillips: So it's not really a commitment. It's sort of
a-
Hon Mr
Eves: I think that every government, and every political
party, for that matter, during the course of an election campaign
outlines what it thinks the appropriate policies for Ontarians
are. Ontarians then judge during the course of a campaign,
hopefully, which party they would like to see form the government
on the basis of that.
I think our track record
has been fairly good in terms of delivering what we promised to
Ontarians and I think they can take heart in the fact that we are
going to be diligent in trying to find those types of savings in
the administration of government.
Mr
Phillips: Do those words mean 1% less spending in the
next year versus the previous year? I didn't write these words. I
think you or someone else wrote them.
Hon Mr
Eves: I didn't write them, I can assure you, but they
mean exactly what they say, that our target will be to find a
one-cent efficiency in every dollar that the government
spends.
Mr
Phillips: The same document said 825,000 jobs over the
next five years. That was in the document, and I assume that
was-
Hon Mr
Eves: That is the target.
Mr
Phillips: Is that the expectation that it is?
Hon Mr
Eves: Yes. Of course, all kinds of things can happen, as
could have happened, I guess, between late 1995 and today.
However, we set a target then of 725,000 jobs that a lot of
people thought was ludicrous and they scoffed at it. They thought
it could never be achieved. You may disagree, but I don't: I
think that target is well within reach today. By the end of the
year 2000 I think it is very possible-
Mr
Phillips: The 825,000?
Hon Mr
Eves: No, that we will achieve the 725,000 target. I
think that 825,000 is an ambitious goal, but I do think it can be
achieved.
Mr
Phillips: What would the unemployment rate be at the end
of five years then?
Hon Mr
Eves: Right now, if my memory serves me correctly, I
believe that the percentage of people gainfully employed in
production in Ontario is somewhere in the neighbourhood of 67%.
There is much more capacity that can be taken up by the Ontario
labour force. To achieve that target of 825,000, I believe we
would have to have an employment efficiency, or contribution
rate, of somewhere just over 70% to achieve that target of
825,000.
Mr
Phillips: By the way, I've asked a number of specific
questions, as you know, that I assume the officials will provide
answers for.
Hon Mr
Eves: Yes. We have prepared answers to all of your
questions.
Mr
Phillips: I appreciate that.
Hon Mr
Eves: Hopefully we will be tabling those today.
Mr
Phillips: Great. We are now coming to the end of the
first year of the SuperBuild Growth Fund. The one that is of most
interest is the private sector, $10-billion commitment on the
infrastructure. I wonder if you could give us some ideas of what
projects have already been approved or what projects are on the
horizon that would see a
$10-billion commitment from the private sector on
infrastructure.
Hon Mr
Eves: Sure. First of all, I think this year in some
respects will be the, I don't want to say "easiest," but the most
charted-out year for the government in terms of what we've
outlined in terms of the $2.9 billion. I referred to the $742
million in colleges and universities. I think you will find that
within the next couple of weeks, probably, the Minister of
Training, Colleges and Universities will be making some
announcements with respect to the literally hundreds of proposals
that her ministry has received for that sum of money. As I said
in my remarks earlier today, that is quite substantial. It's the
equivalent of building three new Queen's universities or four new
Durham colleges, which is a substantial undertaking indeed.
1050
With respect to the highway
system, some $936 million will be spent this year. The
highway system and transportation needs in Ontario I think have
fallen behind over the last several decades. I think it's
incumbent upon the government to look for ways to stimulate
growth with the help of the private sector in the future.
The health care system,
which you talked about earlier, is always going to have
tremendous capital needs. We've earmarked a little over half a
billion dollars for the health care sector this year.
The SuperBuild corporation
itself: You will see, hopefully next week, some announcements
with respect to the structure of the advisory board of directors,
bringing in people from all different walks of life to advise the
government on different things we could do to entertain proposals
from our broader public sector partners and the private sector on
new and different ways of financing projects. I think Highway 407
is an example of what can be done. It's only one example, but I
think it is a very good example of meeting some of the future
transportation needs of the province.
The financing of the
Toronto Hospital: That was a very interesting exercise that
perhaps can be used and duplicated in other areas of the province
in the future.
These are only a few
suggestions of things that have been done to date. The SuperBuild
corporation really is just getting up and running now. I think
our agenda for the fiscal year that's going to end March 31 was
outlined pretty well in last year's budget. From here on in I
think it will be a lot more innovative, and I think you will see
that in the weeks and months to come there will be many different
projects and many different ways of financing them in concert
with our broader public sector partners and the private
sector.
Mr
Phillips: So we don't have any yet.
Hon Mr
Eves: We have the ones I just talked about for this
fiscal year.
Mr
Phillips: No, private sector. The only one you mentioned
was the 407, but you haven't got any in the SuperBuild fund
yet.
Hon Mr
Eves: No, but I think you will see the announcements
start to roll out as early as next week.
Mr
Phillips: Just for my information, this SuperBuild group
is an advisory group, but the decisions and the management of
capital projects are still within the public service?
Hon Mr
Eves: Yes, absolutely. They will be an advisory group
only to the CEO of the SuperBuild corporation, Mr Lindsay, and to
the privatization committee of cabinet, which I chair, and of
course ultimately to cabinet itself. Committees of cabinet, as
you know, make recommendations to the cabinet body as a whole,
and the cabinet body as a whole makes the final decisions. They
in no way will have decision-making ability. They're an advisory
group only.
Mr
Phillips: On a different subject now, tax fraud and
abuse, the hotline that you announced some time ago for people to
report on suspected tax fraud and abuse-I think the number was
TIP-INFO-I haven't seen an updated status on that. I've seen the
updated status on the social assistance but I haven't seen it on
the tax fraud and abuse issue. I'm just wondering if you can give
us a status report in terms of how many people now are working in
that area and whether you've done the same: have sort of posters
produced and tacked on bulletin boards and whatnot.
Hon Mr
Eves: They are in the responses to your questions. I can
either read them into the record now or you can receive them
later, whichever you prefer.
Mr
Phillips: I'm just wondering how well it's going and how
many people you've prosecuted, sort of an updated summary, not
unlike the one you produced on the social assistance.
Hon Mr
Eves: With respect to the tax fraud hotline, the tax
fraud hotline was discontinued after being in use for one year.
It was found that the hotline was little used and those who did
use it provided little relevant information. Many of the calls
dealt with federal government matters and personal opinions.
Those who did provide information generally lacked the needed
specificity for the government to take action.
Tax fraud is a crime that's
invisible in many ways to the public, and the ministry has found
that vigorous audit and investigation procedures have been more
successful. We have increased our audit staff in revealing tax
fraud. We don't use posters as a publicity measure. The tax
revenue division does issue prosecution news releases to the
media about significant prosecution cases to create a deterrent
to evasion, to foster public confidence in Ontario's tax system
and to encourage continuing voluntary compliance by honest
business operators. We do use periodics. The ministry uses
periodic tax enforcement bulletins summarizing prosecutions and
other enforcement activities. During the two years ending March
31, 1999, 97 voluntary disclosures were received and $4.8 million
in back taxes were recovered.
During the period from
April 1, 1995, to March 31, 1999, there were 207 prosecutions for
evasion of Ontario taxes. The courts imposed fines totalling $6.5
million in these cases, plus eight jail terms. Civil negligence
penalties totalling $2.5 million were levied, and tax
assessments totalling
$22.5 million were raised. Approximately 1,800 less serious
infractions were prosecuted by way of the Ontario certificate
under part 1 of the Provincial Offences Act.
Mr
Phillips: I'm going to change the subject now, but we'll
get back to that later. Your economic statement that you released
in late November said that exports now represent a larger share
of gross domestic product "than in any other province or any
major industrial country."
I was looking through your
document on attracting industry into Ontario. It does point out
the tax structure for manufacturers is competitive, but it's the
health care and the supply of a well-educated workforce that seem
to be the two major reasons for people looking at investing in
Ontario. I wonder if that still is your experience and whether we
are at any risk as we look at health care being increasingly
funded not through the government but through the private sector,
whether either of those things begins to put at risk what you've
indicated are the two key reasons why companies are investing in
Ontario.
Hon Mr
Eves: I don't believe so, personally. First of all,
there is a fair amount of-as you know, it has been a subject of
much debate in the media lately. The percentage of health care
dollars that comes from the private sector, I believe, is in the
neighbourhood of some 30%.
I think officials in
governments at both levels, provincially and federally-Mr Rock,
the federal health minister, very recently mused about new
programs that could involve provinces and others. I think this is
an ongoing challenge that all governments have, but I still
firmly believe that in Canada we have the best public health care
and the most accessible health care system anywhere in the
western world. It's not perfect. There are things that can be
done to make it better. There are changes that can be made. I
think that's the constant challenge. But I think that is a huge
attraction for people locating in Canada and, in particular, the
province of Ontario.
Are there pressures on the
system? Absolutely. There are always pressures on the system, and
we always have to try to be vigilant to respond to those as
quickly and effectively as we can.
For the education system, I
would have some very similar comments. I think we have the best
public education system anywhere in the world. Is it perfect? No.
Can it be improved upon? Absolutely.
1100
I think we recognize that
area. We were just talking about it with respect to SuperBuild in
this fiscal year and the $742 million that we're reinvesting in I
think much-needed and important infrastructure in the college and
university sector. That pressure is going to continue to grow in
future years as we go through the double cohort. As we have
highly specialized and new technologies being developed, it's
incumbent upon the college and university sector, in concert with
the private sector-many of these projects and proposals that have
gone into the ministry of colleges and universities have a
substantial private sector component because the private sector
understands that it's in their best interests to be partners in
this.
I was in Mr Duncan's
hometown last week, talking to officials with St Clair College,
the University of Windsor and DaimlerChrysler. The comment made
by Mr Brust, the Canadian president of DaimlerChrysler, is that
we realize that instead of retraining employees after we get them
from the university or college sector, it would be better for us
and everybody concerned if we got in on the ground floor and
started investing our millions of dollars that it cost us anyway
to produce the skills people need that will be appropriate to
immediately step into the marketplace.
Just last year, I believe,
the University of Windsor produced its first automotive
engineering graduates from a very interesting course that's done
in concert, again, with St Clair College and with the private
sector. I am told that those graduates are being snapped up at an
alarming rate and they are receiving very substantial starting
wages, which makes the odd professor rethink his or her station
in life, I suppose, as they're teaching graduates who sometimes
are being paid more in their first year than the people who
taught them. It's an interesting problem. However, I think it's a
problem we would like to have more and more in the future.
Mr Dwight Duncan
(Windsor-St Clair): Just one other question: I met with
officials at the University of Windsor last week. We talked about
the SuperBuild fund and the application process, and they
expressed anxiousness, obviously, to hear announcements about
that, but they also expressed concern about the input that both
the cabinet and your government caucus are going to have on these
decisions and the amount of political involvement that's going to
go on in those. I wonder if you talked about cabinet's ability to
make decisions in this regard. What role does the government
caucus have in these decisions, and have they been involved up
until now?
Hon Mr
Eves: Not to my knowledge. The government caucus has no
role in these decisions.
Mr Duncan:
These are not discussed at caucus?
Hon Mr
Eves: Not to my knowledge. The Ministry of Training,
Colleges and Universities I understand has a system whereby they
rank-I'm not talking political rank now; I'm talking civil
servant or bureaucratic rank-the hundreds of proposals that have
been received and, if they fit the bill, then I suppose a certain
percentage will be funded. As you know, $742 million is a lot of
money but it only goes so far. It's quite obvious that not all
the projects will be able to be funded. But this is, I think the
ministry has made it clear, only the first round. There will be
many, many more rounds of this, as I alluded to in my
remarks.
I think this is only the
first of many such investments that the government is going to
have to make, the broader public sector and indeed the private
sector, in the college and university system in Ontario if we're
going to respond to the needs and challenges of the workplace of
tomorrow.
Mr Duncan: Can you tell us what
the total value of applications is this year for colleges and
universities?
Hon Mr
Eves: No. I don't have that figure, Mr Duncan, off the
top of my head, but I probably could find that out.
Mr Duncan:
Could you, please.
Mr
Phillips: Gambling revenues are of interest and-
Hon Mr
Eves:-near and dear to Mr Bradley's heart.
Mr
Phillips: Yes. We understand that slot machine revenue
is exceeding expectations, that if you proceed with the 9,600
slot machines, which we gather you are, the provincial share of
the revenue could be over $500 million. Is that accurate? That's
based kind of on the London, Ontario, experience. What are your
expectations for expanding the 9,600?
Hon Mr
Eves: We haven't broken it down that way, but I will
read you the breakdown that was the response to your question
number 4, I believe.
Total gaming revenue in
Ontario in the current fiscal year is expected to total $1.925
billion. This includes both the net income from the Ontario
Casino Corp, which is guesstimated to be $995 million, and the
Ontario Lottery Corp, which is projected at $930 million. That is
further broken down into traditional lottery revenue, which would
be $740 million, and four charity casinos and slot machines at
racetracks, $190 million. That brings a total gaming revenue of
$1.925 billion.
The Chair:
With all those dollars mentioned, Mr Phillips, I'll give you one
more question, because your time is up.
Mr
Phillips: Maybe I'll ask the same question and see if I
get an answer to it. Just what are your expectations of these?
You now have several months' experience with the slot machines.
You are installing 9,600. Is the $500 million estimate-and surely
you've done the estimates-accurate?
Hon Mr
Eves: I don't have a breakdown of the slot machine
revenue per se, but I will obtain that for you from the
appropriate minister.
The Chair:
Mr Christopherson, you have 30 minutes.
Mr David
Christopherson (Hamilton West): My apologies for being
late. As some of you know, I witnessed an accident on the way
here, where a senior citizen, 88 years old, was hit by a car. I
was the one who called 911 and stayed.
I raise that both to
explain my lateness and to say to you, Minister, that nothing
focuses the mind on what's important more than when you see
someone who has been hurt and you feel the panic we all have when
someone is suffering.
As I was phoning 911, it
crossed my mind, "I hope the paramedics aren't tied up elsewhere
because there's critical care bypass in place in Toronto and
they're either having to go further afield or wait longer because
there are no beds." All these things can factor into whether this
gentleman, this senior, is going to receive the kind of care he
is entitled to.
I also haven't heard
anybody talk about the fact that while you paint a rosy picture
in terms of macroeconomic numbers, what about the growing number
of poor who exist in our society? A report, called Canada's Great
Divide, was published just the other day by the Centre for Social
Justice. You will know, Minister, that this is the second report
flowing from their initial report that talked about the growing
gap. They can show, through StatsCan figures, that while you talk
and brag about great macroeconomic numbers, the reality is that
the middle class in your Ontario is losing ground. They have less
income, their income is sliding, and the poor are poorer than
they've ever been and there are more of them.
During the time we were in
office, which was during the worst recession since the 1930s, we
made some decisions that you of course criticized and ran against
strongly. But the stats now show that the steps we took in the
early 1990s not only ensured that there wasn't a continued
growing gap between those who have and those who don't, but we
were able to narrow the gap, so there was a smaller gap. That was
during a recession. During the biggest economic boom we have ever
seen in North America, the middle class is losing ground, parts
of the middle class are becoming poor, the poor are becoming
poorer and there are more of them.
Minister, how do you
justify these two Ontarios: the small part of Ontario that's
happy with what you're doing because they're benefiting and the
vast majority of middle-class Ontarians who are losing ground,
losing income, having increased insecurity, losing benefits from
the community? When we talk about the poor, they are being
crushed under your policies. How do you justify creating,
maintaining and moving us into that kind of Ontario?
Hon Mr
Eves: Mr Christopherson, you won't find it surprising,
I'm sure, that I probably disagree with your basic premise.
Having said that, some of the points you make are very valid and
they're well taken. I think it's been a concern of many
governments that middle-income Ontarians end up seeming to pay
the load for most of society, and the burden upon them appears to
be getting larger and larger.
1110
We tried to do something
about that. One might argue that it hasn't been enough, but we've
tried to do something about that, for example, with respect to
how we've tailored our tax reductions. We purposely made the
percentage-and I realize there's a difference in real dollars-but
in the first 30% tax reduction, the percentage of tax reduction
from the more modest end of the income scale to the highest end
ranges from 41 point something at the most modest end up to, I
believe, 16.7% at the extreme upper end. So we've tried to give
middle- and modest-income Ontarians a break in terms of tax
reduction by giving them a greater percentage break.
In terms of total
dollars-not for the individual taxpayer but total dollars-I
believe that well over 75% of the money, if you want to look at
it that way, of the tax benefits has gone to modest- and
middle-income Ontarians. In every single budget we have
introduced, we have tried to improve, and we have improved, the
Ontario tax reduction
program, so that we now have 650,000 Ontarians, as I said in my
remarks, now paying no Ontario income tax at all, who are paying
some federal income tax.
Is it enough? Probably not.
I hope that we see in Mr Martin's budget in the next few weeks
that the federal government, now that it acknowledges it will
have a surplus and will be doing something about tax reduction,
will address the problem of bracket creep as well; that they will
address the more modest- and middle-income Canadians, which of
course will also apply to Ontarians at those ends of the economic
spectrum; that they will do something about payroll taxes, which
of course kind of disproportionately hurt or hit more modest- and
middle-income Canadians, because of course there is an upper
limit at which you pay these payroll taxes. I think those are
some things the federal government could do, following similar
lines that Ontario and some other provinces have taken, that can
help those people.
However, I think the best
thing any government can do is provide individuals with the
opportunity for gainful employment and participation in society.
I believe-and I've had this belief throughout my stay in public
life and before-that nobody really wants to be on social
assistance. They aren't there because of choice; they're there
because of necessity. It's not a nice thing. They all want to be
contributing members of society, and they all want to be paying
taxes.
I think we have to be
ever-diligent in doing what we can to provide education and
training for these people so that they can become gainfully
employed. There are now more people working in Ontario than ever
before. Is it enough? No, it's certainly not enough. Five point
six percent is a great unemployment rate if you take it in recent
historical terms. But it's still not low enough, and I believe it
can go a lot lower and that more people can become gainfully
employed. A number of people-almost half a million, as we alluded
to in our remarks-have left the social assistance rolls and have
found their way. However, that's not enough either. When you
still have probably close to double that number on social
assistance, it's still a very serious problem. The government
takes it seriously.
Is our approach to
resolving the problem the same as your party's approach would be?
Probably not. That's what makes our democratic system what it is.
I think we both want to achieve the same goal at the end of the
day, but we just have different methods of getting from point A
to point B.
Mr
Christopherson: I appreciate that, Minister, but my
difficulty is that if it were as simple as your last comments
make it out to be, that we all want to get to the same place and
it's just a question of taking different roads to get there, then
this report would say that everyone is better off under your
government's tenure, especially during the biggest economic boom
we've ever seen in North America. Yet the reality is that during
the biggest economic boom ever in North America, there are more
people in deeper poverty than ever before.
