The Chair (Mr Paul R. Johnson): All the members should have with them today the report from research. There are two additional pieces of information. One is from the treasury board and is signed by Bob Christie; the other is from Elaine Campbell and includes some information that was not on the report that was sent to your office prior to the weekend past.
I'm in the hands of the committee with respect to how you want to proceed. You've all had a chance to look over the report. You haven't, I know, at this point in time had a chance to look at the additional points for consideration to the draft report.
Mr Kimble Sutherland (Oxford): I think probably the best way to proceed is to just go through page by page and work through it that way in terms of whether members have comments on anything or they want a clarification or things they want changed, added etc.
The Chair: That sounds positive, and we could start with the draft of the pre-budget report that you received prior to last weekend. I suggest we turn this over to Ms Campbell to take us through this report.
Ms Elaine Campbell: Page 1 of the report is the introduction. During the session on February 16 the members were agreeable to the introduction as it appeared in the proposed outline. They also agreed to the addition of a paragraph in the introduction that would summarize the tone of the hearings. There is a proposed addition to the final paragraph at the top of page 2 of the memorandum that was distributed this morning. I'll read that into the record:
"Witnesses presented the members with a tremendous challenge; namely, the development of an environment conducive to investment and the creation of jobs, that responded to the changing demands being made of our workforce, was sensitive to the needs and aspirations of members of all segments of society, and preserved the key elements of our social and health care networks."
Mr Monte Kwinter (Wilson Heights): I have one concern, and that is when you say "was sensitive to the needs and aspirations of members of all segments of society." Unfortunately, I don't think there is a document that can be produced that is going to be sensitive to all segments of society. I would like to have some kind of qualifier in that, "will attempt to be sensitive" or something of that kind. But to prepare a document that is going to absolutely meet the aspirations of all segments of society is a task that is beyond the capability of mortals.
Mr Sutherland: I think if you put "different segments of society," it puts the same intent across, that there are different needs and aspirations of different segments of society, without implying that we're going to be able to satisfy all of them.
Mr Sutherland: Just one thing: I think we had all indicated we wanted some comment that the presentation should not be considered as all-encompassing or covering all areas. I'm not sure whether we had asked for that to go in the introduction or elsewhere.
Ms Campbell: To move on to the next section, "Economic Summaries and Forecasts," that has been divided into a number of areas, the first being the past year, then a general section summarizing the comments that the various forecasters made on the provincial budget deficit and debt, plus a section on other themes that were touched on by the forecasters, and then a final section on the future which includes the caveats that some of the forecasters attached to their particular forecasts as well as discussions of individual variables such as real growth, employment and unemployment.
Mr Sutherland: On page 2 in the last paragraph it says, "Ministry figures indicated that 186,000 new full- and part-time jobs had been created." I'm wondering if we could make reference that the ministry cited Statistics Canada figures, because that's really the source for those figures.
Mr Gerry Phillips (Scarborough-Agincourt): Yes, it's on page 2: "According to the Minister of Finance, employment growth in 1994 was the strongest it had been in six years." The actual numbers from the documents that we got indicate that the growth in 1994 was actually a little bit lower than it was in 1993. I'm just wondering how we reconcile those two things.
Mr Sutherland: Yes, but I also think there was reference in the slides, the February to -- the 186,000 statistic is the one that that's making reference to in terms of being the fastest job growth since 1988.
Mr Phillips: Yes, although there is an interesting point about just why 1994 was not as strong as 1993, which is a bit of a puzzlement to me actually, why job growth in 1994 was less than it was in 1993. It may be just sort of a statistical aberration, but that kind of stuck out like a sore thumb to me.
Mr Carr: The only comment I'm going to make, and it's very brief, because I don't want to get into political debate, is that the reason we had the highest growth figures is of course, as you know, that during this recession we lost more jobs than anybody else; 80% of the job losses in the 1990 recession were in the province of Ontario. In the last recession it wasn't that high. So obviously, when you come out, the growth rates are going to look better.
I know the government wants to spin this, but the fact of the matter is that we lost more jobs in this recession than any other province. But I'm prepared to leave that in anyway. Quite frankly, the growth figures and the way the government's trying to spin it, I have no problem with that.
