MINISTER OF FINANCE
MINISTRY OF FINANCE
ONTARIO ROAD BUILDERS' ASSOCIATION
CANADIAN CHEMICAL PRODUCERS' ASSOCIATION
ONTARIO TEACHERS' FEDERATION
ONTARIO COALITION FOR BETTER CHILD CARE
Tuesday 1 February 2000
Minister of Finance
Hon Ernie L. Eves, minister
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)
Vice-Chair / Vice-Président
Mr Doug Galt (Northumberland 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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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