Just to touch on one aspect
of what you said, you talked about social assistance being a
necessity and that no one wants to be on there. Then let me ask
you, why would you cut their income by 22%? You didn't cut
anybody else's income by 22%, but you went after the poorest of
the poor and cut their income by 22%. How's that supposed to make
them better off?
Hon Mr
Eves: Going back to the 1995 election campaign, as you
know, that was a commitment that our party made during the course
of that election campaign. We did reduce social assistance, on
average, I believe it was 21 point something per cent.
Mr
Christopherson: It was 21.6%.
Hon Mr
Eves: However, the social assistance payments in the
province of Ontario are still well in excess of the Canadian
average by some, depending on whose calculation you want to take,
10% to 14% or 15%. The objective, I think, should be to get
people off social assistance, not to have them on social
assistance in the first place. The fact that you have almost half
a million Ontarians who are now contributing, taxpaying members
of society who weren't a few short years ago I think is a
tremendous accomplishment. However, as I pointed out in response
to your previous question, there's still about twice that number
on social assistance. That's not acceptable. We're going to have
to continue to work at providing means of training, re-educating,
educating, providing opportunity to those people so they can
become gainfully employed, to have the opportunity and dignity of
a job.
Mr
Christopherson: Minister, you continue to put tax cuts
at the centre of your economic policy, and we in the NDP maintain
that tax cuts are not going to benefit the vast majority of
citizens. Again, I come back to this report. You cannot run away
or hide from the fact that in your Ontario, during the biggest
economic boom ever, there are a greater number of people in
poverty, and in deeper poverty, than ever before. I still haven't
heard you say to me why that's OK.
Hon Mr
Eves: I'm not saying that it is OK. I wouldn't agree
with your first premise. There are many different ways of
measuring poverty and levels of poverty. I'm really not
interested in getting into a debate over methods of measuring
poverty, what is the poverty line and what isn't the poverty
line. I don't think any society should be satisfied as long as it
has a single individual living in poverty. We're trying to do
what we can do in terms of providing a climate so people can have
the dignity and opportunity of a job and can be contributing to
society. The province of Ontario alone can't do the entire task.
About 60% of taxation revenue in Canada is taken by the
government of Canada, not by provinces or municipalities. So I
think you have to put all this in its perspective. We are trying
to do what we can do to make the lot of Ontarians better. I think
most Ontarians would agree that we have. Is it perfect? No. Can
it be better? Absolutely, and we're going to continue to try and
make it better.
Mr
Christopherson: I'm certainly not a statistician or an
economist; I don't want to get into a debate on measurements of
poverty either. But the fact of the matter is that using StatsCan figures, the
trend lines, if not the specific numbers, can't be questioned.
The trend lines show that in Ontario there is a greater gap in
after-tax income now for everyone than there was when you took
power. How, during this economic boom-I'm going to keep coming
back to that-can you say that your policies are good for the
majority of Ontarians when the majority of Ontarians are losing
ground under your policies?
Hon Mr
Eves: I don't believe the majority of Ontarians are
losing ground under our policies. In fact, I think the
overwhelming majority of Ontarians are gaining ground. I don't
have the facts and figures in front of me that you have. It may
be argued, I suppose, that the gap between the highest-income
earner and the lowest-income earner has widened. I think in a
society that is prospering, an economy that is prospering,
obviously you are going to have people at the upper end who have
more opportunity, who make more money. I'm not saying that solves
the problem for the people at the bottom end; that's not what I'm
trying to say. But I do think that could be an obvious
consequence of a growing economy in any jurisdiction, not just
here in Ontario.
Mr
Christopherson: But the difficulty I have with that,
Minister, is that that general premise of how the economy works
didn't change in the 1990s; it's a question of what the
government policies were and what happens to the wealth that's
created here in Ontario. The fact of the matter is that we now
have figures that show us, when we analyze them, that people are
worse off. You can say the words, but the fact of the matter is
that all the figures back up the argument that the middle class
has less income under your policies and more of them are sliding
into poverty; the poor are growing and they're in deeper poverty
than they've ever been. That's during an economic boom. During
the first half of this decade, during a major recession, because
of government policies-in this case the NDP, where we chose to
ensure that that gap wasn't increased-it actually got
narrower.
1120
I'm going to come back
again and ask you, how can you justify the fact that there are
growing numbers of people in poverty during an economic boom? You
keep saying everyone is sharing in this, and the fact of the
matter is that they aren't. People are losing ground. Minister,
there are more poor now than when you took office, during the
biggest economic boom that we've ever seen. How can you justify
that?
Hon Mr
Eves: First of all, Mr Christopherson, I don't agree
with your basic premise. Second of all, I don't agree at all that
middle-income Ontarians, depending on how you want to define
that, I suppose, are worse off today than they were. I think
they're better off. They're making more money, they have more
take-home pay; consumer confidence and spending attest to that.
Those numbers are there.
I indicated in my statement
that the major spending changes just between the second quarter
and the third quarter in the province of Ontario's expenditures
this year-two of the major ones are $196 million resulting from
the Canada-Ontario social housing agreement and a $106-million
increase for child welfare. That's just in one quarter of one
year, during the third fiscal quarter of this fiscal year.
One can argue, I suppose,
that those things aren't enough to address all the problems in
society-I'm sure they're not-but I think we have been somewhat
diligent in trying to make the situation more equitable here in
Ontario. But I go back to the fact that the provincial government
doesn't levy the majority of taxes in the province; the federal
government does-60%.
Mr
Christopherson: Let me ask you, if this is what people
are receiving by virtue of your government's policies, in terms
of greater insecurity, less income, more poor, deeper poverty,
during an economic boom, what can they possibly expect from you
if this economic bubble bursts?
Hon Mr
Eves: First of all, I don't think the economic bubble,
as you put it-I don't regard it as a bubble-is about to burst.
Today's economic growth, not only here in Ontario but across
Canada and North America, is not a fluke. I don't think it just
happens to be a blip on the radar screen. I think there are some
very sound fundamentals in both the US and Canadian economy that
aren't going to disappear overnight. Are these economies going to
continue to grow, in the case of Ontario, at a 5% real GDP growth
rate every year? No. It's unrealistic to think that's going to be
possible. The growth rate may well slow down, but I don't think
the growth rate in the economy is going to disappear
overnight.
I think the best thing
government can do is put our fiscal house in order so that we do
have a surplus, so that we do have money for a rainy day, so to
speak, so that governments, regardless of their political stripe,
can respond to circumstances when the need occurs in the future.
That's the whole debate, I guess, around EI premiums, in a way,
and the size of the fund that's needed to carry the Canadian
economy, in that case, through a downturn in the economy. That's
the whole idea of getting to a balanced budget, stopping the
growth of debt in the province of Ontario or any other province,
for that matter, so that government will have money it can spend
on important social programs for Ontarians or Canadians.
Mr
Christopherson: Just on that, Minister, in terms of
spending money on priorities, let's take a look at youth. You
said yourself last November that the unemployment rate with young
people is still too high. In fact, we know it's twice as high as
for the rest of the population. We know that tuition fees are
higher than they've ever been. We know that the fiscal pressures
as a result of your cuts to transfer payments to primary,
secondary and post-secondary education are putting further strain
on the ability of these educational institutions to provide an
education to the students. Young people are in debt more than
they have ever been.
Again, let me come back to:
How do you justify giving tax cuts that ultimately have led to a
situation where more people are losing ground than ever before
and there are more
poor-deeper poverty-than ever before? How can you justify
continuing to spend money on tax cuts that exacerbate these trend
lines rather than providing things like increases to
universities, primary and secondary education, and tuition fee
cuts? Why is your priority tax cuts over giving young people a
real opportunity for a future?
Hon Mr
Eves: First of all, I disagree with your basic premise.
I don't believe that tax cuts have cost the Ontario economy
anything. In fact, our revenue is up dramatically over what it
was in 1995 when we assumed office. I know that was the spin that
a lot of critics, not just political critics but other critics,
gave to the government. They said we would be receiving, I think,
$5 billion less revenue a year than we were in 1995 if we
went ahead with our tax reduction program. As you know, that did
not happen. Revenue is dramatically up, in the neighbourhood of
$6 billion to $7 billion, from 1995. Not only did it not go south
$5 billion, it went north $6 billion or $7 billion, a
positive effect. You must admit that is quite a differential, $12
billion or $13 billion a year that was predicted by some that
would happen. That hasn't been the case.
I think there is a
basically different philosophy between our government and some
provinces and the federal government, and I think the very
question you just asked points out that difference in philosophy.
The federal government can speak for themselves, but it's my
observation that they regard tax reduction as some sort of
luxury, that when you have money sitting around you'll spend it
by way of a tax reduction. They almost regard it as an
expenditure of government. I couldn't disagree more. I regard tax
reduction as an incentive for people to locate and invest, and
hence create employment, in Canada, or in our case Ontario, and I
believe it increases revenue to whatever government you're
talking about, whether provincial or federal. That certainly has
been the case here.
There are 642,000 people
working in Ontario today who weren't working in September 1995.
Surely the actions of the government, but the economy of Ontario
in particular, have helped those 642,000 people. Most of them are
full-time private sector jobs. That's some 47% of all the jobs
created in Canada during that period in a province that
represents about 38% of the population. Surely something is
happening in Ontario that isn't happening in other jurisdictions.
When you have 642,000 more people working than were working
before, surely that's good news for those 642,000 people.
Are we happy? Have we
achieved nirvana? Absolutely not. But the unemployment rate has
dropped from 9.4% to 5.6%, and hopefully it will drop even more
in the future as more and more Ontarians become gainfully
employed.
Mr
Christopherson: Minister, we are far from using the word
"nirvana." We have a situation in Hamilton where there's a woman
whose mother was in Mexico, and the family certainly feels-and it
looks like it on the evidence-this woman died prematurely because
they couldn't locate a bed for her here in Ontario, even though
all the medical people had agreed that she needed to be airlifted
and brought to Ontario. The thing that held it up was that they
couldn't find a bed because of a further situation in Hamilton
where hallway spots are now being designated as formal,
acceptable places for people to be placed on gurneys and left
there, and some of them treated there. So let's not start using
the word "nirvana."
There may be parts of the
population that you travel in who feel things are so good that
you can begin to think about using that word. But there's a whole
other world out there, a whole other world, and you are not
talking about that world today.
1130
Let me also mention two
quick things based on what you said, and then I'll ask another
question.
The projections from your
own ministry forecasted that in 1999-2000, in terms of personal
income tax, the government of Ontario will receive, I believe,
about $1 billion less from personal income tax. That's not
overall money. I'm not arguing that your dollars are up. That's
going to happen when you've got the kind of economy that we have.
But in terms of personal income tax as a source and a percentage
of the revenue for the province of Ontario, your own figures
project it's going to be about-and I'm going from memory; I don't
have that figure. I see the deputy checking, and if I'm wrong,
please correct me, but I believe it's $1 billion less that you're
projecting.
Also, when you say that
some people would think of the $5 billion to $6 billion that the
tax cut cost as an expenditure, it is an expenditure.
If you've got $5 billion or
$6 billion and you have control over where it goes and you make a
decision not to put it into health care, education, social
services and environmental protection, all the things that in the
opinion of the NDP you should have put it into if you had $5
billion to $6 billion to spend, and you choose instead to put it
into an income tax cut that, on a dollar figure-let's not play
with percentages-benefits the very wealthy far more than it does
middle-income Ontarians and certainly a lot more than poor
Ontarians who don't have any income to tax, you've made a
decision to spend money there. That's an expenditure.
It's money that had you
spent elsewhere in the economy in terms of investing in our
infrastructures, and by that I mean schools, health, social
services, transportation, all the things that are huge indicators
as to whether or not we get investment, maybe the credit rating
that Ontario has on the world bond markets would have improved.
As it was, because you made that political decision to spend that
money on helping the very well-off more than taking care of
society's needs, as we have done traditionally and historically
throughout Ontario, we might have a better deal on those
international markets. As you know, it didn't budge the whole
time you were in power from when you took over from us.
I'm surprised to hear you
argue that a tax cut is not an expenditure. I believe even within
the ministry they use that term.
However, I want to come back to the issue of
students. Again, I haven't heard you talk clearly enough about
the kind of future that young people are going into. First of
all, many are choosing not to go on to university, because they
feel they can't afford it. They can't afford to take on the debt
they would have to as a result of rising tuition fees. Many who
do are looking at their future and saying, "I hear the Minister
of Finance telling me there are lots of full-time jobs," but a
lot of those full-time jobs are contract jobs. We have to
question what level of pay they are receiving. Is this enough
money for young people to say: "OK, I want to go out and build a
family, build a future. Is there enough security here? Can I get
more than a six-month employment contract? Am I going to get paid
enough that I can build a future as well as pay back the enormous
debt I've now incurred in terms of receiving my education? Are
the benefits there for me to support a family?"
I ask you again, Minister,
what kind of future are you offering to young people in terms of
what they see, especially when they realize that the unemployment
rate for young people is twice what it is for the other
demographic groups?
Hon Mr
Eves: First of all, going back to some of the earlier
comments you made with respect to personal income tax and revenue
from all forms of taxation in Ontario, in the third-quarter
finances that were tabled today, if you want to compare the
actual public accounts of the fiscal year 1998-99 and the
third-quarter finances that were tabled today, the difference is
about $600 million; $17.190 billion is the actual number
according to public accounts from the last fiscal year. The
current projected amount is $16.575 billion.
Having said that, we've had
this debate-at least, Mr Phillips and I have had this
debate-almost every year; and every year, if you go back, that
number goes up. The reason it goes up is because, first of all,
we don't know what personal income tax revenue we are going to
receive from the federal government. We won't know that until
after the end of the fiscal year.
The federal government does
not update its numbers every month or even every quarter to the
provinces. We're sort of, in some respects, flying a little bit
blind so we make a conservative, cautious estimate.
Second of all, you will
often find that money we receive this year could be attributed to
other fiscal years than it is. But we don't, can't and shouldn't
take that guesstimated money that we might get and that we
probably will get into account under a PSAAB basis of accounting.
The Provincial Auditor would shun that. Suffice it to say, and I
think it's fairly safe to say, that if we're sitting back here
next year that number for 1999-2000 will be greater than the
number for 1998-99, just as the number for 1998-99 was greater
than the year 1997-98 etc, and so it goes. Next fiscal year we'll
have money that will be attributed into this fiscal year, but we
can't take that into account until we know we actually have it.
It wouldn't be prudent for us to do so and the Provincial Auditor
would shun that very much.
With respect to the credit
rating of the province of Ontario and its cost of borrowing, I
would just like to remind members of the committee that the
credit rating doesn't determine entirely the rate at which you
can borrow money on the international marketplace. Since this
government has been in power, the average Ontario spread at which
we borrow money, over Canada's 10-year bonds, the average spread
for our term of office is 21.5 basis points more. During your
government's reign, the average borrowing cost, comparing Ontario
to Canada 10-year bonds, was 59.4 basis points higher, more than
double what we're borrowing at. During the Liberal government, Mr
Peterson's tenure, despite the fact that during most of their
tenure they had a AAA credit rating from most of the rating
agencies-with some they had a AA; with some they had a AAA-their
basis point borrowing cost average for their term of office was
43.8%. So who is borrowing money cheaper? We're borrowing at
24.5, your government borrowed at 59.4, and their government
borrowed at 43.8. What's better? What would you rather pay: 24
basis points, 59 or 60 basis points, or 44 basis points? I'd pick
the 24 if I'm the guy who is borrowing the money. If I'm the
person who is borrowing the money and I have to pay it back, I
want the lowest borrowing cost possible, not 59.4, not 43.8.
The people in New York can
say whatever they want. I know what the province of Ontario has
been borrowing money at on the international marketplace, and
it's a lot cheaper than your government or your government was
borrowing money at. They can call it a ZZZ credit rating if they
want. If I'm borrowing at one basis point, I'll be happy to be
called ZZZ. I don't lose any sleep over what some guy in New York
thinks; I just want to know what the province of Ontario can
borrow money at on the international marketplace. You may lose
sleep over what people in New York think; I don't.
With respect to students, I
think student enrolment is up in colleges and universities across
the province. That would not indicate that students are not
applying to go to college and university. This government
certainly has understood that this is an important area, and we
wouldn't be putting $742 million in capital infrastructure and
rebuilding in the college and university sector this year alone
if we didn't. I think that's going to be an ongoing problem in
the next few years and a challenge for any government, regardless
of political stripe, and I think we will continue to rise to the
challenge.
The Chair:
With that, Mr Christopherson, your time is up. On the government
side, Mr O'Toole.
Mr John O'Toole
(Durham): Thank you very much, Minister Eves, for the
third-quarter update. It has certainly been enlightening and
informative.
Minister, you went to some
extent to pay an extreme compliment to federal minister Martin
and his steady hand on the economy and I compliment that you went
out of your way to do that. I just wish he had such a steady hand
on Jane Stewart and John Manley. It seems he's had no-
Hon Mr
Eves: I'm not going to go there either.
Mr O'Toole: No. It's my own
particular interpretation of steady-handedness. Minister, I think
you're being far too humble. I really think you should take some
credit for showing the vision and leadership and the confidence
to show Mr Martin that really your theory and Premier Harris's
theory that tax cuts create jobs actually works. It's a new
economic theory, and I think you should be commended publicly
here for showing the good stewardship and confidence in the
longer term to steady it through the difficult challenges that
the opposition and third party have challenged you with this
morning. Again, I'm more than flattered to work with you.
I think if any longer-term
kind of example could be forced on Martin as they're considering
their budget, the comments you've made with respect to the EI
surplus, the regressive nature of that tax on jobs-the CPP really
is a tax on jobs.
I commend you and encourage
you, Minister, to keep the pressure on the federal government to
follow through on the theory that by reducing taxes-Minister,
again your understanding and your communication of it is so
excellent. The way you put it is that the federal government
thinks that tax cuts are a government expenditure. I think you've
summarized it. They aren't around the whole mindset yet that it's
the hard-working taxpayers' money. It's time we gave it back to
them.
I've gone overboard here in
complimenting, but you're the person at the helm, and Mr Martin
should be applauding you for your leadership.
Of a more specific nature,
Minister, as you know, my riding is Durham and I'm very proud to
serve that riding. You mentioned a couple of times in your
remarks this morning, and in your fiscal statement in November,
Durham College. I am aware of the $742 million that you and our
government have committed to post-secondary to meet the challenge
of the new millennium and the double cohort. When can I expect an
announcement for the expansion of Durham College, one of the
fastest-growing areas in this province? Can you let me in on that
this morning, Minister?
Hon Mr
Eves: I guess you'll have to ask Mrs Cunningham, the
Minister of Training, Colleges and Universities. It's my
understanding that she hopes to be ready to bring a proposal
forward, and bring the list of successful proponents forward with
respect to the $742 million fund this year, within the next
couple of weeks. But I will let her speak for herself with
respect to particulars.
Mr
O'Toole: I just want to thank you very much for your
comments this morning, Minister.
Mr Ted Arnott
(Waterloo-Wellington): I'd like to move the adjournment
of the committee until 2 o'clock this afternoon.