Mr Wiseman: I'd like to add a comment here about the reason that the recession was as deep as it was, because I would be looking for a recommendation later on. For example, I think we need to condemn the previous Tory administration in Ottawa for the high interest rates and the high dollar policy of 1988, 1989, 1990 and 1991. It was this policy of deliberately putting people out of work that drove the recession to the depths that it did, and I think we need to make a note of that.
The recommendation I would be making later on would be that the province of Ontario condemn future policy shifts that would move interest rates and unemployment higher deliberately. We all know the reason they do that is that they have this foolish notion that putting people out of work is the way to fight inflationary pressures. So I think if we're going to be talking about projections and about what's going to happen in the future in terms of economic summaries and forecasts, we need to indicate that the Bank of Canada rates and the high interest rate policies and the driving of the dollar up artificially must end and that we are looking at these strong figures as an example of what happens when there is a more realistic interest rate policy.
If you go back and look at the interest rates of, say, November 1993, you'll notice they were about 6% in terms of people being able to go to the bank and borrow money. Currently they're at 9.75% if you want to borrow money. It's this 3.5% to 4% difference that puts the growth of the economy in jeopardy in the future and it's only by having some reasonably intelligent administration of interest rates at the Bank of Canada, which we haven't seen in the last 15 years, that we will be able to get the unemployment rates down to an area where we can start to talk about full employment.
Also in this area, I think it's important that if we're going to talk about employment, we condemn at this time the federal Liberal government to have a policy of keeping at least 9% of Canadians unemployed as a policy to fight inflation.
I would be suggesting here that we need a wider description of the impacts of the cyclical nature and the impact of interest on the economy and how it can drive the economy into a deep, deep recession when there isn't any consideration given to the impacts of the high interest rate policy.
Mr Sutherland: My only suggestion would be that it probably doesn't fit in terms of the overall themes that you've developed here on pages 2 and 3. It probably fits in better as we get into some of the other sections in here -- I'm trying to think whether we have one specifically -- specifically the one on page 9 regarding issues of interest rates and where they are. Since the theme on page 2 is what has occurred in the past year, and we didn't really give direction to go back and go through all the history of the recession, I would suggest that we deal with that through page 9 in the interest rate section.
Mr Wiseman: I'm not averse to dealing with it a little later on, but I think on page 3, where we talk about debt and deficit, we would also have to look at the impact of the interest rates on the borrowing and the increase in the cost of borrowing. On page 5, we have comments here that seem to indicate that the interest rates are being driven by foreign rate premiums. That's not the fact. That's not the case. That's another mythology. On the bottom of the page we have comments as well.
I would actually see that there would need to be changes in the document with respect to interest rates prior to page 8, where I do see that we'll need some changes, and also on page 9. I'm not averse to leaving it until we move further along, but I would like to see comments in here about the absolutely destructive nature of the Bank of Canada's policies and what that means to the economy of Ontario and to the debt burden that we have to carry in the province of Ontario and at the federal government.
Mr Phillips: I guess if there's anybody who should know about the cost of borrowing, it would be the Ontario government, because it is the world's biggest borrower outside of sovereign countries and also, as we all know, has won at least two awards for being the best borrower in the world. I think the Ontario group that does the borrowing understands that it has to compete for Canadian dollars around the world with the interest rates, and what happens to Ontario is that because of the very high federal debt and the very high provincial debt, we're paying a risk premium and that's what's driving the high interest rates.
Nobody, as I say, knows it better than Ontario, because it borrows money all over the world and it has to compete all over the world for people to invest. They know that what drives those interest costs up is competing around the world and there is a risk premium attached to loaning money to Ontario. There are no two ways about that.
We may want to get into some details about what's happened to the deficit since 1990, what's happened to the accumulated debt, what's happened to the interest costs that we're paying in Ontario, what our debt servicing costs now are versus what they were five years ago. Maybe we should get into some of that detail, if it's of interest to Mr Wiseman.