The Chair:
All those in favour of adjourning? Opposed? That carries. We're
now adjourned until 2.
The committee recessed
from 1143 to 1401.
MINISTRY OF FINANCE
The Chair:
I would like call the committee meeting back to order. We have
representatives from the Ministry of Finance.
First of all, I would like
each and every one of you to introduce yourselves and your
position. You don't have to give your ages. Your position will be
fine, and your name.
You have an hour, and at 58
minutes I'll place the gavel over here so that you'll have two
minutes to wrap it up.
Dr Bryne
Purchase: My name is Bryne Purchase. I'm the Deputy
Minister of Finance, a very young Deputy Minister of Finance for
my age, although I will admit that when I started this job I had
jet-black hair.
The Chair:
Just like me.
Dr
Purchase: I'll just introduce my colleagues sitting with
me here at the table.
We have four slide
presentations to make to the committee to give you a little bit
more detail to assist you in your deliberations with respect to
the 2000-01 Ontario budget.
To my immediate left is Mr
Philip Howell, who is the ADM and chief economist of the office
of economic policy. He'll make the first presentation on the
Ontario economy.
Following him will be Mr
Terry Hewak, director of the fiscal planning branch. He will
bring you up to date on third-quarter finances. Following that,
we'll ask two other gentlemen to join us at the table here: Mr
Tony Salerno is the vice-chair and CEO of the Ontario Financing
Authority. Mr Salerno will give you an update on our financing
plan. Mr David Lindsay, who is the president and CEO of the
Ontario SuperBuild Corp, will give you an update on the
SuperBuild activities.
Mr Chairman, those are the
four presenters of slide presentations for you. We'll be pleased
to answer whatever questions the committee members may have,
unless there are questions about our names and identities. We'll
perhaps turn now to Phil Howell to take the committee through our
slide presentation on the economy.
Mr Philip
Howell: Mr Chair, I'm pleased to have the opportunity to
address the committee.
Today the government
released the third-quarter Ontario Economic Accounts. I would
like to update you on the state of Ontario's economy based on the
new accounts and provide you with an economic backdrop to assist
you in your forthcoming hearings around the province.
Growth has strengthened
dramatically since 1995 and provides a sharp contrast to the
experience of the first half of the decade. The third-quarter
data provide further evidence of the current fundamental
strengths of the Ontario economy. They confirm that the 1999
economic and fiscal review estimate of 5% real gross domestic
product growth is on track.
Growth since the middle of
1995 has been broadly based, as the slide indicates. Ontario's
strong domestic demand-that is, consumer spending, business
investment, housing spending and government spending-has
accounted for almost four fifths of total real economic growth
over this period. Consumer spending has accounted for nearly half
of GDP growth, reflecting strong employment creation, rising
after-tax incomes and low interest rates. Business investment in
plants and equipment makes up nearly one quarter of the real
growth. Net exports account for just over one fifth.
The decline in the rate of
inventory change is also noteworthy. In addition to reflecting
strong demand over the period, it also points to dramatic
improvements in businesses' ability to manage-
Mr Galt: A
point of privilege: He's giving some beautiful information. Is
there a handout for us to follow? Is this in the package here
that I've missed?
Dr
Purchase: We'll ensure that each member has a hard
copy.
Mr Howell:
Mr Chair, if you would like to wait a moment, we could distribute
that.
The Chair:
I think you can probably proceed.
Mr Galt:
Go ahead. If there's one around, maybe they can be passed out.
Sorry to interrupt.
Mr Howell:
As I was mentioning about inventories, the decline over the
period also partly reflects the increasing ability of businesses
to manage inventories more carefully than was the case
historically.
The third-quarter data
released today show that real GDP grew 1.7% over the previous
quarter. More impressively, growth over the same quarter in 1998
was 7.1%, the largest gain in 11 years. The increase was broadly
based, supported by strong domestic spending as well as export
growth.
This slide shows the
quarterly growth pattern in Ontarians' consumer spending and
disposable income. Spending on goods and services rose 1.8% in
the third quarter, following strong gains in the first half of
the year. Since the end of 1998, consumer spending has risen at
its fastest three-quarter pace on record.
Healthy auto sales led the
way, a trend which continued into the fourth quarter of last
year. In fact, over the January-to-November period, unit auto
sales in Ontario increased 12.1% from 1998 and are on pace to
record the highest level of sales in a decade.
Solid personal disposable
income growth has supported this spending. In the third quarter
of 1999, after-tax income rose 1.4%, following gains of 1.3% in
quarter two and 0.9% in quarter one.
Prospects for continued
consumer spending growth remain favourable. Ontario's consumer
confidence, as measured by the Conference Board of Canada's
widely followed index, rose 6% in the fourth quarter of last
year, reaching its highest level in 11 years. Since the end of
1995, Ontario consumer confidence has increased 45.5% compared to
a 37.3% increase nationally. The recent surge in confidence in
Ontario reflects strong job markets and rising after-tax
incomes.
Real residential
construction activity continued to grow in the third quarter,
increasing 1.8%, following strong gains exceeding 7% in both of
the previous two quarters. Increased spending on renovations and
repairs led the gain in the third quarter.
More recent evidence points
to continued strength in the housing market. All area housing
starts grew by 6.8% in the fourth quarter. Ontario's housing
market was definitely very hot in 1999. For the year as a whole,
housing starts rose almost 25% to over 67,000 units, while home
resales increased 7.4% to a record level.
1410
The next slide shows the
strength of business investments in recent years. Non-residential
construction jumped 7.9% in the third quarter. For the year as a
whole, business outlays for non-residential projects expressed in
real terms are on pace to record the second-strongest annual gain
ever. The value of permits for industrial and commercial
structures rose nearly 14% in the first 11 months of 1999,
compared to the same period in 1998.
Machinery and equipment
investment declined 0.8% in the third quarter, after a 5.8% surge
in the second quarter of 1999. This may have reflected Y2K
factors: completion of Y2K preparedness in the case of many
businesses in the first half of last year and an unwillingness to
embark, prior to the end of 1999, on new projects that involved
computing equipment.
Soaring corporate profits
have been helping to finance the investment boom. Corporate
profits rose 10.4% in the third quarter, reaching $50.9 billion,
the highest level ever in Ontario. Profits as a share of GDP
climbed to 12.6%, which is the highest share in 20 years. The
gains have been most marked in manufacturing, wholesale and
retail trade and in the professional, scientific and technical
services industries. In addition to encouraging investment,
strong corporate profits are also a positive sign for future job
creation and labour income growth.
Not surprisingly, business
confidence is also rising. Although the Conference Board of
Canada's index of business confidence is not provided at the
provincial level, unlike their consumer confidence index, the
Canadian index recorded a 7.1% jump in the fourth quarter of
1999, moving close to an all-time record high. Healthy business
confidence reflects strong corporate profits, solid domestic and
foreign demand, firming commodity prices and attractive financing
conditions.
Trade, of course, is
critically important to Ontario's success. Behind the 20%
contribution of net exports to Ontario's growth since mid-1995 is
growth of gross exports of 43.1% and gross imports of 42.3% of
GDP. In the third quarter, a strong rebound in autos helped lift
total exports 2.6% after a slight decline in the second
quarter.
Export gains were
widespread, with notable advances not only in cars and auto
parts, but also in industrial machinery, telecommunications
equipment and computers. Export growth was more than double the
rise in imports, pushing the trade surplus up by $4.2 billion to
$39.5 billion in the quarter. The other side of the trade
equation is imports. Since 1995, import growth has roughly kept
pace with exports. Private sector forecasters expect export growth to
account for a smaller portion of Canada's and Ontario's economic
growth in 2000.
The next slide provides
some perspective on the structure of our exports by commodity
type. Auto products are Ontario's dominant export commodity,
accounting for over two fifths of the total 1998 exports. This is
about the same share as a decade earlier. However, the 11-month
data for 1999 show auto exports increased 28% over the same
period in 1998, suggesting the share may rise in 1999 once
full-year data are available.
Of note is the growth in
the share of various sorts of capital equipment exports, listed
on the left of the slide: industrial machinery, other machinery
and equipment, computers and telecommunications equipment. These
have grown from 20% of Ontario's exports in 1988 to over 25% in
1998. Exports of primary products declined from over 11% in 1988
to 7.7% in 1998. This partly reflects lower commodity prices, but
also underscores the reduced relative dependence of primary
exports as a source of growth for Ontario.
This slide demonstrates
Ontario's increasing trade integration with foreign countries,
mainly the US. The bars compare the imported input content of
Canadian exports for three key manufacturing industries in 1986
and 1996.
Little change has occurred
in the auto sector, reflecting the high degree of integration
already in place in 1986 stemming from the 1966 Auto Pact, which
established a free trade region for North American car
production. However, the other sectors are showing the impact of
NAFTA and the US free trade agreement. A similar trend has
occurred in almost all of the remaining top 20 Canadian
manufacturing export industries. The widely touted benefits to
Ontario from the Auto Pact integration may well be replicated in
other sectors in coming years.
I would now like to turn to
the economic performance of some major sectors. The composition
of sectoral growth since the second quarter of 1995 has been
broadly based. Manufacturing has accounted for over one third,
partly reflecting the strength of Ontario's competitive auto
sector. The share of wholesale and retail trade activity
corresponds to healthy consumer spending growth, mentioned
earlier.
Strong demands in both
Canada and the US fuelled a 6.4% surge in auto production in the
third quarter of 1999. The 1999 annual Ontario auto production of
nearly three million cars and trucks is a record level. As
mentioned earlier, Ontario auto sales are up 12.1% over the first
11 months of the year, on pace to hit the highest sales level in
10 years. Strong US car sales are also contributing to Ontario
production gains. In 1999, US auto sales were up 8.5%, reaching a
level of 16.8 million units.
Electrical equipment
manufacturing output grew strongly in the third quarter of 1999
as well, driven by computer manufacturing, which jumped over 20%.
The strong performance in the computer industry in 1999 was
partly caused by Y2K-related factors, but the strong upward trend
in recent years reflects the role of computer equipment in the
changing structure of the Ontario economy. Since 1996, the share
of computer production in total manufacturing output has risen
from 1.6% to 2.7% as of the third quarter in 1999.
Strong consumer demand
contributed to a 2.9% rise in retail trade activity in the third
quarter. Sales may have been boosted by the Eaton's liquidation
sale. Wholesale trade for the quarter was up 1.1%.
I would like to turn now to
look at Ontario's labour market to round out the overview of
economic performance. More recent data is available for the
labour market than for provincial accounts. The slide outlines
quarterly job creation performance in Ontario since the beginning
of 1995 and speaks for itself about Ontario's strong performance.
Quarterly job growth in the fourth quarter of 1999 for Ontario
was 70,000 jobs. For 1999 as a whole, the gain was 173,000 jobs,
following a record 200,000-job advance in 1998. The largest gains
occurred in manufacturing, up 63,000 in 1999, followed by
wholesale and retail trade, which registered 31,000 new jobs.
The unemployment rate was
5.6% in December, the lowest rate since the middle of 1990. For
the year, the jobless rate was 6.4%, down sharply from 7.2% in
1998.
The increase in full-time
employment is particularly significant. The fourth-quarter gain
of 70,000 jobs actually consisted of 83,000 new full-time jobs
and a decline of 13,000 part-time. The pattern for the years 1998
and 1999 is shown on the slide. The willingness of employers to
add full-time positions reflects business confidence in continued
economic growth in Ontario.
1420
The next slide provides a
picture of interest rates represented by the 10-year Canadian
government bond rate. Over the past year, rates have edged up.
However, long-term rates are well below levels in the 1995-97
period. While moderating growth, current interest rate levels are
nevertheless consistent with a continued healthy pace of
expansion.
The current view of private
sector forecasters is that Ontario's remarkable recent
performance will continue in 2000. In the economic and fiscal
outlook released at the end of last November, the range of
private sector forecasts for 2000 Ontario real GDP growth was 3%
to 3.7%. The consensus among private sector forecasters has since
moved to the upper end of that range. They expect that Ontario
will again outpace the rest of Canada and all other G7 countries.
Ontario's strong economic expansion will continue in 2000.
Mr
Phillips: Mr Chair, just a question.
The Chair:
Mr Phillips.
Mr
Phillips: I need your estimates of the future. I
appreciate this looking in the rear-view mirror, but this
committee is looking ahead at the medium-term fiscal outlook. I
assume that's coming, but what is of most importance to us, at
least our caucus, is your outlook on revenue, your outlook on the
future, your outlook on what sort of expenditures we've got over
the next two to three years. I was interested that you've
accepted the federal
government has its estimates over the next five years on
deficits, so if we can get at least a three-year estimate on
revenue-maybe it's coming, but I don't want to waste the next 40
minutes looking in the rear-view mirror.
Dr
Purchase: With respect to forecasts, we've presented
forecasts of the private sector for the economy. We do not have
revenue forecasts for beyond what you see in terms of
third-quarter finances.
Mr
Phillips: Really?
Dr
Purchase: That's correct. With respect to your question,
Mr Phillips, the government has not in the past, as you know,
produced multi-year forecasts. You might have asked that question
of the minister this morning.
Mr
Phillips: I assumed you were answering my questions this
morning. He said I will get answers to my questions, and my
questions were-
Dr
Purchase: If I can recall, your question was with
respect to the federal government multi-year forecast?
Mr
Phillips: No. He said we'd be answering the questions
that I gave you a week ago.
Dr
Purchase: That's correct.
Mr
Phillips: My questions that I gave you a week ago, he
said, "We will provide answers this afternoon." They include
revenue forecasts, so I assumed we would be getting revenue
forecasts this afternoon.
Dr
Purchase: Mr Chair, do you want me to respond now to Mr
Phillips's questions or do you want-
The Chair:
How long a reply is that going to be?
Dr
Purchase: I'm just trying to get the specific question
that I believe he's referring to in front of me-
The Chair:
OK.
Dr
Purchase: -for which we have written answers, and we'll
table them.
Mr
Phillips: In your presentation, you're not providing us
with any outlook? This is all looking back, and you don't have
your-
Dr
Purchase: We're providing you with an update on the
economy and the latest forecast of the private sector.
Mr
Phillips: One number from the private sector?
The Chair:
I won't entertain discussion across the floor. I think we'll go
to the following presenter, and we can come back to your question
during the question period.
Mr
Phillips: The minister said I would get answers to my
questions. If they're not forthcoming, then I want to know
why.
The Chair:
Who is the next presenter for the Ministry of Finance?
Dr
Purchase: Mr Terry Hewak, who is the director of fiscal
planning, will bring you up to date on third-quarter
finances.
Mr Terry
Hewak: What I would like to do, if you haven't had the
benefit of actually looking at the Ontario finances that were
released this morning, is just take you through that very quickly
and also highlight some of the key changes that have happened
this quarter and over the period since the tabling of the
budget.
Turning to the first slide,
as the minister mentioned this morning, the province is on track
to basically eliminate its deficit and balance by next year. This
year, we're on track right now to overachieve on the deficit
target for the fifth straight year in a row. In 1999-2000, the
deficit at $1 billion is a full $1.1 billion lower than the 1999
budget forecast of $2.1 billion, and it's a full $1.6 billion
lower than the original balanced budget target of $2.6 billion
that was set for this year. You can see that we also have
overachieved in each of the preceding years prior to that by
quite a considerable margin. It reflects the government's prudent
fiscal planning approach to its finances.
We turn to the next slide.
This provides a summary of basically the fiscal framework for the
province, its revenues, expenditures and deficit for last year,
and then there's the comparison between the actual budget plan
that was tabled in May versus the most recent update, the third
quarter, which was released this morning. Then there's the
in-year change, the change since budget. Looking at that table,
you can see in the lower right-hand corner that the deficit this
year at $1.001 billion is down $1.075 billion from the
original budget plan that was tabled in May. It's actually
$25 million lower than the second-quarter results that were
released several months ago.
Our current revenue outlook
at $59.835 billion is up about $1.7 billion from the 1999 budget
projection. That's up $745 million from the level that was
reported at second-quarter Ontario finances.
I'll get into the details
in a moment, but as we'll see, the revenue increases are mainly
due to higher tax revenue as a result of the strength of the
Ontario economy and because of increased federal transfers under
the recently signed Canada-Ontario social housing agreement. The
province's spending, you can see on the chart, at $60.836 billion
is up about $1.1 billion from the budget plan and about $720
million from the second-quarter finances. This increase in
spending is mainly to accommodate priority needs, with increased
funding for hospitals, education, training, child welfare and,
again, to accommodate the recently signed Canada-Ontario social
housing agreement.
Looking at the second line
from the bottom, you'll notice that the $500-million reserve that
was actually included in the budget plan was applied to deficit
reduction in the last quarter, second-quarter Ontario finances.
Based on the improved revenue outlook that we've been
experiencing this year in Ontario's strong economic performance,
reserve was eliminated at that time.
You'll recall that the 1999
budget plan included this $500-million reserve, primarily on the
recommendation of the Ontario Financial Review Commission that
was set up several years ago that a reserve be put into the
fiscal plan to basically protect it against unexpected and
adverse changes in the economic and fiscal outlook.
This reserve is equivalent
to the revenue impact of a 1% reduction in real GDP growth, about
a 4% decline in retail
sales tax and about a 6% decline in corporations tax revenue.
Turning to the next slide,
this particular chart just basically shows you the changes in
revenue that have occurred this year, both the changes that have
occurred this quarter, or basically the change from second
quarter, and then it also shows you the cumulative change for
each of these revenue components since budget. If you look at the
bottom line, you can see that total revenue is up $745 million
this quarter and it's up about $1.7 billion from the original
budget projection.
1430
In terms of some of the key
changes that have happened on the revenue side, you can see that
personal income tax is $905 million higher than the original
budget forecast, and this quarter it's been increased $500
million, based on preliminary information from the federal
government, on the processing of Ontario personal income tax
returns.
Retail sales tax: There's
no change being reported this quarter. However, there has been a
$350-million increase reported in previous quarters, and this
largely reflects the strength of business and consumer spending
in Ontario in 1999.
Employer health tax: It's
up $50 million this quarter and from the budget projection. This
is largely the result of employment and income growth in Ontario
in 1999.
Land transfer tax: There's
no change this quarter. However, we have reported adjustments in
previous quarters of $60 million from the budget, and this
largely reflects the strength of the housing market in
Ontario.
Government of Canada
transfer payments: Federal transfers are up a net $194 million in
this quarter, and this is mainly due to a $264-million increase
in revenues from the recently signed Canada-Ontario social
housing agreement. The increase was partially offset by a
$70-million decrease in the Canada health and social transfer
payments due to the effect of higher income tax revenues in the
CHST allocation formula overall, since budget federal transfers
are up $316 million in total.
Other revenue: It's up a
marginal $1 million in this quarter and a total of $4 million
from budget, and this is mainly as a result of OPP policing
service contracts.
Turning to the next line,
looking at the operating side, with changes this quarter and
changes since budget, the province's net operating expenditure is
up $734 million this quarter and it's up $1.63 billion from
the original 1999 budget plan.
In terms of some of the key
changes that have taken place this quarter, there is the public
service OPSEU pension plan. This quarter we are reporting a
$200-million in-year increase in the public service OPSEU pension
plan expenditure, which mainly reflects the impact on provincial
expenditure of OPSEU's decision to use its members' share of
actuarial gains in the pension plan for benefit enhancements and
a contribution holiday. So under PSPP we've had to recognize this
adjustment.
On the hospital side, you
will recall in December there was a $196-million increase in
additional funding for hospitals announced for front-line patient
care and to assist hospitals with transitional issues, which
we're currently reflecting this quarter.
There's a $196-million
increase being reported for the recently signed Canada-Ontario
social housing agreement, which is fully offset by federal
revenues. The new agreement was signed in November and combines
numerous existing agreements with the federal government into
one.
This quarter we're also
reporting an additional $106 million for child welfare. This
is primarily to address volume pressures by the children's aid
societies as well as additional transitional costs associated
with child welfare reform.
There is also a $54-million
one-time assistance to municipalities being reported this quarter
for business education property tax refunds and administration
costs under the Fairness for Property Taxpayers Act.
In terms of forest
firefighting, there is now $10 million in savings being reported
for forest firefighting, for a total change of $64 million since
budget. The overall inyear increase in spending for forest
firefighting was basically caused by higher-than-average fire
activity.
In terms of other changes
that had been reported, not necessarily this quarter but in
previous quarters, there's an additional $107 million provided
for the Canadian Millennium Scholarships. I believe this was in
second-quarter Ontario finances, and it was fully offset by
increased transfers by the federal government. We also have put
in a $100-million provision in the second quarter for
restructuring in other charges. This is in recognition of the
extent of restructuring that has taken place in the province. We
put in a $100-million provision. The details will be reported as
the government makes further restructuring decisions over the
course of the year.
There's also a spending
increase of $47 million that has taken place since budget. This
is due to increased training costs for employment insurance
clients. Again, this expenditure was also fully offset by federal
transfers.
The last adjustment that
you see is public debt interest. It's down about $40 million from
the last quarter, and a total of $70 million since the original
budget. The most recent $40 million that we're reporting in this
quarter is primarily due to lower financing requirements than
projected at the time of the budget.
Turning to my slides, on
the capital side you can see that overall our capital
expenditures are down about $14 million this quarter, and up
a total of $47 million from the original budget plan.
In terms of some of the key
changes, there's a $57-million increase which we reported last
quarter for water bombers, for the planned acquisition of four
remaining forest firefighting water bombers. In terms of changes
this quarter, there are some minor savings or changes as a result
on the capital side. First of all, for courthouse construction
there have been some delays in various courts capital projects,
and this has resulted in savings of about $6 million. Under the
community infrastructure program, there are savings of about
$4 million there due to slower-than-anticipated completion of a
variety of northern community infrastructure projects, including
community facilities and water and sewer projects.
Overall, just to put things
into context, because of the control on spending and the
reductions in taxes to promote economic growth that have been put
in place, the government has made significant progress in
reducing its deficit. You can see from this chart that last year
the provincial deficit has dropped below 1% of GDP for the first
time this decade. This year the deficit is projected to fall to
about 0.3% of GDP.
Mr
Phillips: Have you got one future number in there?
Mr Hewak:
We'll get to that later on.
The Chair:
We'll continue with the presentation from the ministry.
Dr
Purchase: Mr Chairman, this is Mr Tony Salerno, who is
the vice-chair and CEO of the Ontario Financing Authority.
The Chair:
Welcome.
Mr Tony
Salerno: Thank you and good afternoon. I'm pleased to
provide the committee with an update on the province's borrowing
and debt management program. Because of a stronger economy
leading to higher revenues, we have been able to reduce the
province's financing requirements in this third quarter from the
$11.3-billion forecast in the budget plan to $9.1 billion, a
reduction of over $2.2 billion in total financing
requirements.
With a deficit of only $1
billion, refinancing the maturing debt of $8.1 billion has been
the focus of the 1999-2000 borrowing program. Total long-term
public borrowing for 1999-2000 is forecast at $7.6 billion,
$1 billion lower than the budget forecast. As of January 26,
2000, the province had completed $7.4 billion of its planned
long-term public borrowing, leaving just $276 million to be
completed between now and the end of this fiscal year.
1440
The province issues were
well received by investors. This is in spite of increased
negative sentiments in both domestic and international capital
markets.
I'd like to describe to the
committee how we approached the financing markets so far this
fiscal year. The Ontario Financing Authority takes a flexible and
pragmatic approach to borrowing. Flexibility allows the OFA to
take advantage of cost-effective financing opportunities, which
is particularly important during periods of financial market
volatilities.
A number of factors are
taken into consideration in approaching the markets. First of
all, we monitor international capital markets closely to ensure
optimum timing of the launching of new bond issues. While the
Canadian dollar market is the primary source of financing for the
province's long-term borrowing, we will borrow in any major
capital market where and when it is cost-effective for the
province-I often say we're equal opportunity borrowers when I do
my investment road shows-our key objective, our primary
objective, being that as long as the money is derived by legal
means and we can bring it to the province in a cost-effective
manner, we will go out there and pursue that borrowing for the
province.
Mr
Christopherson: That's a relief. I thought he was
borrowing it from Vinnie down on the corner.
Mr
Salerno: No, it's got to be legal. Absolutely.
We aim for a smooth
debt-maturity profile for the province, to diversify the interest
rate risk for the financing of maturities and floating rate debt.
We also structure our debt products to meet the particular needs
of investors and to meet our borrowing requirements, again in a
most cost-effective manner.
As you see from the chart
in front of you, the vast majority of the province's borrowing
for this fiscal year has been in the Canadian dollar market.
Examples of Canadian dollar borrowings include just over $2
billion from Canadian domestic issues, another $855 million from
medium-term notes, $247 million from a Euro-Canadian issue, and
$499 million from a floating-rate Canadian global bond issue. We
also raised more than $2 billion from this year's very
successful Ontario savings bond campaign-another record year.
As also indicated in the
chart, the most favourable foreign currency for the province this
year has been the Japanese yen, where the province raised the
Canadian equivalent of $667 million.
The OFA manages the
province's debt and liquid reserves prudently and
cost-effectively. Annual borrowing and risk management plans are
prepared by the Ontario Financing Authority. Key factors taken
into consideration are the economic assumptions behind the fiscal
projections, interest rate forecasts, foreign exchange forecasts,
target rates for floating interest rate exposure, target rates
for foreign exchange exposure, and contingency plans for
forecasting errors.
We strive to be at the
forefront of debt portfolio management and performance
measurements. The cost-effectiveness of borrowing, debt
management and investment activities are measured daily against
benchmarks approved by the OFA's board of directors. This ensures
that management is aware of any financial market volatilities and
obtains the necessary background intelligence to take immediate
actions.
As you can see from the
slide, we are well within our exposure limits for both foreign
exchange and interest rate exposures. With the government's
commitment to balancing the budget and debt reduction, the OFA
will be funding primarily for maturing debt in the future.
Dr
Purchase: I now introduce Mr David Lindsay, the
president and chief executive officer of the Ontario SuperBuild
Corp, to make a presentation.
Mr David
Lindsay: Good afternoon. Thank you for the opportunity
to present to you this afternoon. I should make it clear that we
also, like the OFA, make sure all our transactions are legal.
SuperBuild follows through on a commitment of
the government in the 1999 provincial election campaign, and that
was a commitment to start thinking in a more long-term, strategic
fashion about the capital planning and investments for the
province. Earlier, in the last mandate of the government, we had
a report commissioned under the Ontario Jobs and Investment Board
that drew on the experience of investors and players in the
economy from across the province, and it drew attention to the
infrastructure deficit as one of the challenges we had for
Ontario's economy. The potential economic costs of failing to
keep pace with our growth pressures and our capital investments
are impeding our abilities to compete with jurisdictions close
and far.
During the last provincial
election campaign the government called for a more consolidated
capital program in the Ontario government by more closely
integrating the capital planning activities that at that time
were scattered across 15 different ministries of the government.
The government cited roads and hospitals, schools, and technology
links as the key targets for the SuperBuild investment
program.
The province proposed
government investment in SuperBuild of $10 billion over the next
five years, and we've been challenged to seek an additional, at
minimum, $10 billion from the private sector partners and our
transfer partners to create innovative financing and private
sector partnerships.
The SuperBuild initiative
was confirmed in the spring budget by Finance Minister Eves and
the provincial capital budget was essentially rolled into the
SuperBuild program starting this fall. Of the $10-billion,
five-year commitment, the government has allocated
$2.9 billion for this first fiscal year of the program.
The budget re-emphasized
the key SuperBuild themes: Capital would be more strategic by
focusing on the investments that are important to Ontario's
economic prosperity and growth; partnerships were key to
leveraging the government's initial investment and seeking
additional partners and contributions; and partnerships would
include both private sector and all public sector partners to
achieve our goal of economic growth through infrastructure
investment.
The government's
$2.9-billion investment for this year is well underway, and the
chart in front of you breaks down where those numbers have been
allocated. About three quarters of this year's SuperBuild
investment is focused on three priorities: highways, at $936
million; post-secondary education, at $742 million; and our
health care sector, at over $504 million.
Some of the highlights
embedded in those programs include our strategic highways
corridors-investing in Highways 401, 409, 410, 417, 8, 69 and 17.
Investment in highway rehabilitation is designed to bring 90% of
the provincial network to its optimal state of repair by the end
of the next fiscal year.
About $660 million of the
$742 million allocated for the post-secondary system will target
additional spaces for the echo boom generation coming through in
our colleges and universities system.
In addition, with the new
economy, thinking to the future, science and technology
investments will also be a focus of SuperBuild and the provincial
government.
The biotechnology
commercialization fund was $20 million for business
incubation centres in this new and growing part of our economy.
The optical Internet R&D network is also a significant
investment. The next generation of optical Internet has 1,000
times greater capacity compared to our existing Internet
capabilities, and that will position Ontario for the new
e-commerce industry and businesses that we are facing.
The Ontario SuperBuild Corp
was established to lead and operationalize the SuperBuild
initiatives on behalf of the government. SuperBuild is
responsible for providing capital policy advice to the new
cabinet committee on privatization and SuperBuild; providing
leadership across the Ontario government for capital planning;
making recommendations on partnerships and innovative financing
proposals that originate both from within the government, across
the various ministries, as well as from external advice and
suggestions we receive; working and sharing information with the
province's private sector and the broader public sector transfer
partners so that we can collectively raise the ability to attract
new partnerships, invest in new infrastructure; managing our
existing asset responsibilities more effectively. It is also
responsible for pursuing the government's privatization and
commercialization objectives.
1450
The last two
responsibilities that we have are to provide opportunities for
stakeholders, experts and citizens to input their ideas and their
proposals on provincial capital priorities, as well as
partnerships for new and creative financial solutions, and
finally, to report publicly on the province's current and
long-term infrastructure priorities, the projects funded by
SuperBuild, the partnership and financing approaches being
pursued and the economic benefits that we hope to trigger as a
result of our efforts.
As I indicated earlier, the
investments in SuperBuild are well underway for this fiscal year.
We are also making progress in implementing the necessary reforms
internally so that our capital decision-making processes are
refined and improved.
The cabinet committee has
been up and running since November. For the first time we have a
cabinet committee in Ontario dedicated specifically to
infrastructure and capital investment decision-making.
I took on the position of
president and CEO in December of this year. I have now been on
the job for, I think, about 39 days. We have a small secretariat
we're starting to put together. We have been given an allocation
of up to 25 professional staff who will help lead the capital
planning process, provide advice to the cabinet committee as well
as to the line ministries, and help evaluate and negotiate
partnerships and financial proposals.
We expect to announce the first series of
sector-based consultations or round tables in the coming weeks as
part of our commitment to engage both internal and external
advisers and experts and stakeholders in our partnership program.
The pre-budget consultation hearings that will be led by the
minister will also provide us with additional input into the
capital investment priorities across the province and what should
be considered for the 2000 budget.
We see an opportunity to
develop a strategic coordination across Ontario, coordinating
Ontario proposals in response to the possible
federal-provincial-municipal infrastructure program, as well as
other creative initiatives, to improve and enhance our
infrastructure in Ontario. We'll be aiming for a head start on
next year's capital planning, and the cabinet committee will
coordinate that throughout this fiscal cycle in preparation for
next year.
That concludes my
presentation.
The Chair:
Each caucus will have 20 minutes for questions and comments. We
will start with Mr Christopherson.
Mr
Phillips: Just before we get started, can I have the
answers to my questions so I can look at them while we're
proceeding here?
Dr
Purchase: Yes, sure. I'm sorry, Mr Phillips, we're still
making a few changes to them, but they'll be available to you
shortly.
Mr
Phillips: What do you mean, "shortly"? In five
minutes?
Dr
Purchase: Yes, a few minutes. Before you finish your
questioning.
Mr
Phillips: I'd like them before I start.
Dr
Purchase: I appreciate that. We were planning to give
them to you in written form. The minister answered several of
your questions this morning and we anticipated being able to
answer them again verbally now, and we were-
Mr
Phillips: I'm sorry. But you said the answers were
available to me in written form this morning.
Dr
Purchase: Yes, and they are being prepared in written
form and will be available to you as soon as we can get them to
you. Quite frankly, they were updated in response to some of your
morning questions. That's all. That's why they're not
available.
Mr
Phillips: Just give me the ones you've got.
Dr
Purchase: We've just gone out to try and do that.
The Chair:
OK. Mr Christopherson, you've got 20 minutes.
Mr
Christopherson: Thank you for the presentation. I
remember some of you from what I refer to as the good old days. I
won't damage anybody's career by mentioning any names, but it's
good to see some of you again.
A number of questions in no
particular order: You talk a lot about the increase in consumer
confidence and consumer demand-consumer confidence bursting
through the ceiling, actually, if we look at the chart you
provide. I wanted to ask about corresponding figures that start
to expand the picture. When we look on page 24 of one of your
handouts, the bottom line-a favourite place for economists to go
to-"Personal Savings," the numbers start in calendar year 1992
and they show a personal savings rate of 16.9%. If we go to page
25, second quarter in 1995 when the new government took over, the
personal savings rate was at 10%. It has continued to drop every
year through to current, where we're now at 3.2%. So while
consumer confidence is booming and people are spending, it would
seem that they're spending money they don't have.
I do my best not to make
these political partisan questions. If you feel they are, I'm
sure you'll jump and use that as your first line. However, could
I ask you what potential concerns you think we ought to be
concerned about, given that 3.2% and the possibility that some
economic booms just don't last forever?
Dr
Purchase: I'll begin, and then maybe Mr Howell will add
to my answer. I think that first of all this is a general
phenomenon. This is not something that is unique to Ontario; it's
Canada-wide. You can also observe it in US statistics. In the
United States, personal savings rates have gone to extremely low
levels by historical standards. These are a bit misleading. What
has happened is that because there has been a substantial
increase in household wealth as a result of stock market
gains-
Mr
Christopherson: Paper wealth.
Dr
Purchase: Well, it's all paper wealth in one sense, I
suppose, but as a result of stock market gains, people either
participating directly or through their pension plans and stock
markets, that has encouraged them, and they simply don't have to
save as much out of their current income.
Mr
Christopherson: I understand.
Dr
Purchase: That's one thing that accounts for the current
decline in savings rates. The other is simply the general
confidence that people have in this expansion. But you wanted me
to address the question of what-
Mr
Christopherson: I didn't need an explanation of why it
was happening. My question really was, what is the potential for
problems here in terms of what this number means?
Dr
Purchase: If I could make one other relevant point
before I move on to what it means: At the same time that you have
personal savings rates declining, you also have, of course, the
government sector closing in now and becoming a net saver, and
not a dis-saver any more, since the deficits have been eliminated
at the federal level and are about to be eliminated in Ontario,
and a number of other provinces have reached that stage already.
While you've got a decline in household savings, eventually
you're going to get an increase in government savings. So there's
a bit of a reversal of what you would have seen in that earlier
period you were talking about, where we had very high dis-savings
by governments and substantial net savings by individuals. There
is a bit of a balancing effect in these things that offsets any
future concern you might have. If everyone were dis-saving all at
the same time, if both governments and individuals were
dramatically reducing their saving or increasing their dis-saving, if you like,
then I think we would have a great deal more concern, if you
listen to the private forecasters in Canada or the United States
on this, than anyone currently has: What does this mean about the
future? Does this mean we're more vulnerable to an economic
slowdown?
1500
For individuals, if there
were an economic slowdown or if something were to happen to the
stock market, then I think we would anticipate that you'll get a
jump up in the savings rates, so there will be some restoration,
or a move back if you like, to what we experienced in the 1980s
and early 1990s in terms of high personal savings rates.
But those high savings
rates, again, reflected the environment that people lived in and
the anxieties they had at that time. These current lower savings
rates reflect similarly, in my view, a great deal more confidence
in the environment they live in and presumably confidence in the
future as well.
Mr
Christopherson: I agree, and that's why I linked the two
when I asked the question, because obviously they are tied. I
have to tell you I'm not as convinced that the average
person-there may be others who can offset losses in mutual funds
through discretionary income, but the vast majority of Ontarians
don't have that kind of money, and they're planning that their
job is going to continue, that the economy will continue, that
their RRSP portfolio will continue to have the kind of assets
they're looking for when they retire, and should they lose their
job unexpectedly as a result of a downturn in the economy, I'm
not so sure that it's as simple as sitting down one night at the
kitchen table and saying, "Oh, well, we'd better jack up our
personal savings rate to offset the fact that we just blew our
retirement fund out the window."
Mr Howell:
If I could just add to that answer, another important factor in
looking at it is the capacity of consumers to service any debt
that they're using to finance those purchases, and in fact the
debt servicing capacity of consumers is higher today than it was
in 1996. In other words, basically because interest rates have
come down, consumers are able to carry the cost of the debt
associated with that consumption.
While it's true that people
are talking about inflation perhaps edging up a little bit next
year, there really aren't any forecasters around who are
predicting a significant spike in inflation, which suggests that
it's unlikely interest rates are going to increase significantly
over the foreseeable future. I think that's probably a huge part
of what's driving the consumer confidence in that people don't
expect that.
Mr
Christopherson: Unlike all the experts who were
predicting the 1987 fiasco.
If we can turn to Ontario
Finances, the quarterly update, the last printed page, page 11,
the heading is "Statement of Financial Transactions," the second
line item, cash timing adjustments. The budget plan was to spend
almost $3.2 billion; $2.2 billion of that is not going to be
spent. Can you tell me why and what is not happening out there
that was planned to have happen when the budget was produced?
Mr Hewak:
The cash timing adjustments are essentially differences-the
simplest way to think of it is that they are literally accrues,
the difference between the cash line and the PSAAB line. What is
typically in there is-for example, the biggest accruals we have
are related to restructuring. That's about $1 billion right
there. These are expenses we have booked. We have already booked
them in the past and taken them into account and recognized them
in our books, but the cash may not have flowed yet or, if it has
flowed, then we have to reverse that at this point.