I think what we'll find is that the interest costs that we're paying are dictated by the international markets, and they're demanding a premium because they don't like the credit risks. We now have seen Ontario's credit rating go from AAA to one downgrade, AA+, a second downgrade, AA, a third downgrade, AA-. Every time that happens, according to the ministry officials, our interest costs go up and we pay more money, and we're right on the edge of another downgrade. That's what's driving the very high interest rates that Ontario's paying to service its debt. It has been the province that's had the most downgrades in the last four years. Some other provinces actually have had their credit ratings upgraded, but we've had three downgrades, and every time that happens it drives our interest costs up.
Maybe we do need some more detail on all of that in this document so that the readers can understand how much we're paying for debt interest, what's happened to our debt, both the amount of debt that's on the government books and the amount of debt that's hidden away in the crown agencies that we have to service as well.
Mr Carr: Just very briefly, as I talked about earlier, most of the job losses in this recession, 88%, have been in Ontario. I was willing to give the government the page 2 spin that it wanted, with the increased jobs. Now that we have turned it political, in Mr Wiseman's comments, I just want to reiterate to the researcher that the last paragraph on page 2 and the top on page 3 has to come out, otherwise we will not agree with the report.
The Chair: Order, please. We seem to have a little disagreement with respect to whether we want certain parts. We have a disagreement with respect to certain parts of this report. I think it's an appropriate time at this point in time to put the question to the members with respect to the last paragraph on page 2 and, I believe, the first paragraph on page 3. I'd like to get some opinion that will resolve this, so I'm going to put the vote to the members who are here.
All those who would like to have those paragraphs as they are -- and there has been some indication to amend them in fact, but if you are familiar with some of the changes that I believe were agreed to with respect to those two paragraphs, I would like to know those who are in favour of keeping those paragraphs in the report.
All those opposed? We don't have the clerk here at the present time. However, if it's not inappropriate, I will, for the purposes of Hansard, call out those members who have voted in favour. Would you like me to do that, put that on Hansard?
Ms Campbell: Since those two paragraphs are going to be included in the report, is it my understanding that the committee would like some reference in the second paragraph under the past year to Statistics Canada?
Mr Carr: On a point of order, Mr Chairman: Just so people know, in the past what would have happened is that we would have agreed on the content of the report. Because of the changes that are now coming out, we won't even be supporting the final report that comes in. I just want to make that clear. That's how it works in terms of procedure. We will vote on the whole report then at the end.
The Chair: Thank you, Mr Carr. Of course, you know that those parties who are in opposition to the report can submit a dissenting opinion. For the purposes, again, of Hansard and all those people who might be watching the program at this time, I want to tell you that the government was successful in keeping those two paragraphs in the report. They won the vote, and I'd like to now turn it back over to Ms Campbell, with respect to those prepared drafts, I would assume.
Ms Campbell: The bottom paragraph on page 2 made reference to "Ministry figures indicated that 186,000 new full- and part-time jobs had been created." Mr Sutherland had requested that there be an additional reference to Statistics Canada. As far as the third line in that particular paragraph, "According to the Minister of Finance, employment growth in 1994 was the strongest it had been in six years," does the committee want a slight change in the wording, "According to the Ministry of Finance, figures on employment growth from February to December 1994 were among the strongest they had been in six years"?
The Chair: Order, please. We would like to proceed with some reasonable semblance of order with respect to dealing with this report and, as I indicated before, those who are opposed to the final outcome of this report may include a dissenting opinion. I just remind you that you have that opportunity and certainly you would indicate that you disagree with the report and you would have some statement to make that would be your own.
Mr Phillips: The numbers I have indicate that in 1994 Ontario still had about 84,000 fewer jobs than it had in 1989, and the rest of Canada was up about 240,000 jobs. That may be a point worth noting just in terms of continuing to recognize that, even though in 1993-94 we saw reasonable job growth, we still actually have fewer jobs in Ontario in 1994 than we had in 1989 and the rest of Canada has gained about 240,000 jobs.
Mr Wiseman: Those numbers are old. I have numbers from December, Jobs Ontario secretariat, that indicate we're up around 4,935,000 jobs as of December, and I think the numbers in that report are slightly lower. I believe that number is slightly ahead of where it was, where we projected it to be.