Mr
Christopherson: Because of what has been spent?
Mr Hewak:
Because we've already taken that into account officially in the
books. So when you're going between PSAAB and cash, you
potentially double-
Mr
Christopherson: Just so I can be clear, does that happen
regardless of the activity in the economy in terms of either
building something or providing a service? Would that have
happened no matter what?
Mr Hewak:
In the case of restructuring charges, you have to back it out
because you have expensed it previously.
Mr
Christopherson: But the money has gone?
Mr Hewak:
That's right. The cash hasn't gone.
Mr
Christopherson: OK. But my question is, what didn't
happen out there? What didn't happen in our communities but was
planned to happen in the budget?
Dr
Purchase: What happens under PSAAB is that when we make
a decision, we book the money. What actually happens to the money
is a different story. In other words, when the cash actually
flows is a different story. We book the money all right, but the
cash doesn't always flow when we believe it will flow. Therefore
we have these cash timing adjustments, which have an impact on
the Ontario Financing Authority because they deal in real money
and we deal in accounting, if you like.
Mr
Christopherson: I want to deal with real communities. I
want to know what didn't happen out there that was supposed
to.
Mr Hewak:
I think the biggest change was related to the school board
loans.
Mr
Christopherson: Are there hospital wings that didn't get
built? Are there schools that didn't get built? Are there
individuals who weren't hired to provide services? Is there
something else that I'm not thinking of?
Dr
Purchase: The only things that don't happen, if you
like, are things where there would be a natural delay. There's
nothing in terms of a policy delay. There may be delays in
construction related simply to problems getting it going or
strikes or delays of that kind, but there are no delays that
emanate from us, if you like. There are more natural delays in
terms of-
Mr
Christopherson: I realize that. It was the natural
delays that I was trying to get at, but I'm having difficulty. I
understand that you are dealing purely with the dollars. I wasn't looking for
a policy change. It's just that this isn't an insignificant
amount of money. It's not $100 million or $200 million-I
can't believe I'm saying these things-out of a $50-billion
economy. We're talking about $2.2 billion of money that didn't
need to flow or have to flow or didn't flow. I was just trying to
get a sense-and I may not be able to get it-of exactly what did
not happen that the budget had planned would happen in our
province to the tune of $2.2 billion.
Dr
Purchase: Tony, do you have anything you can add to the
explanation here?
Mr
Salerno: No, I think that in terms of the accounting
explanation, it's purely that. In terms of the funding we are
doing-we deal in cash-at the time of the budget because of a
reconciliation of the PSAAB versus cash, we booked almost $3.2
billion.
Some of these things could
be repayments from municipalities or school boards. As you may
recall, there were some flows that went to school boards that
were repaid in this year. So some of that, which may not have
been booked at the time of the budget, happened. I don't have a
list of all the various ins and outs in those various
transactions that could have happened, but right now the estimate
is for $2 billion less in terms of the cash impact, in terms of
that reconciliation. It may not be actual buildings, as you are
suggesting. Maybe it was roads. If it was roads that were booked
as happening two or three years ago and these things have been
delayed and are not happening, the actual cash flow isn't
happening. But it may be just accounting reconciliation.
1510
Mr
Christopherson: OK, thank you. Maybe, Deputy Minister,
if you can get back to me, because I only have 20 minutes, I'll
move on. If you could perhaps get back to me with that
undertaking, I'd accept that at this stage.
Mr
Salerno: Yes.
Mr
Christopherson: Again, it's the significance of the
figure. I understand that there is always movement back and
forth, but $2.2 billion is a lot of money out of a budget where
you're announcing to take some action.
Mr
Salerno: Absolutely.
Mr
Christopherson: If I could, Mr Lindsay: The
SuperBuild-and I'm doing something now that we and lawyers should
never do, which is to ask a question we don't already know the
answer to, but I'm going to. How much of that $10 billion would
already have been spent, given the fact that you've assumed, as I
understand it, all of the expenditures across government for
capital expenditures? You've rationalized all of that into one
entity, so therefore all of those existing capital budgets would
also be collapsed into and form part of the SuperBuild. Can you
tell me how much of the $10 billion would be existing capital
expenditures that were already planned anyway, that would be
planned by the line ministries?
Mr
Lindsay: In last year's budget, the number for the
rollout for the next year was $1.7 billion, so that's only as far
as last year's budget predicted into the future. It was decided
in another forum by our political masters that they wanted to
stabilize the capital commitment, so they said $2 billion a year
over the next five years.
I think part of the
realization on the part of the government was that capital
planning had not been over a long, extended period of time.
Individual engineering studies were being commissioned and
individual decisions were being made ministry by ministry, but in
terms of pulling together the capital decision-making of the
government, it hadn't been done in an organized fashion. This was
the first attempt to do that. The only explicit prediction for
capital expenditures on the part of the province of Ontario for
next year was $1.7 billion.
Mr
Christopherson: So it's $2 billion each over five years,
just so I've got my numbers right.
Mr
Lindsay: Yes.
Mr
Christopherson: And out of that $2 billion, how much is
money that was already on the books by line ministries? Would you
say it was $1.2 billion?
Mr
Lindsay: The answer I gave was $1.7 billion. It was in
last spring's budget for next fiscal year.
Mr
Christopherson: It's $1.7 billion; so for the
contribution next year there's really only $300 million of new
money. The rest of it would have been spent if you'd done
nothing. If you hadn't created SuperBuild, $1.7 billion would
have been spent regardless by line ministries. It's just that you
folded it all up and feel you have a neater way of doing all
this, but it's only about $300 million of new money.
Mr
Lindsay: If you follow that math, Mr Christopherson,
then it was expected that we would spend $2 billion this year and
the government is now spending $2.9 billion, so we've found $900
million this year that the SuperBuild commitment didn't expect. I
think you could play with numbers.
Mr
Christopherson: I wasn't trying to. I was just trying to
get a sense of how much of this is really new money.
Mr
Lindsay: It's a new concept and a new way of
strategically planning our capital. In terms of new money, the
real challenge and excitement for SuperBuild is to find the
private sector partners and our transfer partners, so that would
be $10 billion of new-found money coming from the private sector
over the next five years.
Mr
Christopherson: Hopefully there'll be better deals than
the 407, because a lot of us weren't thrilled with the final sale
there, but I appreciate your response.
You talked about the number
of full-time jobs that have been created in the economy, and
they're noted as being full-time. My question, I guess to the
deputy: Do you have the breakdown as to what percentage of those
jobs are permanent, how many of them might be contractual, and is
there any sense of where they fit on the income scale in terms
of, are these jobs paying relatively the same amount as full-time
jobs five years previously or not, in terms of how you define
full-time job?
Dr
Purchase: I'm going to have to ask Mr Howell what the
definition of a full-time job is.
Mr Howell: OK. In response to
that question, the labour force survey is designed to inquire
whether people are employed and whether it is full-time.
Part-time, I believe, is less than 20 hours a week. But it
doesn't ask questions around what salary people are earning, what
wages they're earning in those jobs. It's really a survey that's
designed to capture the overall movement and employment trend in
the economy.
Mr
Christopherson: If you're correct in terms of the 20
hours-and I accept that it may be a little different if somebody
checked the details-as much as that is so, it's fair to say that
even though the chart shows all these full-time jobs, for some
people it takes two of those jobs to create one regular full-time
job in terms of what people will usually look at.
Mr Howell:
The vast majority of employment that is being created is in what
I think you are calling regular full-time jobs, and reflects the
kind of hiring we have seen and the growth in manufacturing
industries, for example, where typically it's going to be
somewhere in the 36- to 40-hour-week range.
I think the significance of
the numbers is the fact that over the past few years what's been
happening is that the part-time component of net job creation has
been declining while the full-time component has been increasing,
when you look at each month's net creation.
Mr
Christopherson: If I find a job at 25 hours a week for
six months, I would be in your chart as full-time. The reality is
that a lot of people would consider 25 hours a week for six
months to be part-time. But because by definition you cross the
threshold, it pops up on your chart. I'm not saying it's the vast
majority; I'm just saying it is quite plausible that X number of
those jobs are in the category where they fit a technical
definition of full-time, but in terms of what the average working
person might think of as full-time, it's not really there.
Mr Howell:
Subject to checking the precise terms-
Mr
Christopherson: You will provide that to me?
Mr Howell:
-I would say that if you look at trends in income and
other indicators, which also have been going up over the most
recent couple of years, the two jibe.
Mr
Christopherson: Can you tell me what stats you base that
on? That certainly is a different conclusion from others who have
looked at the StatsCan numbers. Can you tell me what baseline of
information you are using when you say that, overall, after-tax
incomes are actually going up after they are
inflation-adjusted?
Mr Howell:
Statistics Canada national accounts and provincial accounts
data-there is a disposable income line in those accounts.
The Chair:
You have exhausted your time. We'll go to the government side and
start with Mr Galt.
Mr Galt:
Just three short questions to Mr Purchase: The first relates to
your slide on page 3, showing sources of economic growth. We hear
an awful lot about, "It's just because we're lucky with exports
and because of the dollar," and a lot of other songs and dances
that it's somebody else and not what the Ontario government is
doing. Yet on this chart I see consumption at 47.5% and net
exports less than half of that. You hear so much from the other
side that you almost start to believe them after a while because
you hear it so often. But from this it's obvious that it's
consumption that is driving our growth. Your comments on
this?
Dr
Purchase: In the early stages of this recovery, there is
no question that the US was more important than this net number
will show. But as time has gone on, the domestic economy has
simply become more powerful and more a part of the growth pattern
we are seeing.
Everyone says there is a
tremendous degree of integration between the Ontario economy and
the US economy, and 90% of our exports do go to the United
States, which incidentally was a very fortunate thing in the fall
of 1998, when the Asian economy went down and there was virtually
no effect on the Ontario economy because such a small percentage
of our exports went into Asia. So there have been significant
advantages to us in this expansion by having as our predominant
export market such a robust economy as there is in the United
States.
1520
But having said that, what
is absolutely clear and what we would anticipate will continue is
that the economy now is being driven, even more than this chart
shows, by domestic spending. This chart averages over a number of
years, and in the beginning there was more stimulus, if you like,
from the US economy, but in the latter part of this period there
has been much more stimulus from the domestic economy. If we look
forward, I think most of us would see that the US economy is
going to slow a little bit from its torrid pace of the last few
years, and on the other hand, we anticipate that domestic
spending in Ontario will continue to grow quite rapidly.
Mr Galt: I
interpret that gives stability to our growth into the future when
it's domestic consumption.
Dr
Purchase: Yes, we think so. We think that if you add the
government's commitments to tax reductions with what most people
anticipate will be a series of federal personal income tax
reductions, this will be a very powerful stimulus to domestic
growth, a stimulus which is sufficient-incidentally, in most
people's minds one of the reasons why you see a strengthening
Canadian dollar-to offset any slightly increasing interest rates
that we probably will see in the next little while. Tomorrow, for
example, we may well see an increase in interest rates.
Again, the reason is we've
got a change in the mix of stimuli coming into the economy now.
In the early stages of the expansion, monetary policy was trying
to promote the expansion a lot. It kept interest rates very low,
fiscal policy. Obviously everyone was working down their deficits
at that time. Now we've got everyone cutting taxes or we think we
will have everyone cutting taxes shortly.
Mr Galt:
We're hopeful.
Dr
Purchase: This will no doubt add quite dramatically to
the stimulus in Ontario that we've already got from our own tax
cuts.
Mr Galt:
Great.
The Chair: Did you have a
supplementary?
Mr Galt:
Yes. Page 8 shows machinery and equipment leading non-residential
construction. I'd have thought you'd build a building first and
then buy the equipment and put it in. Why are equipment sales
leading the actual construction of the building you're going to
put it into?
Dr
Purchase: What this chart indicates is really the
overall average of machinery and equipment spending in the
economy and the average construction activity. It doesn't mean to
imply in any way the linking up of those two things. But there's
no question that for much of the early stages of this expansion
the big emphasis has been not on building new plants but on
retooling the existing plants that you have. That's where all the
new technology is embedded, in that new machinery and
equipment.
When you have a very high
M&E expenditure in the economy, implied in that is a much
higher level of productivity growth in the future, because those
new machines that you're putting in-you're replacing old
machines-have greater knowledge embedded in them and have a much
higher capacity in terms of output increases that they can
sustain. So this high rate of machinery and equipment spending is
very good.
Later on in the cycle, when
you actually start to reach a point where now there are just
simply not enough existing factories around, then you get people
building whole new factories. They're no longer just replacing
the machines they've got in existing factories or adding a little
bit to existing factories; they're now coming along and building
new factories, and new equipment goes into those. So that's why
you see in the latter part of this expansion we've got the sudden
increase in construction spending.
Mr
O'Toole: Thank you, Mr Purchase, for a good presentation
for all members. A couple of points. I think Mr Galt has covered
the explanation of the revenue in your increase and I may pursue
that if I get a moment.
I do want to question, if I
could, Mr Lindsay on the SuperBuild Growth Fund. I think the
question has been asked, is this sort of double accounting or is
it just consolidated? I guess the first and simplest question is,
in financial reporting, how is it going to show up: in a ministry
capital expenditure, or is it going to be a separate rollout? For
me to compare in-year and between years, if you're changing the
capital component into-it looks like expenditure reduction within
the ministry only it's showing up in another new-so it's a
reporting question and it's a fairly straightforward one.
Mr
Lindsay: We'll want to make sure, as Mr Salerno said,
that we comply with the Provincial Auditor in all requirements
that are made of us. But the intent is that there will be a much
larger focus on the capital in our reporting method so that the
Minister of Finance's annual budget report will remain as it has
been. We will pull out and do an additional report detailing the
capital expenditures.
Mr
O'Toole: Explaining all the capital allocations and
partnering and all the rest of it.
Mr
Lindsay: Exactly. So we're not taking away some
reporting and substituting it with new. We'll augment with an
additional report.
Mr
O'Toole: That's going to make it easier for the
layperson to understand between your changes, policy and capital
priority.
I'm very intrigued by a
couple of the comments by the ministry this morning as well as in
the budget statement in November and your presentation this
afternoon, the $742 million in the colleges and universities
portion. I'm not sure if I was listening correctly. Was part of
that $742 million-that's for this quarter-to be part of the
Internet e-commerce, the optical Internet, CA*net, that
infrastructure piece? That's very critical, and I'm sure you're
hearing it all time, in job creation and knowledge creation. Is
that to be spent, am I correct, as part of the $742 million?
Mr
Lindsay: That's not part of the colleges and
universities capital.
Mr
O'Toole: That's a separate piece?
Mr
Lindsay: That's a separate line item that is reflected
under the slide that I showed earlier under "Other."
Mr
O'Toole: OK, it's under "Other."
Mr
Lindsay: It's in that bottom row of expenditures.
Mr
O'Toole: It's a significant piece as well, some
$252 million.
Mr
Lindsay: When you add up the $2.2 billion, that amount
is not a significant amount of money. I wouldn't want to give you
the impression that a lot of money, on the $2.2 billion we'll be
spending on capital this year, is going to go to Internet or that
type of infrastructure. There is $20 million for the Ministry of
Energy, Science and Technology in an incubator program to try and
stimulate the biotech sector and then another-I don't have the
numbers in front of me-$7 million or so for the Internet project.
I would be careful in using the word "significant." It's
significant for our economy and for preparing for the new
economy, but in terms of the total capital dollars we're
committed to spending-
Mr
O'Toole: You've prodded me long enough. If I could,
another portion is under anticipated federal-provincial
infrastructure. Do you think that's going to be a significant
piece in the future? If you look at much of what is being said in
the broader economy, e-commerce and the change in the way
commerce takes place is the future, whether it's through banking
or through financial services or through real acquisitions of
products and services. Are we going to be prepared and are we
working with the federal level of government as part of this?
Mr
Lindsay: The government has put a significant focus on
e-commerce, both the Ministry of Economic Development and Trade
and the Ministry of Energy, Science and Technology, and new
technology programs. So there is a great focus on e-commerce and
the new economy industries in the government's program.
However, again, it doesn't
automatically translate into dollars. When we think about
infrastructure in the province of Ontario, almost half the
infrastructure for our economy is actually delivered by the private
sector now; for example, natural gas pipelines, telephone and
telecommunications linkages. There is a lot of infrastructure
that isn't necessarily financed by taxpayers' dollars or
government dollars but can be regulated and facilitated through
government regulation and government efforts. Our efforts on
e-commerce and on the new industries may be through helping to
facilitate and helping with regulation, and it doesn't
necessarily mean we have to invest a lot of taxpayer dollars. We
have to stimulate a lot of private sector investment.
Mr
O'Toole: With your permission, I do have another
question. Is there time?
1530
The Chair:
Go ahead, there's time.
Mr
O'Toole: I also had a question on the fiscal and
financial policy section, whoever handles that. I was really
quite interested in the expenditure summary on page 5-quite
interesting when I look at it-and in your change of $1 billion
plus. The first line item-I'm just reviewing them while you're
getting your notes there-OPSEU pension, top-up of $200 million:
That's quite interesting. Hospital additional funding of $196
million: I think Elizabeth Witmer has kind of announced a lot of
that stuff recently.
There are two questions I
have, to be specific. You might want to answer the OPSEU one: Is
that a top-up or a payout or what in the pension? But the
Canada-Ontario social housing agreement of $196 million, is that
real revenue or is that picking up liability in the long term? If
we're getting into this housing and we're taking over the housing
thing, they gave us $196 million. Is that to pick up the repairs
and maintenance of all this inventory and also the risk, the
mortgages and liabilities? We're showing that as a revenue, or an
expenditure, I gather, aren't we?
Mr Hewak:
Yes.
Mr
O'Toole: To me, it's a committed expenditure. So it's
just a flow-through of revenue.
Mr Hewak:
That's right.
Mr
O'Toole: And that's for maintaining the inventory of
housing, social housing, supportive housing?
Mr Hewak:
With that particular adjustment, we're taking over the
administration and we're taking over some of the management
responsibilities for some of these federal programs. The federal
government will be providing us with payments for the next 30
years or so for the existing commitment, and it's basically just
to cover the existing costs associated.
Mr
O'Toole: The mortgages.
Mr Hewak:
That's right, although we did get a one-time $58-million signing
bonus.
Mr
O'Toole: OK. That's to make sure the plumbing is working
and whatever.
Mr Hewak:
The government has actually committed that it would use $30
million of it to provide for the capital needs of some of the
housing stock.
Mr
O'Toole: But we do pick up a liability. How does that
show up in our accruals and our accounting? All that stock isn't
exactly at the number one level of where it should be.
Dr
Purchase: If I could, Mr O'Toole, there is a period
written into the agreement where we can go around and kick the
tires, as it were, where we can examine the capital stock that
we've acquired. During that period, adjustments can be made if we
determine that these buildings are not in good repair or there
has been a misrepresentation to us of what it is that we're
taking over.
The Ministry of Housing is
in fact going through that due diligence right now. So we're
confident that we'll get capital stock which is in good working
order and that the mortgages that we're taking over in fact are
quality mortgages, if you like.
The Chair:
Mrs Molinari, you've got three minutes.
Mrs
Molinari: I'll try to make it quick. My question is with
respect to the SuperBuild Growth Fund. The minister announced
this morning the $10 billion in SuperBuild over the five years
and the $10-billion investment from private sectors and, Mr
Lindsay, you reiterated that in your presentation. That's an
ambitious forecast, for private businesses to invest $10
billion.
I know some of the areas.
The partnership is working with respect to the post-secondary
level. Can you tell us some of the areas that you would see as a
feasibility for private investors to put in that kind of money?
Obviously you've got some under development now; if you can talk
about some of those that are presently in the forecast.
Mr
Lindsay: Thank you for the question. There are a number
of opportunities for private sector investment and involvement in
our infrastructure, and it will be our challenge to try and lever
the maximum amount we can. The 407 is the example that Bay Street
is all abuzz with and is pointing to as a successful example of a
public-private partnership. Included in that final agreement is a
commitment on the part of the private sector purchaser to extend
another 24 kilometres on the western side, and they're in the
midst of an environmental assessment right now, but on the
eastern side another 15 kilometres. So there's almost 40
kilometres of 100% paid-for, private sector construction of
four-lane highway in the province of Ontario. That's the first
time ever in Ontario that has happened. Finding new and creative
ways to do that, whether it's through bridge works and
international gateways, expanding highways following the 407
model is what we're exploring with the private sector now.
With respect to the
colleges and universities sector, we challenged the colleges and
universities to seek private sector funders and partners. I don't
know if Minister Eves talked about some of the examples. I
believe we've received 109 proposals from colleges and
universities across the province. I don't know if I have the
details of those numbers in front of me, but the percentage of
private sector and partnering involvement in financing those has
exceeded what we internally assumed would be the numbers.
I don't want to scoop the
Minister of Colleges and Universities' announcement in the coming
weeks, but we're quite pleased with the enthusiasm with which
both the universities
and colleges and their private sector partners have come together
to finance capital investments.
The numbers I have in front
of me here: Out of the proposals, not all of which can be
accepted, there was something like $2.6 billion worth of capital
projects submitted, and out of that about $1.5 billion was
requested for provincial money. So you can see the balance: It's
a three-to-five ratio of government money versus the total
project, which is significantly more than it has been in the
past.
It's a new way of doing
business, and so we're all on a learning curve. As a first
effort, I think the colleges and universities can be quite proud
of what they've done. We'll make that announcement shortly. But
this is only the first year; it's our challenge to do more of
that kind of stuff in all sectors of the economy.
The Chair:
Government side, you have now exhausted your time. We'll go to Mr
Phillips.
Mr
Phillips: I wonder if I could have my answers now.
Dr
Purchase: Mr Phillips, we're just photocopying it now,
because the clerk would like copies of the material we're giving
to you. My apology for it being delayed.
Mr
Phillips: Let me just say how disappointed I am in that.
I've never in all the years I've been here seen less information
on the outlook than we got this year. There's not one single
piece of outlook from the ministry officials. I had been told
this morning that you were providing me with answers to my
questions. That's why I assumed the minister was providing
it.
We're going to spend a lot
of taxpayers' money over the next several weeks travelling the
province trying to provide advice on the pre-budget. You haven't
given us one single number. The only number we got from you today
was the 3.7% economic outlook, the average of the private sector
forecasters. I'm very angry about that. If you want to have some
respect for the legislative process, I had expected that the
minister would have directed the staff to come forward with,
"Here's what we think is going to happen to revenue." I just want
to tell you that I am terribly worried about health care,
education, community services. The government, I realize, wants
to proceed with its tax cuts, but I want some indication of the
revenue outlook.
We've heard from your
officials on record that you do prepare, behind the doors,
detailed workups on the revenues. You say, "OK, here's our
forecast on the economy, here's what it will mean to retail sales
tax, corporate tax, employer health tax, all of those things." I
feel like we're being kept totally in the dark, and I don't know
why that is. To add, dare I say, insult to injury, I've been told
that there were answers to my questions. That's what I'm here
for. I want to know what the outlook is, what you expect the
revenue is going to be. You say you can't prepare multi-year
forecasts. We've never not had at least a one-year forecast. Dare
I say that the minister this morning said that the federal
government's estimate of surpluses for the next five years is
X.
I'm probably angry at the
wrong person, but the minister isn't here. When he left this
morning, he assured us that we would have these answers. So maybe
I can just ask you the questions.
1540
In terms of the outlook
next year-and after all, that's what we're all about. We're not
looking at previous years; we're looking at the medium-term
fiscal outlook. What is your outlook for the economy and what
impact will that have on the revenues for us?
Dr
Purchase: Let me deal with the outlook for the economy.
Our current private sector forecast, our 3.7%-it is our policy
and has been our policy I think for several years, certainly
before I became the deputy minister-in fact, I believe it goes
back to the Ontario Financial Review Commission's recommendations
to the government, which they accepted in this regard-that we
would have cautious economic forecasts so that we would always be
slightly below the private sector consensus forecast. So you
could take the current private sector consensus and imagine that
we will be, in official forecasts, at or below it.
Mr
Phillips: What does that mean for revenue?
Dr
Purchase: Just let me finish. We anticipate, with
respect to the economic forecast, that it will really continue to
improve. If you just look at the people who forecast, let's say,
in December or January, they have all been higher than when we
have to average in people who were forecasting in November. So we
anticipate that the forecast might even be better than the
3.7%.
With respect to revenues,
again we pursue a very prudent revenue forecast. I have the
documents, by the way.
Mr
Phillips: Can you give us your prudent revenue forecast
for the next couple of years?
Dr
Purchase: No, I haven't been instructed to give you a
revenue forecast for the next couple of years. As you know, in
the budget we do forecast revenues for the current budget year
and one year out.
Mr
Phillips: What's your revenue forecast for next
year?
Dr
Purchase: I'm not at liberty to give you the revenue
forecast for next year.
Mr
Phillips: Why not? The legislative committee is here to
provide the public with advice on next year's budget and we can't
get out of the public service even the most fundamental number,
your revenue forecast for next year.
Dr
Purchase: Again, I'm not at liberty to give it to you. I
can say that with respect to multi-year forecasts, the government
has presented in the past its balanced budget plan and it will
continue in the future, once the budget is balanced, to balance
the budget. If it doesn't give you a multi-year forecast, it
certainly gives you a multi-year target. The target of the
government is absolutely clear: It's going to be a balanced
budget for the next five years.
With respect to the debt
reduction targets of the government, the government has already
clearly indicated on the record that there will be a $2-billion
reduction of debt.
Those are all medium-term
targets that don't depend on forecasts; they depend on what the
government intends to do.
Mr
Phillips: You won't give us the numbers. Do you have the
numbers, the revenue forecast for next year?
Dr
Purchase: Obviously we are beginning our budget cycle
and in that process we will be presenting revenue forecasts to
the minister and the government. So for sure, we'll have
them.
Mr
Phillips: When we're trying to provide advice, do you
think it's reasonable that we should have a revenue forecast from
the government?
Dr
Purchase: If I might, the question of whether it's
reasonable or not is not for me to respond to.
Mr
Phillips: I think you've now got my answers to the
questions. Can I have them?
Dr
Purchase: Yes.
Mr
Phillips: I repeat, I've never seen less information
divulged than we're getting right now, and I frankly find it
unacceptable. We may have to resort, believe it or not, to a
freedom of information request or something to get the most
fundamental piece of evidence out of the government on what we're
looking at for the next year. I think that's unacceptable. Will
you at least undertake to go back to the minister-if I'd had any
inkling you weren't providing this this morning I would have done
it with the minister here, but I've been led to believe that you
had prepared answers to my questions. You won't provide any
revenue estimates for us?
Dr
Purchase: No.
Mr
Phillips: You won't even do what the government did
before and confirm the old outlook for next year? There's no
revenue outlook?
Gambling: Again, the
minister said there would be full disclosure on gambling
revenues. We still don't have the annual report of the Ontario
Casino Corp. The Ontario Lottery Corp, surely, when you're
talking hundreds of millions of dollars, has done an estimate.
Can you give us the estimate of gambling revenues you would
expect-not this year. We're looking at the next fiscal year.
Dr
Purchase: No, sir. I'm not in a position to provide you
with a forecast. What we've provided you with is what your
question asked of us, which was to give you the breakdown for our
1999-
Mr
Phillips: That is not what I asked for. I asked for
projected revenue from gambling. That isn't what I asked for. I
laid out a chart in my request. Anybody can look in the rear-view
mirror; we're trying to look ahead.
Dr
Purchase: There is a business planning process underway
in which we're obviously looking at-you know, ministries are
coming forward to present their plans to us with respect to the
future.
Mr
Phillips: You do not have, within the ministry, an
estimate of gaming or gambling revenue for the next fiscal
year?
Dr
Purchase: We will have, at some point, estimates of
everything.
Mr
Phillips: I didn't say that. I said, you do not have
from the Ontario Lottery Corp and the Casino Corp an estimate of
their revenues for next year?
Dr
Purchase: We may be in possession of an estimate,
yes.
Mr
Phillips: I hope you understand my frustration that-
Dr
Purchase: I understand your frustration, sir, but-
Mr
Phillips: I'd like to find out the answer on education
spending. That, I assume, is public knowledge, or should be
public knowledge: how much property tax you've raised to support
education and what the grants will be on education for 1998 and
1999.
Dr
Purchase: Is this your question number 7, Mr
Phillips?
Mr
Phillips: Actually, it says 6a, 6b.
Dr
Purchase: For 6a, we've provided you with the updated
table, I believe.
Mr
Phillips: Can you just show me where that updated table
is?
Dr
Purchase: I'm looking at the same document you have. It
should be on the facing page.
Mr
Phillips: This says "restructuring and other charges" on
my document.
Dr Purchase:
"See attached table." We've had a technical glitch. My
apology. Appendix A is not attached.
Mr
Phillips: That's quite a surprise.
1550
The Chair:
Can you make an undertaking to provide Mr Phillips with that
sheet?
Dr
Purchase: Yes, we will.
Mr
Phillips: When you said that you will not provide us
with the revenue estimates, is that because the minister has
instructed you not to provide that to us?
Dr
Purchase: Yes. It's not our intention to provide
anything more than we've provided in the past.
Mr
Phillips: Oh, no, this is a lot less than has been
provided, but is it under instructions from the minister to not
provide this?
Dr
Purchase: Certainly the minister knows what our response
to all these questions is.
Mr
Phillips: Well, I'm sure he does if he ordered them. I'd
like to know on whose instructions the committee is not getting
this information.
Dr
Purchase: We have not received any instruction to
release forecasts to you.
Mr
Phillips: Have you been told not to release them?
Dr
Purchase: No, we haven't been told not to directly. I
have not received a direct order not to give them, but the
minister-
Mr
Phillips: Are you making the decision to not release
them?
Dr
Purchase: The minister has reviewed all the responses to
the questions and I have no orders to give you the revenue
forecast.
Mr
Phillips: But let me request the revenue forecast. Who's
telling you not to give us that information?
Dr Purchase: Obviously this is
the ministry's position.
Mr
Phillips: I assume it's the minister's position. It is
frankly unacceptable. I'm repeating myself. Next week we travel
around the province. We are trying, on behalf of the public, to
provide some direction for the budget. Believe me, it's like
keeping the shareholders-that is, the public-completely in the
dark, That's not acceptable, in my opinion, to use the language
of this government, to the shareholders-the people, the
public-that we don't have that information. I will accept that
you're operating under directions to not provide that.
The issue of pensions is a
smaller issue. I assume somewhere in this document you've
answered why your cash payments on pensions are somewhere around
$800 million and on your books you show a "revenue" of a
couple of hundred million dollars.
Mr Robert
Siddall: I'm Robert Siddall with the Ministry of
Finance. I'm the provincial controller.
Mr Phillips, in response to
your question, again, the way we calculate the pension expense on
the province's books is under the recommendations of the public
sector accounting board that requires us not to account for the
cash payments during the year that are made for funding purposes
but to account for the costs that have actually been earned by
pensioners during the year. That calculation is a combination of
the actual increase in the liabilities during the year, plus the
adjustments for gains on the value of the assets in the pension
plans, plus any pension enhancements that have been made during
the year, less the contributions from the employees to the plan.
That's how we come up with the costs.
The plans have been earning
returns on their assets that have offset the costs associated
with the increase in the liabilities for pensions for those plan
members in the last couple of years and that's the reason why the
item is currently in a revenue position.
Mr
Phillips: Fine. You've indicated here that in spite of
the fact that you are theoretically decreasing the tax rates,
property tax revenue to the province will remain stable. I gather
the increase in assessment will offset any tax decreases. Is that
what you're saying?
Dr
Purchase: There's a combination of factors here. As you
know, the current assessments are based on 1996 values. So
increases in value since that date don't add revenue to the
property tax, but new assessments, additions to the assessment
base, if you like, do, and those are offset by the province's
commitments to reduce the residential education rate and also the
long-term business reduction. So on net, we think that probably
there should not be a significant impact.
Mr
Phillips: In theory you've announced a billion dollars
in property tax cuts, but the revenues from property taxes are
staying the same because of increasing assessment?
Dr
Purchase: People are still paying less property tax than
they would have otherwise paid. Those are actual benefits that
each individual taxpayer receives, a billion dollars. The fact
that there are new houses or new firms coming along is the normal
base of the tax gross, but it doesn't deny that the benefit was
delivered to each individual taxpayer.
Mr
Phillips: I'm just interested, from the little
information, the little, wee, small nuggets that every once in a
while you can pan out of this thing, in trying to piece together
the puzzle. I'm grasping at whatever little straws and bones
you've thrown us here. I was hoping I might see the education
spending one, but it's not there.
Dr
Purchase: I'm sorry.
Mr
Phillips: Have you got it?
Dr
Purchase: We've got it. As you can see, it was supposed
to be attached as appendix A. It's being photocopied, I'm
assured. All I can do is sit here and apologize.
Mr
Phillips: Once a year we have an opportunity to have the
minister in here, and I had been under the misunderstanding that
we were going to get answers to my questions.
Dr
Purchase: With due respect, sir, you have got answers to
all of the-
Mr
Phillips: My key questions are about what's some of the
outlook. You haven't answered any of them, with due respect, as
they say.
The Chair:
You've got one more minute, Mr Phillips.
Mr
Phillips: SuperBuild is now called a corporation. Has
that been set up legislatively, and how will it work? Will I
assume that it has no decision-making authority, that it merely
provides advice to the minister and that each minister will still
answer for their capital decisions?
Mr
Lindsay: The Ontario SuperBuild Corp was established by
an act-if someone can help me with the correct name of the
act-similar to that which allows the government to establish
corporations within various ministries of the government. For
example, the Ontario Financing Authority is another corporate
entity within the Ministry of Finance. The export development
corporation is a corporation within the Ministry of Economic
Development and Trade. The structure will be that there is a
board of directors.
I think the minister
suggested this morning that he will be announcing a board within
the next week or 10 days of a cross-section of representatives
from the private sector and around the province to give him
advice. It's an advisory board. All of the capital decisions of
the government of Ontario still have to be made by the cabinet
committee on privatization and SuperBuild, which in turn reports
to the full body of cabinet. So the advice they receive from the
SuperBuild Corp, the staff and the board of advisers that the
minister will be announcing will be to give advice to myself in
building this organization or doing this work, and all of our
duties and all of our functions must report through the cabinet
committee of the government. So my direct accountability as an
individual is to the Minister of Finance. The SuperBuild Corp is
accountable to the Minister of Finance, who chairs the cabinet
committee. The acronym is CCOPS, cabinet committee on
privatization and SuperBuild, and they report to the full body of
cabinet.
1600
The Chair:
That completes this particular segment. I'd like to thank the
ministry on behalf of the committee.
Dr
Purchase: Mr Chair, if I could: Before we conclude our
presentation, I'd just like to respond to a statement that Mr
Phillips made, that he accepted that I'd been given a direction
not to release any revenue projections. I should make it clear
that I was not given a direction with respect to any information
that I might release or might not release. I simply took what is
our normal practice and presumed that that would continue to be
our normal practice.
Mr
Phillips: I don't believe that was normal practice.
Mr Howell:
Mr Chair, one final point for the record with regard to Mr
Christopherson's question: Full-time employment is 30 hours or
more a week.
The Chair:
Thirty hours instead of 20? I think you mentioned 20, was it, or
25?
Mr
Christopherson: Twenty-
The Chair:
So it's 30 hours.
Mr
Christopherson: The reason I wanted that on the record
is that the staff were good enough to provide me with the
accurate hours per week, but I did ask if there was a minimum
duration in terms of the number of weeks. They're still seeking
that information and they've assured me they'll get it to me as
soon as they've got it.
On a point of order: Based
on the issues that Mr Phillips has raised in terms of the
information that the deputy has chosen not to provide to the
committee, obviously, by his own statement, of his own volition,
could we ask research staff to just review back over the practice
as it has been over the last decade, which would cover all three
political parties, as to whether or not it has been the practice
that projections were provided at the time of pre-budget
consultation hearings, please?
The Chair:
From that particular aspect of the comment made by the deputy
minister?
Mr
Christopherson: The whole issue of what normally is
provided by way of projections versus what was provided here
today, which was none. Perhaps the researcher could go back and
take a look at what has transpired, quickly, over the last 10
years that covers all three parties, and if indeed the current
deputy is correct, then so be it. But I agree with Mr Phillips.
My recollection is that there are other years where there has not
only been one year but sometimes many multi-years.
The Chair:
I don't know whether it's a point of order, but I think it's a
reasonable request.
Mr
Christopherson: Thank you, Chair.
The Chair:
When would you expect that? A couple of days?
Mr
Christopherson: I guess as soon as we can. It's
obviously important. Here's the case. It's pretty
straightforward. If it turns out that this year is an exception,
we've got a major issue that we've got to come to grips with
before we go any further. So I would think the earlier we can
receive that information, the better, recognizing that I don't
expect you to stay up all night and do this.
ONTARIO ROAD BUILDERS' ASSOCIATION
The Chair:
Do we have representatives of the Ontario Road Builders'
Association in the audience?
Mr Robert
Bradford: Just one.
The Chair:
On behalf of the committee, welcome. Could you please state your
name and your position for the record?
Mr
Bradford: My name is Robert Bradford. I'm the executive
director of the Ontario Road Builders' Association. I believe
that you all got copies of the presentation I'm going to make
today.
Good afternoon, Mr Chairman
and members of the standing committee. Our association certainly
appreciates the opportunity once again to speak with you today
about the Ontario economy and the importance of our provincial
roads and bridges to it.
Our association represents
about 100 contractors. They build and maintain by far the
majority if the provincial highways system as well as our
municipal roads system.