Mr Sutherland: Yes. The second paragraph, the last sentence, "The minister also said that consumer confidence in 1994 was the highest it had been in five years." I believe that we heard from the Conference Board of Canada that business confidence was at a record high as well. So that probably should be cited in that paragraph as well.
Mr Carr: I was going to get into the debate on that. I don't even remember them saying it. I would just like to leave it as the ministry, because I think the ministry is going to say and do whatever it wants. This report's going to reflect that. So I'd leave it as it is.
Mr Sutherland: If I could, of course the minister made reference to consumer confidence. We're talking about investments in machinery, equipment etc, and the Conference Board cited about business confidence, so I think as an extra sentence, since we're talking about that, that issue of confidence out there, it's appropriate to make reference to that.
Mr Carr: I don't know what the Conference Board is saying, but all I know is that consumer confidence is not strong out there. People are afraid of losing their jobs; they are not spending. We can get into a lot of detail of why they're afraid of losing their jobs, probably because of the fact that unemployment, in spite of all the jobs being created by this government -- all I know is they keep creating more jobs, they say, and the unemployment rate keeps going up. That's all I know, and it's up dramatically versus 1990 when you took over.
I can't agree to have that in there, because I'm telling you, consumer confidence is not strong in the people I talk to, and if you believe that, then why in the heck aren't people spending? They're not spending because they're afraid for their jobs. Some businesses are spending in investment, particularly the auto sector, which has done well, but I want to tell you, if you're talking about consumers, consumer confidence is not, because of the fact that they're fearful for their jobs.
All you need to do is take a look at the housing market, where people are not buying. One of them is interest rates; the other is the fact that if they do have a job, they're afraid of losing their job. Consumer confidence in this province is not strong, and I could not support anything in the report that says it is because you'd be absolutely wrong if we put it in there.
Mr Sutherland: If I could just say again, the nature of these reports, and certainly in this section, is to try to reflect what the different presenters said. I know Mr Carr has his personal opinion that both consumer confidence and business confidence are not high. As to the sentence here regarding consumer confidence, I indicated the minister said that. I assume, in terms of the minister making his presentation, he was probably citing some source, not just his own personal opinion. As you know, these things are --
Mr Sutherland: No, no. I'm sure he was citing one of the surveys that was done regarding that. However, that was his comment regarding consumer confidence, the Conference Board mentioned about business confidence, and I was asking for one more sentence to be put in. If Mr Carr feels at the end of it he wants to provide some comment on his personal opinion, I would suggest he has the option of doing that in the report that his caucus may want to submit.
Mr Carr: Just so everybody knows, what we've done in the past is we tried to get some consensus on the report so everybody agreed to the report we did and then we had our own dissenting reports on it. What's come out -- and again, I was going to give you some of the spins on it, until we started getting into all this political baloney, and I guess after last night's budget I should have expected it. I guess the Premier's in the media studio doing that now.
But just so everybody knows, historically what we've done is agreed to the report, but with these things being in it I cannot, and what we'll do is we'll go through it, we'll vote on this and I'll vote against that and at the end of the day we're going to vote against the entire report, so there won't be a consensus. I think that'll be the first time I've sat on there that there wasn't a report where there was a consensus of the committee on the things we could agree with, because I can't agree with that.
I think ultimately it's up to the consumers out there to decide, not me or the Minister of Finance, whether consumer confidence is up, and they'll get a chance to do that when the election comes, very shortly. So let's vote on that. I can't agree to having that put in there. If you want it in it, let's vote it and we'll vote against each of them and then ultimately we'll vote against the entire report.
The Chair: Thank you, Mr Carr. I would like to remind the committee members that the research officer has compiled the information that was made before this whole committee and has edited it to the extent that it's more concise, but the information is still, I believe, accurate. As we're dealing with this report as it's prepared for us at this point in time, I think all we want to do is agree with the information that was brought before this committee by all those deputants and come to some agreement with respect to that.
I think it would be inappropriate at this time to inject our own personal opinion with respect to how we see the finances in the province of Ontario. What we want to do is to have this report basically agreed to by the members of the committee as being the information that was shared with the committee by those people who made the presentations before us. Wouldn't the committee members agree with that?