I'd like to touch briefly
today on four subjects: capital spending for the provincial
highway system; the emerging role of the private sector in
highway financing; the need for a longer-term approach to capital
planning; and highway maintenance outsourcing.
In the past two fiscal
years the province has shown a renewed commitment to the
provincial highway system with admittedly record high capital
programs. This has become necessary because for more than two
decades of underfunding we've left a once-envied highway system
in a state of rapid deterioration.
In 1995, as you know, the
Provincial Auditor said 60% of our highway system was in
unacceptable condition. Given the effort in the past couple of
years, we believe there's been a slight improvement to that
percentage of the system that was in unacceptable condition, but
still I would say over 50% of the system is still in a state of
disrepair, for lack of a better word. We're only catching up a
little bit faster now. We're chipping away a little more quickly
at the infrastructure deficit we've been building since the
mid-1970s.
According to the
government's recent Ontario Economic Outlook and Fiscal Review,
we find that 52% of Ontario's GDP comes through export. That's up
from 29.4% in 1989. We can see very clearly where our economy is
going. Over three quarters of those exports go south to the
United States and 95% of them depend on road transportation for
at least part of the trip.
If Ontario is to continue
to grow economically and Ontario businesses are to continue to be
competitive in export markets, a vastly improved highway system
is a prerequisite. We have our NAFTA partners in the United
States and Mexico building highways to borders in both
directions, and quite frankly we're not doing it.
Business will look
elsewhere if Ontario cannot provide the means to get the
materials to their factories and assembly plants or to get their
products to their customers. Our economic success depends on moving
auto parts and other goods south of the border and our highways
are fundamental to our continued growth.
The provincial government's
current capital program is attempting to get at the backlog of
highway capital maintenance. There is virtually no system
expansion underway or contemplated in the near future. Major
urban centres in Ontario are already suffering huge economic
costs due to congestion. We have in past years brought this
committee statistics, lots of them, and we'd certainly be glad to
provide those again and again, as many times as you want to see
them. But I felt today that perhaps we'd talk to you a little bit
more from a policy standpoint than a statistical standpoint. I
think you've seen those statistics and I think we've all come to
accept them to a large degree.
The word "crisis" has been
overworked in recent years-we've got a health care crisis, we've
got an education crisis, we've got a crisis in everything-and I'm
not going to use it today. But I'm here quite frankly to warn you
that within the next decade we're going to have to be using that
word if we don't increase the capacity of our highway system.
As you know, the QEW and
the 401 in the GTA are now congested more than 12 hours a day.
Even the new 407, where people are paying for a ride, is now
bumper to bumper in the morning and the evening rush hours. If
you listen to the news reports they're suggesting you take
Highway 7 instead of the 407 because it's a better ride. It just
indicates where we've come with this undercapacity situation.
We've discussed all the
other impacts with this committee in the past and I'll just touch
briefly on some of the key areas. We've discussed the impact on
the $3.5 billion spent annually by American visitors to
Ontario, 24 million of them who come here by car every year.
We've shown the effects of congestion on productivity and spoken
of the billions of dollars lost annually to inefficient movement
of goods. I believe there was a 1986 goods movement study from
the GTA that showed the cost was $3 billion, and we've got to
believe that's at least doubled by now. We've presented
statistics to show significantly higher user costs when road
conditions deteriorate, and we've shown the direct links between
public safety and highway construction and design.
As I said earlier, we
believe this government recognizes the vital linkages between the
highway system and our competitiveness. We've had a chance to
talk to members from all three parties and I do believe that that
basic concept is generally accepted by all three parties.
However, to be able to address these competing needs-I'm sorry. I
skipped a beat there. We understand that the issue is one of
funding priorities and competing needs. I guess that's an
important point and I didn't want to miss that, because we do
understand that there is a desire and an understanding of the
need. Obviously, what it comes down to is an issue of who pays
and how we fund our highways in the future.
1610
I would remind the
government that in attempting to address all the other needs on
the table-and they're all worthwhile needs-we've got to recognize
that the provincial highway system is essential to providing the
wherewithal to address some of those other needs over the long
term. If we fall back economically and competitively, I don't
believe we stand a chance of addressing some of those other
concerns over the long haul, except through the old practice of
throwing money we don't have at them. I don't believe we're doing
that any more.
There's also a fundamental
change occurring in our society. It's a rethinking of how we will
fund our infrastructure needs in the future. Much of this
evolution is focusing on the role of the private sector, looking
to the private sector to take on roles that have traditionally
been served by government. In terms of building and maintaining
our highways and bridges of the future, there certainly is a
significant role that can be played by the private sector.
Highway 407 stands as proof positive that the private sector can
and will build highways if there's a reasonable return on
investment. Our association recognizes this role to be played by
the private sector, and we are currently involved in
broad-ranging consultations to try to identify some of the
opportunities that exist for private sector leadership as
envisioned by the new SuperBuild fund. I heard earlier it's now
the SuperBuild Corp.
We believe the private
sector can play an important role in getting projects underway
which wouldn't be possible in the foreseeable future if they had
to rely completely on government funding. I heard a kind of
throwaway line about a week ago and it kind of scared me, but
somebody suggested that the government will never, ever again
build a major highway in this province. I hope that's not
true.
One caution in this whole
scenario of private sector involvement. It requires that there be
an opportunity for return on investment. In the roadbuilding
sector, this return on investment will come primarily from direct
tolling or some variation of it, and that limits the involvement
of the private sector to large-scale highways with significant
traffic volumes. It's also limited by the acceptance of the
public for the whole concept of user-pay roads.
Aside from tolling, there
are other potential revenue sources, and we have to exploit these
as fully as possible. There are things like commercial
opportunity on rights of way, concessions to third-party
developers, advertising rights. We're trying to come up with as
many innovative new ideas as we can. While I believe a lot of
these innovative financing concepts will become standard practice
in the future, I don't believe that funding our roads
infrastructure is an area that government can expect to be
relieved of entirely in the future. However, involving the
private sector in appropriate projects will free up public
dollars that can be directed toward those roads that cannot
generate a revenue stream but nonetheless must be built and
maintained.
The third subject we'd like to bring to the
standing committee today is the need for longer-term capital
planning by the government. That's a drum we've been beating on
for several years now. We see, finally, some potential for moving
in this direction under the SuperBuild fund. Currently, capital
budgets for provincial highways are established annually, and
until the budget comes down in April and May there's little
indication to the roadbuilding industry what type of funding
commitment can be expected. Therefore, our industry, quite
frankly, cannot apply proper business planning tools, and you've
got to believe this extracts a price in terms of productivity and
efficiency. Remember, it's the taxpayers paying for the
roads.
It's one of the few
industries in Ontario that must recreate itself every year, not
able to properly plan investment and plant equipment and human
resources. A multi-year capital plan that establishes a
reasonable annual funding baseline would deliver significant cost
savings and quality improvements to taxpayers.
Last October, our
association surveyed the entire industry about the benefits to be
derived from the ability to apply longer-term business planning
tools. You have that report attached to my presentation today,
and it indicates quite clearly that there are areas where major
gains in productivity and reduction in costs would result from a
multi-year planning approach.
Given an annual baseline
funding level that could be projected out over several years, the
Ministry of Transportation would be in a position to better plan
its flow of work. We're not talking about new or more money here.
For instance, the government was spending some
$640 million-odd, I believe, last year in actual capital in
the road construction. Let's take the bull by the horns and say,
"OK, we're going to be spending $500 million a year at least,"
and let's do some long-term planning with that. Then year to year
the government can do whatever it needs to with the budget, with
incremental increases at budget time and announcements like that,
but it would have taken a good solid chunk and given the industry
some tools with which to plan.
What this would do is allow
your Ministry of Transportation to be calling tenders earlier in
the year, in December, January and February. Right now our work
comes out in June or July of the year and leaves, in this
climate, three or four months to complete the work. We have an
industry that can work nine months of the year and sometimes
right around 12 months of the year if the weather's correct. But
right now we're working for the provincial government for six
months of the year, and that's got to extract a toll in terms of
efficiencies and productivity; in fact, it does and we can
clearly show that it does.
Given the ability to plan
better, road builders wouldn't have to be paving in November when
the weather is too cold to do it properly. We wouldn't have to
lay off skilled professional employees for several months every
year and hope they're there when we need them again, and quite
often they aren't. We could better plan our equipment
requirements and reduce costs significantly. We could more
efficiently manage production of materials such as aggregates. We
could feel more confident in investing in training and education
for a permanent workforce. Investments would be made in quality
systems and technologies if it were known that these investments
could be justified over the longer term.
Just as it's trying to
bring more certainty to hospital funding, this government should
also bring more certainty to core infrastructure funding. Jobs
and the economy depend on it, and I believe we now have the
structure with the new SuperBuild fund to get into some of this
longer-term planning.
The final subject I'd like
to just touch on today also speaks to the private sector's role
in building and maintaining our provincial highway system. A few
years ago this government made the decision to outsource
non-capital highway maintenance programs. This involves
everything: keeping the roads clear of snow, applying the salt,
replacing guardrails, picking up litter, the whole ball of wax.
It's a move our association supported completely and still does
support completely, for obvious reasons, and it's an initiative
that we believe is delivering both cost savings and quality
benefits to taxpayers.
I guess the reason I bring
this up today is there have been some criticisms of late of the
outsourcing program, open letters from various members of
provincial Parliament and statements from various leaders of
public service unions, casting aspersions on the program,
suggesting it's not saving the government money, suggesting that
standards of work are lower than in the past. We're here today to
assure the standing committee that the initiative is achieving
government targets.
In terms of cost savings, I
don't pretend to have access to numbers that can bear it out, but
I do know for a fact that contracts are not awarded unless they
come in 5% under the government's own determined costs. Contracts
have been called in the last two years and not awarded because
the contractors' bids were not close enough, and they are
retendered until the bids come in at least 5% below the
government's own cost figures. That alone has got to tell you
that the government has determined what their costs are and it is
not going to let this work be done for more money than it used to
pay.
In terms of quality
standards, standards of maintenance are specified and strictly
monitored. Contractors that don't meet them meet very stiff
financial penalties, and in some cases contractors are delivering
to higher standards than was the case when the Ministry of
Transportation was performing the work. That's not a throwaway
statement. All you've got to do is take a set of specifications
from five years ago and take a set of specifications the
contractors are working to and you will see that performance
standards have been maintained, and increased in some cases.
1620
To summarize today, we're
here as we have been in the past to remind the government of the
vital linkages between our roads and highways and our province's
economic prosperity.
We're here to seek a commitment to a level of public funding that
will ensure that our provincial highway system is renewed to an
acceptable condition and capacity.
We also recognize that the
world is changing rapidly; we can no longer come here year after
year and just say, "Throw us another $100 million." The private
sector has a role to play. We're going to do our best as an
association to ensure that they live up to their responsibility.
As I said earlier, we believe the new SuperBuild fund offers the
opportunity to bring the private sector to the table and to move
forward some of those good ideas that have been surfacing for
some years now.
We've heard in the news
lately about an animal called the mid-Peninsula expressway, and I
don't think, myself included, we'd even heard about that up to
six months ago. That's becoming very quickly a very good
potential for this 407 type of activity we have. It's a road
that's needed; it's a road that probably can be supported by
traffic volumes. Those are the kinds of things that over the next
few months we'll be bringing to you with some ideas about how to
get them moving forward.
Finally, just to reinforce
what I said, we hope that this government will take finally the
opportunity to begin some multi-year capital planning. It's a
good, businesslike approach to infrastructure investment. Other
jurisdictions are moving that way very quickly. Michigan, for
instance, now has a book like this that lays out what roads and
what bridges are going to be fixed and looked at that over the
next five years. A contractor could say: "Three and a half years
from now they're going to be fixing the F. Lee Bailey bridge.
We'd better go buy another backhoe because we want to be
competitive when we bid that job."
I guess that's about it. I
left myself without a really nice punchy closing.
The Chair:
Thank you very much for your presentation. We have about two and
a half minutes for each caucus, and I'll start with the
government side.
Mr Arnott:
Thank you, Mr Bradford, for your presentation. I think you've
done a very good job of outlining the concern of your
organization and also the continued need for road improvements in
Ontario. I can't speak for the other committee members, but I
don't need a reminder of the deterioration of Ontario's road
system, because I see it every day. It's neglect over quite a
number of years that brought us to this point and we need to
establish, as you say, a long-term commitment to improvng the
road system in the province. You quite rightly pointed out that
the SuperBuild Growth Fund hopefully will be a good step in that
direction.
You mentioned toll roads
and you also mentioned a few other opportunities that you think
might be there for revenue generation. You talked about
commercial opportunities on rights of way, concessions to
third-party developers, advertising rights and others. I just
wondered if you could perhaps expand somewhat upon those
statements to tell us a little bit more about what you mean.
Mr
Bradford: For instance, in Vancouver recently-and this
is how you move the thing down to a smaller scale-there was a
$16-million interchange built that the city could not afford to
build. What they did was give a developer some rights to develop
beyond the zoning on one of the corners of the interchange. The
developer paid the road builder to build the interchange and the
government got it for nothing. They did have to give up some
zoning rights on that interchange.
Concessions on commercial
opportunities on rights of way: These are everything from giving
the private sector consortium the rights to let McDonald's put a
restaurant up, restrooms. If you've travelled the United States
through Florida in the last little while you'll see on their
tollways they have quite impressive stops. They're not just a
little thing where you get a greasy hamburger and use a dirty
washroom; they're places where a lot of people plan on stopping.
So those kinds of opportunities.
Advertising: That's not one
of the ones I'm too big on, because I don't believe we can litter
the highways with signage and keep them safe. But there may be
some limited opportunities along those lines. I don't know how
much further you'd like me to expand, but we're struggling with
developing these ideas, just like everybody else is.
Mr Duncan:
In terms of the 407 and toll roads and determining a future
stream of revenues, do you think the agreements that have been
reached are fair to consumers, the people who use the roads, and
how do you go about making those long-term determinations about
streams of revenues and obviously return on investment to a
contractor or a consortium that's building one of these
roads?
Mr
Bradford: How does who go about determining them?
Mr Duncan:
The government.
Mr
Bradford: The private sector will make those
determinations.
Mr Duncan:
Yes, but the government will enter into the agreement. One of the
concerns we have in the case of the 407, for instance, is that
the stream of revenues and the increases in revenues far exceed
anything that was ever talked about down the road in the
long-term projection. If the private sector makes those
determinations-I wouldn't agree that the private sector should
make them. Obviously, your members are looking for a return on
investment. One of the roles of government is to protect the
consumer interest as well. How do you make those projections? Do
you think the agreement that has been reached on the 407 is a
fair model?
Mr
Bradford: I don't think it's appropriate for me to
comment on any deal the government makes. That's the government's
business. I'm not trying to be evasive.
Mr Duncan:
So the toll increases that are projected, you want to see a toll
system in place and you want the private sector-
Mr
Bradford: Our association believes that in the
future-
Mr Duncan:
May I just finish my question?
Mr
Bradford: I'm sorry. Go ahead. I apologize.
Mr Duncan: You said the toll
returns should be set by the private sector, but then you said
you didn't want to comment on them. I don't understand the
difference in your answer.
Mr
Bradford: I think you're asking me to comment on whether
or not the government made a good deal. It's not in my purview to
comment on that, sir. That's the government's business.
Mr Duncan:
Several of your members have approached us and talked about-I'm
referring now to the highway maintenance contract, particularly
the one that was let in the southwestern Ontario region. The
first concern that some of your members raised with us was that
subsequent to signing the deal, the government downloaded, out of
1,200 kilometres of road, about 400 kilometres to the
municipalities, and that was outside of the original deal.
The second concern we had
from various road builders, and I'm not certain that they were
members of your association, was that the way the process was set
up in terms of the maintenance contracts, it effectively produced
a scenario where only one or potentially two consortia could bid
on large-scale maintenance projects of that nature.
Is it your view that in
future or potential future maintenance contracts like that, more
can be done to accommodate small pavers, small road builders, who
used to get smaller contracts, say under $250,000, for things
like filling in potholes? The concern expressed to us by road
builders has been that in fact that process excludes or
potentially excludes small business, given the way the deal was
constructed.
Mr
Bradford: Thus far, and this is certainly an evolution,
every time one of these area maintenance contracts has been
called, we've learned some things and we've done it a little
differently next time. Our association certainly has expressed
our concerns about specific issues that have arisen-some of them
you've mentioned-during the calling of these contracts. That's
our job, to ensure that as the process evolves, these things get
fixed the next time around. Generally speaking, we're quite
pleased with how the program has rolled out.
On the issue of smaller
companies, I guess there's a two-part answer to that. Certainly
we're doing our best to ensure that those smaller companies still
have a role to play through subcontracting. But the other thing
that has to be said about that-and I talked earlier about us
recognizing that the world is changing-is that everything that's
happening out there is leading to a consolidation in our
industry. It's not something we can stop. We owe it to our
smaller member companies to work just as hard for them as for the
larger member companies, but we can't stop what is happening out
there. A lot of it is a function of the way the Ministry of
Transportation is now packaging their contracts. They see
efficiencies and better productivity that way. We can't be
against something that is more efficient, so we have to find ways
to-there are other market niches for smaller companies. They are
moving into them. It's all part of the evolution that's going on
in our industry.
Mr
Christopherson: Thank you, Mr Bradford, for your
presentation. There's not a lot of time to cover some really
important issues. I did want to just touch on the issue that you
talked about, the congestion that exists on the 401, the QEW, 12
hours a day, and the fact that the 407 is packed. As someone who
lives in Hamilton and does the commute to Toronto on the QEW,
you're bang on. In fact, you're probably a little bit shy of how
often. Certainly it has changed over the years. I've been making
that trip for close to a decade now, and I've really noticed the
increase, and the safety factor that you've raised of course is a
major concern.
That would lead to the
recommendation you make that there has to be a recognition that
there needs to be an expansion of the existing system if we are
going to deal with what we now have and what we foresee over the
next few decades.
1630
Trucking is an important
part of business and of the economy. You have some competition
from rail, although not a lot. There is still a lot that has to
be done by truck and can only be done by truck, particularly when
you get into cities, and just-in-time delivery means in many
cases that by truck is the only way.
What I want to ask you,
though, is: Recognizing that private vehicles contribute an
enormous amount of pollutants and cause a lot of the smog
problems, is it the position of your association that when we
talk about transportation and the ability to deal with pressures
on the system, part of government's responsibility is to ensure
there is an adequate, efficient, accessible public transit system
to divert some of those autos? If we can't with the trucks, at
least with the autos we ought to see as part of the expenditure
on roads and transportation an element for the environment, for
safety and because we just can't keep building roads forever. In
50 and 100 years from now, at the pace we are going, we'll have
nothing but highways. What are your thoughts on that and your
association's position?
Mr
Bradford: It will probably sound a little strange coming
from a road builder, but yes, we certainly see the solutions to
the future as being intermodal solutions. Certainly rail has a
much stronger role to play, and public transit is a large part of
the solution in the future. I guess what we are saying today, on
February 1, 2000, is that our society has not laid the groundwork
for that kind of development and it has to start thinking that
way right now. But we can't afford to spend 20 years waiting for
that to develop with no way to move trucks on the road. But yes,
certainly, long-term, public transit and intermodal ground
transportation are all parts of the answer.
Mr
Christopherson: I had a hunch that that might indeed be
your answer. I think a reasonable person would recognize that if
you're going to do long-term planning, you can't plan in 50 years
to have built asphalt roads for all the vehicles that are going
to exist. At some point we need to make an investment, and that will be a
political debating point of course.
I just mention to you that
where you can say that, number one, it would help the cause in
terms of advocating the fact that there needs to be public
transportation and, for what it's worth, I think it would add to
your own credibility, that you're not just interested in the
creation of work for your member companies but that part of the
answer, when you stand back as an association and talk about
transportation, has to be a significant public transit component,
which we don't see from this government; everything is cars and
roads. I appreciate that you are prepared and comfortable enough
to put forward the argument that public transit needs to be an
important part of our transportation thinking.
The Chair:
That completes the time on this segment. On behalf of the
committee, thank you very much, Mr Bradford.
CANADIAN CHEMICAL PRODUCERS' ASSOCIATION
The Chair:
Next we have the Canadian Chemical Producers' Association.
Gentlemen, you have 30 minutes for your presentation. Would you
please identify yourselves.
Mr Richard
Paton: Mr. Chairman, we'll speak for 15 to 20 minutes,
and hopefully we'll have ample time for questions.
I am Richard Paton,
president of the Canadian Chemical Producers' Association. Norm
Huebel is the regional director of our association, and Mike Hyde
is with Dow Canada.
Most of you may have heard
from us before. We are an association that represents 70 members
who produce as our main products chemicals that make up cars and
are part of the pulp and paper process and the textile process.
We call our industry a kind of keystone industry, and part of our
package is a document that describes the links between our
industry and most major industrial sectors of the Ontario and
Canadian economy.
Our theme today is that the
chemical industry is vital to any modern industrial economy.
Since Ontario is the largest and most important economic unit in
Canada and is also a key part of the North American economy, a
vibrant and thriving chemical sector is a key element of leading
in the North American economy. I know the Ontario government has
been talking about that and positioning itself that way.
As an industry that's very
important to this province and all the other industries,
investment is critical. The thing I want to address with you
today is that notwithstanding the fact that our industry is 30%
more productive than the US industry-so there's an interesting
point vis-à-vis productivity-the investment levels in our
industry in Canada, particularly in Ontario, are not where they
should be. This is partly because our industry is a very global
industry. It's probably one of the most global industries in the
world. It's heavily into the commodity type product business, and
to win those investments on the international stage you have to
have pretty well everything going in your favour to beat out the
Houstons and the Gulf Coast states or the European locations or
the Far East locations or whatever.
So we have a number-and
I'll point in a minute to the scorecard that we have-of huge
advantages in Ontario and in Canada, but there are some areas
where maybe all the cylinders are not firing at the same time or
in the same place, and where if we could make some improvements
we would significantly add investment to the province: jobs, very
high-paying jobs, about $50,000 per job, a lot of investment, a
lot of spinoffs, and put Ontario in a better position
economically. Certainly, the government's program is to have
growth. Growth produces tax revenue and tax revenue balances that
budget, and we're part of that. It's all a kind of virtual cycle
if you can get it all working together.
I'd like to point just for
a moment to this scorecard which we have included in this
package. Every year that we appear in front of you, we mention
this scorecard, and many times we get very positive comments
about it. It's our way in our association of rating where we are
on a number of factors that affect the competitiveness of our
industry. You'll notice that we basically list all the factors on
the left-hand column on the two pages in a plus, meaning it's an
advantage for us in Ontario, or it's neutral or it's a negative.
We do these for about four provinces and the country as a whole.
We update them every year right after the Ontario budget, so it's
always up to date and very topical.
Norm Huebel was just
mentioning as we were preparing for this that if you look on that
left-hand page in the column with the negatives, we have no
negatives on the Ontario policy front right now that we would say
are significant areas to discourage investment, which is kind of
interesting. It's also the first time that that's happened.
You have some on the other
side of the page such as manufacturing base, energy pricing,
petrochemical feedstocks. Plant construction costs, which I'll
address in a minute, was one issue we raised last year and some
progress has been made on that. That was related to various
labour agreements. Overall, Ontario is considered to be a very
good place to invest; however, it could be better. I'm going to
address the five areas where I think we could make improvements.
Given that a budget usually is a fiscal and economic statement
combined, some of these areas link up to the overall government
policy that affects the budget and the economy.
The first area is one
that's dear to many hearts, certainly always controversial, and
that's tax relief, tax reform. You all know that Ontario's
balanced budget plan is on track to eliminate the deficit this
year. We believe the government should maintain its fiscal
resolve to carry on that course of action. The positive fiscal
performance is complemented by the federal government's monetary
policy, which is delivering competitive interest rates and
inflation within the 1% to 3% target. No doubt there will be many
pressures to spending, as you have probably observed at the federal level;
certainly industry has observed it. The apron strings seem to
have been released a little bit and the money is starting to
flow, and that's somewhat of a concern to some people who were
worried about the deficit and the debt and certainly tax
reform.
1640
We'd like to compliment the
Ontario government on its tenacity in reducing taxes, personal
taxes in particular. At the federal level, in similar fora, we
have presented to the finance committee and we've strongly argued
for significant reductions in personal tax. I should say that's
the very first time that CCPA has ever gone to a federal
prebudget hearing and talked about personal tax. Personal tax is
now becoming a serious impediment to investment and attracting
personnel. It's becoming an important part of the problem of
attracting personnel to the country and retaining those
personnel. Canada has always had a significant advantage in its
human resource talent and we're worried that that is being eroded
and will become a more and more difficult problem in terms of
dealing with investment, particularly because our industry, like
most industries, exports most of our product to the United
States. In fact, we are competing with the US not only in price
and in product and in market, but we're competing with them for
people. People tend to look at those paycheques and how much tax
they pay and the stock options plans and all those other things,
and those things start to affect decisions.
Last year's budget
announced the intention of the government to put in place a
business tax review panel to examine the current Ontario
personal, corporate and property tax systems for their impact on
the capacity of business, both small and large, to create jobs.
We urge this government to get on with that process. Modest tax
improvements sufficient to open up a competitive advantage for
the capital-intensive chemical industry vis-à-vis states
competing for investments could help attract new investment,
including the investment needed to commercialize new chemical
technologies and the processes developed through innovation in
Ontario and elsewhere.
So tax is definitely one
issue where we think the government has made progress, but
continue to make progress. Certainly if the federal government
starts to make some improvements-hopefully, we're going in that
direction-then the combined effects of personal and corporate tax
reform would produce some advantages vis-à-vis investment in
the country.
The second area I wanted to
talk about is regulatory reform and cost recovery. I guess it
also includes red tape. This government has significantly reduced
its size and also reduced the number of administrative agencies.
It has stated its intention to further streamline and
reconstitute the Red Tape Commission. That's a visible example of
working on regulatory reform.
In the development and
application of, for example, environmental regulations, Ontario
has an advantage over the much more legalistic, adversarial and
formal approach common in the United States. Any of you who have
been down to the United States or dealt with their legal system
quickly find out that the name of the game is litigation, and
litigation produces horrendous costs for business and for
government and for everyone else.
We in CCPA have pioneered a
program called responsible care, which is our response to the
need to work with communities to protect the environment, to
improve continuously our performance. On that basis, we have
agreed with the province to pilot various voluntary initiatives.
However, I guess our experience has been somewhat frustrating on
some of those initiatives because it's been very difficult to get
those moving or into effect. So we would encourage the government
to think about new ways to achieve performance in environment
without necessarily using always the regulatory framework.
Another area where we are
concerned, linked closely to regulation, is cost recovery. There
is a tendency, and we've seen this at the federal level for sure,
when budgets go down and resources are tight, to just shift right
over to: "Well, we'll just raise the money some other way. We'll
just add a fee or a charge here or a charge there." It's kind of
another way of taxation, to some extent, without very much
accountability, without much due process, without much
consideration of the impact that cost recovery in fact has on
business.
At the federal level we've
actually done a study of this. There are 20 associations involved
in trying to change the cost recovery policy at the federal
level, and we've found out that the negative impact of cost
recovery can be absolutely huge on jobs, because it basically
takes money out of business and discourages products from being
developed, from being put on the market, investments being made.
In fact, in our view, and I can share that study with anyone who
would like it, we've actually lost a substantial number of jobs
in this country because of cost recovery, and in most cases cost
recovery does not actually produce substantial revenue for any
government.
Cost recovery is an area
that needs a lot of attention. We've met with the Management
Board. I think both Norm and Mike have met with the Management
Board and have talked about the need for principles, for
criteria, a process to deal with cost recovery. We've encouraged
groups such as yours to mention this in your budget reports as an
area that government should be very careful about moving into it.
Basically our message is that cost recovery is costing Canadians
jobs, is costing Ontarians jobs, but it's of very little
financial benefit for the government.
We're not against paying
for services or benefits that government provides that are sort
of private and that are of particular benefit to business. That's
not our position. Our position is that cost recovery can be
useful for everyone concerned, but most times there are very few
examples where cost recovery is managed well and where the net
effect is actually positive for anyone.
I would like to turn to my
third issue, which is climate change. Now for something
completely different.
Environmental policy issues are a challenge for
all industry and certainly for government. I'm involved in the
industry table of the climate change process that's a national
process. Climate change has some major challenges for this
country and for our industry and can have some very serious
negative effects if not managed carefully. I'll share with you a
few numbers that might startle you in terms of climate change and
its impact on the economy.
Because of our commitment
to responsible care and our ethic of responsible care, we've been
working continuously to reduce our emissions, and that includes
greenhouse gases such as CO2, nitrous oxide, methane
and other gases. We've done all our analysis and all our studies
of climate change, and the CCPA companies that we represent will
meet and exceed the Kyoto targets. So I'm not speaking here today
as an industry that's worried about the climate change numbers
because we can't meet them. We're going to meet the climate
change numbers in Kyoto regardless, so that's not really the
problem.
The problem is that if you
take a look at the overall nature of our emissions in the country
and some of the solutions that are potentially out there to deal
with emissions reduction, you realize that there is something
like a 200-megaton gap between the emissions that we're likely to
have and what we need to reduce to, which results in about a 4%
energy efficiency gain per year that we will need to have to meet
the climate change numbers as a total society, meaning industry,
the consumer, the guy who drives his car, the person who heats
their house, the office building that runs or whatever. We have
never as a country exceeded something like 2% in energy
efficiency gain, and we only did that in the middle of the energy
crisis in the mid-1970s. So we have to somehow double or even
more than double our energy efficiency, because our average is
somewhere in the 1% to 1.5% range.
People have come up with
various ideas to do that, and one of the ideas of course is a
carbon tax. People argue that a carbon tax is a good idea because
it's one of the few really strong instruments you could use that
would have a dramatic impact on energy. Just to give you an idea,
we've modelled this. We have various models. We've taken a look
at what a carbon tax would do to our industry. You'll see on page
12 of my brief here three little options about what a carbon tax
would do. This carbon tax at $200 a tonne would reduce our
competitiveness by five to seven points in terms of investment.
In other words, just be very neutral here and say: "Look, we're
going to put on a carbon tax, and that's going to drive people to
reduce their carbon emissions. Fine. But because we're going to
lose all our industry in the country, what we're going to do is
offset those costs by providing some tax breaks to those
industries." And we can come up with kind of a rational
approach.
1650
To offset the $200-a-tonne
carbon tax impact, you would have to eliminate all federal and
provincial corporate income taxes in our industry. That's the
impact of it. With a $100 carbon tax, you've got to do a 50%
reduction; at $50 a tonne, you're down to huge reductions in
tax.
One has to look at this.
The climate change issue has a huge potential impact on the
economy, which will reduce growth and investment and result in
some major issues for revenues of government if one proceeds with
something like a carbon tax. Now, of course, the federal
government said they're not going to proceed with a carbon tax,
but if you take a hard look at Kyoto and you ask the question,
"How the heck are we ever going to get there?" people are
definitely going to be coming up with some issues and options
like a carbon tax to be able to deal with it.
The fourth issue is
construction labour costs. The government has made a considerable
effort to address this issue. This was our number one issue last
year. We had a significantly higher labour cost regime for
constructing plants than any other comparable jurisdiction, and
that higher labour cost regime knocked out investments in areas
like Sarnia and other parts of the province.
As a result of Bill 31 and
the project agreements we have with the unions now, I think we
are in a position where we can start to address that issue. I
guess our urge is to stay the course on that as a government.
Probably a lot of time is needed to go through working through
these project agreements, working with the unions, building up a
track record, being able to convince our corporate headquarters
in various places that this is real and that it does result in
real savings and with those savings we're all going to be better
off. Unions are going to have more jobs. There will be more
overtime. Plants will be built. Investment will come to the
province as jobs will be created. We think this is a win-win for
everyone concerned, and we compliment the government on having
introduced Bill 31 and having had the tenacity to see it
through.
The last issue is
electricity. Our sector is keenly interested in electricity
deregulation. Just to give you a little bit of an idea, of course
electricity costs vary enormously among industries or plants or
companies, but some of our companies' electricity costs are 50%
to 65% of their total operational costs. For many of those
companies, their product is 80% exported to the US. You can
imagine what a 10% increase in electricity costs would do to such
a company. It wouldn't take very long for the company to say:
"Well, why don't I just shift my operations to the US, take a
little less cost in electricity, a little less transportation
cost? The market is down there anyway, so I might as well do
that."
Electricity is an extremely
sensitive issue for us. There has been a lot of progress on
electricity deregulation, but we're still not at a point where
you could say that we have a regime in place. We need to get the
regulations right. We need to manage the smooth transition to
full competition and ensure a competitive rate structure during
that transition phase, and all of that will have a significant
impact on our international competitiveness. I think government
has to carefully look at those impacts on industry in Ontario as we move forward in
this particular area.
Let me just leave it there.
To conclude, there are five areas where we think Ontario can
significantly improve its competitive advantage and turn it into
the Ontario advantage and attract even more investment into this
province and therefore create an even more vibrant and growing
economy with the growth of the chemical industry.
The Chair:
Thank you very much. We have about two minutes for each caucus.
I'll start with the official opposition. Mr Phillips.
Mr
Phillips: Just a comment. I do like your report card. I
read the report card, but your comments on the capital investment
were more encouraging than the report card would indicate. So I'm
going to assume that, in your judgment, Ontario is moving to
eliminate your major concern on capital investment. Is that a
fair statement?
Mr Norm
Huebel: Gerry, the report card was actually done after
the budget last year, and of course there have been changes since
then. But the report card will be updated after the current
budget is tabled. So you're right. It's a moving target and it is
improving.
Mr
Phillips: When I look at the Ontario, Canada, The Future
is Right Here document, they talk a lot about, "Ontario displays
significant competitive labour cost advantages ranging from $4.70
to $13.65 an hour lower than competing jurisdictions." And when
you add in the substantially lower health care costs in Canada,
it becomes even more dramatic.
My question is this: On one
hand, there's an enormous push on to reduce taxes, and that has a
lot of apparent public support. On the other hand, there's no
magic that our health care is funded out of taxes and if we were
to harmonize completely with the US, presumably we no longer
could afford our level of health care, which has been quoted as a
major competitive advantage for companies locating in
Ontario.
Unless we understand this
clearly, we run the risk of following the advice of organizations
that say, "Cut income tax," only to find that we don't have the
resources left to maintain what we've been told, even by
yourselves here-health and a pool of well-educated individuals
with the highest level of post-secondary education in North
America or something like that. I wonder if you have any advice
for us on how we balance those challenges?
Mr Michael
Hyde: If I understand your question correctly, Gerry, I
think the labour costs you were referring to in that document are
productivity labour costs as opposed to construction labour
costs, where we have a big problem.
Mr
Philips: Manufacturing wages is what-
Mr Hyde:
Manufacturing wages as opposed to construction labour rates. What
we're saying is that if we can get construction labour rates down
to a reasonable level so we can be competitive, we can attract
investment and thus create jobs and a greater tax regime.
I'm not sure if I have
answered your question, Gerry, but I want to address
manufacturing labour rates versus the construction labour rates
that we are very concerned about.
Mr Paton:
On your other point, I guess our argument is that a tax structure
that is more competitive will produce more growth and investment,
which will produce more revenue. We don't see this as a zero sum
game-you reduce taxes and you get less revenue. In our industry,
in fact, the opposite will happen. Maybe it wouldn't happen in
all jurisdictions, but Ontario is exceptionally well positioned
as a manufacturing location. It's got 120 million people within
one day's trucking of Ontario. That's huge and we do have the
advantage of our health system. In the long run, I think you can
reduce taxes and increase revenue.
The Chair:
I have to go to Mr Christopherson.
Mr
Christopherson: Thank you for your presentation. I don't
think there is an argument from anyone about the importance of
your industry to the economy.
I only have a couple of
areas and, given there are only two minutes, I'll just raise the
two areas and give you a chance to respond. If I have time, I'll
follow up.
You talked positively about
Bill 31 and I did want to put on the record that the unions, of
course, didn't see it that way. The unions were quite apoplectic
about the fact that there was very little consultation with
them-none, in fact-on parts of Bill 31. They filled the galleries
when we were debating it, but it was rammed through and we didn't
get any proper committee hearings. It's one of those things that
wouldn't register with most people, sort of a blip. But the other
half of the partnership, if you will-the labour side-were not
pleased. They didn't see this as something beneficial to their
members and as a job creator, and didn't see it as something the
government was doing to make things better for people who work in
the industry or in construction, but rather from the other side
of the equation.
Having said that, in your
report card you mention that labour is one of the areas where you
saw positive developments but work still to be done. Again, there
wasn't one thing this government did in its first term
vis-à-vis labour law that any labour leader saw as being
beneficial. Every measure this government took took away some
working person's rights somewhere, and at the end of four years
we've seen a lot of rights that working people had that they no
longer have, both unionized and non-unionized, because the
Employment Standards Act was also watered down. So I would
appreciate understanding what work you think still needs to be
done.
1700
The other thing is, I'm
from the community that had the unfortunate Plastimet fire. We
also have in our community, and you have in Sarnia and also along
the northeastern seaboard of the United States where there's a
concentration of chemical industries, the cancer rates,
particularly among the people who work in the industry or live
nearby. With thousands of new chemicals being introduced every
year into the environment without adequate knowledge, I wondered what steps you see
the industry taking in working with government to improve,
because I can't believe that you would find it acceptable. I know
that you would say work needs to be done. What sort of steps do
you think need to be taken to improve the health of communities
that have chemicals in process at one stage or another in their
communities, as we had in Plastimet where it was a storage issue,
or for workers who are in the industry and exposed to products
whose impact on the human body we have no scientific knowledge
of?
Mr Hyde:
Just to comment on Bill 31, one of my jobs in the province of
Ontario is to compete with