Mr Carr: I just cannot agree to a report which says consumer confidence is high in this province. If I did that, I would be lying. It is not, in my opinion, and part of the report we are doing is going to be the consensus of this committee. If the consensus of this committee is that consumer confidence is high in this province, they are wrong and I cannot support it and will not be in support of it. Notwithstanding what the Conference Board said, notwithstanding what the Minister of Finance said, if they believe consumer confidence is high in this province they're wrong and I will not be supporting it.
Mr Sutherland: Exactly. It was stated; it was said. I know there are surveys done, not by the Ministry of Finance but by individual survey firms, that indicate consumer confidence in 1994 was the highest it had been in five years.
I know Mr Carr may not agree and he may hear individual comments that would lead him to believe otherwise, but in terms of citing that, that is not the minister citing his personal opinion. I don't have the exact source here, but I'm sure he is citing one of the survey firms that measure that and just reflecting that. The Conference Board of Canada is known as a firm that does regular surveys on these issues and it also mentions that business confidence is at a record high.
Mr Sutherland: -- at this time we need to have a lengthy debate and certainly not a vote as to whether that was what was said before the committee or whether we exactly agree with all the comments that were made by all the presenters, because we know we're not going to get a consensus on agreeing with everything that was stated by all the presenters.
Mr Carr: One quick point, because I don't want to go on: The problem with what you say is that it's the highest it has been in the last five years. The problem is that we started so far behind; same with the job creation. We lost more, so when you create them there are going to be more when we come out of the recession. That's the spin you wanted and I was prepared to give you the spin; I can't give you that spin now because it is wrong.
Obviously, when the consumer confidence was as bad as it was earlier on, it is improving versus what we were at, which was an all-time low. I want to tell you that what we're attempting to do in this report is put the NDP spin on it. We've lost more jobs than anybody else, so when we do create more coming out of the recession, they try to take credit for it. They blamed all the job losses on other levels of government and high interest rates on Brian Mulroney, and then when the jobs are created they try to take credit for them. You can't have it both ways. If you want that in the report, then we are going to have to have a vote, because I cannot support saying the consumer confidence is high, because it is not.
Mr Wiseman: I'm trying to determine where Mr Carr is coming from on this. Sales of automobiles are up. Pre-Christmas sales in the retail market were up. They're up to the extent that there's an increase in revenue both at the federal level and at the provincial level. It seems to me that to say in the report that consumer confidence is at the highest it has been in five years is not untoward. All the indicators would indicate that.
Mr Wiseman: To tell the Treasurer that this is not the case, to tell the Treasurer that in the face of all the numbers he is looking at in terms of increases in sales, increases in jobs and increases in revenues is not the case flies in the face of what the report is all about. I guess the Tories would like to have a pessimistic spin to this document, but in fact what we've heard from people, from the Conference Board, from retailers, except for the Ontario Restaurant Association, they have all indicated that they had a better year, one of the best years in a long time.
Mr Sutherland: Maybe as a way of resolving this, you will recall on page 2 I suggested the Ministry of Finance figures indicated the 186,000, that we make reference that it's cited. The 186,000 was a StatsCan figure. Maybe either we could keep the sentence as it is and ask for a footnote to have the ministry provide what source it was using for that basis or, if we could find that source, have it indicated that the minister used this source that said consumer confidence was the highest it had been in five years.
Mr Carr: Mr Wiseman asked where I'm coming from on this. I thought it was clear. Where we're coming from is that consumer confidence, as a result of the 1990 recession, which was historically the highest we've ever had, was the worst we've ever had during that recession, so of course it's improved as we've come out of the recession. All I'm saying is that the problem is where we're starting from, and where we're coming from is that consumer confidence versus where we've been in the past is still at an all-time low. It's better than it was a few years ago, but the fact of the matter is that we're coming from historical lows in consumer confidence. You're trying to put the spin on it that everything's great and consumers are confident out there. They are not. They are versus what happened in the 1990 recession, but consumer confidence is not strong.
That's where I'm coming from on it, very simply, the same as your job figures. We started from so far back in the job losses that when jobs are created -- as I reiterate again, what this government is trying to do is blame all the problems of the 1990 recession on other governments, the federal government and interest rates, and then it tries to take credit when the recession ends and the jobs come, and the same with consumer confidence. The tax increases they put in their budgets helped depress consumer confidence. Going back in the last two budgets with the highest tax increases we've ever had, that ruined consumer confidence, because any of the people who were working got a tax. In my region, somebody working at the auto plant, at Ford Motor Co, making $50,000 got a surtax put on him. What do you think that does to consumer confidence? Now you're saying as we come out of the recession that consumer confidence is up and you're trying to take credit for it? I'm sorry, I can't do it.
Again, we're going to have to vote on this, because if you want to put it in there, I'm not going to put it in there and we'll vote on each and every line that you want to put in there. I cannot say that consumer confidence is high unless you want to put "versus an all-time low" which was in there as a result of the NDP being in power. So I can't agree to it. Let's move on and vote on it. You guys can vote to put it in and I'll vote to not have it in.
The Chair: Two things: (1) I think it would be helpful if we moved along, and (2) if you'd like to vote on anything, I'd like the committee members to put it in motion form so that both the Chair and the clerk understand exactly what it is we're concerned with so that we don't make any errors with respect to that.
Mr Kwinter: I have a problem with this whole discussion. If this were a generic statement that was made in the report, I think anyone could take issue with whether or not it reflected their particular position. I think the provisions for presenting a dissenting report are there. To rewrite history -- "The minister also said that consumer confidence in 1994 was the highest it had been in five years." You may agree with that or you may not agree with it, but you can't disagree that he said it. That's what he said, and what this is reporting is that he said it. There are lots of things that people said during this particular hearing that you may or may not agree with, and that is why there's a provision for putting in a dissenting report.
But I think it's important that we understand what the process is. In my view, the process is that we are a standing committee of the Legislature to hold public hearings to gauge the positions of a wide variety of people in various sectors in our community and present this report as a guide to the Treasurer when he crafts his budget. To suddenly rewrite what people have said and to say, "Well, no matter what he said, I don't agree with it," I think does everybody a disservice, particularly when we talk about the Treasurer, who is a political being. We are all politicians and we will have ample opportunity to take issue with some of his assumptions. But to deny that he said them or to say we can't put in what he said I think distorts the process and creates problems that we'll have to go through this whole thing, because then you have to evaluate what everybody said and whether you agree with what they said or not.
I say there's ample opportunity to do that, and that is basically why you have those dissenting reports, so you can take issue with some of the things that people have said. But I think our role is to present as fairly and as impartially as we can to the Treasurer what people told us. We then have to make some recommendations, and those recommendations again will differ depending on where you're coming from both fiscally, philosophically and politically.
Mr Carr: If our role is to advise the minister, which I agree, then why are we quoting the person we're going to advise? We're quoting somebody. This report is supposed to be for him and our report is quoting him.
What this report has become is a political spin for the government. If we're going to report and advise the minister, and if that's our role, and I agree it is, then why are we quoting him? What I'm saying in this is this document has been written and we shouldn't be quoting the minister in it. If it's to advise him, why are we quoting the person we're going to advise? It should be taken out, as simple as that.
But I don't want to spend a whole lot of time on it. Obviously, we're going to disagree and we could be here for three weeks. I know I've spoken the most on it, so let's come to some agreement. I don't think it should be in there. Let's not spend a whole lot of time wasting it, other than the problem is, if we don't, then every time I disagree, we're going to have to have a debate of why I disagree on it. But let's not spend a whole lot of time. Here we are advising the minister and we're quoting him. That's stupid and it's wrong.
The Chair: If it will be helpful with respect to the proceedings over the next couple of days, I think maybe we should resolve how we're going to deal with this once and for all, most certainly with respect to this.
Mr Kwinter: If I could respond to Mr Carr's concerns, when you have pre-budget hearings, you have to have some basis for all of your deliberations, and the basis is the financial projections that only the ministry of the treasury has. They're the only source. We have no ability to say, "Well, we think it's going to be this, that and the other thing," other than various presenters who make their presentations. What we have to decide is whether or not the projections, the assumptions that are being made by the ministry of the treasury, square with what other people are telling us. So we have to have that basis, and I think it's absolutely critical. It makes no sense to say, "Why are we quoting the Treasurer?" I'm saying you have to quote him, and then you have to take into account what other people have said and then you have to make your evaluation.
We're going to have a great, I assume, debate on the auditor's comments. They are obviously not in accordance with the Treasurer's feelings. But our role is going to have to be to comment on those so-called discrepancies or what dissenting people are saying or what other people are saying. But I think the Treasurer has to put his position and then our role is to listen to the others and then make recommendations based on what we think is either the compromise or what we think is closer to reality. So I have no problem at all, and I think it's absolutely critical that we hear from the treasury and that that is part of our report, because that's the only basis that we have to either evaluate it, criticize it or support it.
Mrs Elinor Caplan (Oriole): If I could just add to what my colleague has said, what I'm interested in is seeing that this report is an accurate reflection of what we heard. We will then have the opportunity to suggest recommendations which will be voted on at this committee, and if the report is not only not an accurate reflection but also doesn't present the kind of recommendations that we believe it should present, we have the opportunity, as members of the opposition, to write a dissenting report.
I think it's frankly misleading for the people watching to suggest that the fact something was said before the committee -- if it was an accurate reflection, and Hansard has all of that, if that's what was said before the committee, it should be reflected in the text of the report. We can then say, "By the way, we think he's on another planet" and recommend that they not base their fiscal planning on that assumption because "they're out to lunch." We might want to phrase it a little more diplomatically, but that's what we could attempt to do in the recommendations part of the report.
I've served on a number of committees over the years and been part of pre-budget consultation and the text of the document, I agree with my colleague, is a reflection of what we heard, and frankly we heard a lot. You're not going to be able to reflect everything that everyone said. I think our researcher's done a commendable job in trying to condense it into a format that is tight and reasonably accurate. Where I would take exception is if there is something here which is not what is reflected in the Hansard. So I have no objection with an accurate statement contained in the report, even if I disagree with it, if that's what's reflected in Hansard.
Where I might have disagreement is if the suggestion of that is presented in a way to suggest that that is the consensus view when, in fact, it may not be the consensus view, but if it's an individual opinion, as the Treasurer's was or Mr de Bever's was, and so on and so forth, I think it's important that we accurately reflect what they had to say about the state of the province's finances and then get on with the tough task and the real debate about what the suggestions to the government are.
Mr Carr: Mr Chairman, can I be helpful? I realize now, and I guess I should have with the numbers on there, that the NDP's going to get what they want in here anyway. I'll withdraw my motion and what I'll do is, the things I disagree with I'll just comment on them as we go through so that we don't have to drag this out. I realize, obviously with the numbers, they're going to get in there what they want, they're going to get the minister's spin, notwithstanding the fact that we heard from so many presenters. I realize it is a political document, they are going to get their spin --
Mr Sutherland: Well, no, I just wanted to get clarification on this paragraph because, if I am correct, Mr Carr's original motion, or what he wanted to put forward, was take out this last line. I originally made a point about also at this time I thought it was appropriate to cite the Conference Board of Canada on putting what they said about business confidence being at its highest level, and it was at one of their charts. So I would still like to have that added to this paragraph.
Mr Wiseman: I'd also like to indicate that the Royal Bank's presentation indicated that in terms of growth in the economy, after subtracting inflation, consumer spending shows that 1994 was a good year. Durables were up 3.2%, semidurables 4.6%, non-durables 5.2%. So these indicators clearly indicate that consumer confidence was better in 1994.
If you look at the purchase of North American light vehicles -- there's another graph -- it shows that 1994 was a good year. If you look at real business investment year-over-year percentage change, 1994 was a good year, in particular the last quarter. Housing starts weren't such a good year but consumers increased and contributed -- not as strongly as we would like -- almost 3.2% or 3.1% to the expansion.
These are the graphs that we were supplied by the Royal Bank, so I think that there is a validity in having something in here indicating that consumer confidence has improved. If it's the minister's opinion that it was the highest in five years, the numbers that we got from the Royal Bank would indicate that it was certainly significantly better than it was prior to 1994.
Mrs Haslam: With all due respect to my colleague, I'd like to say similar to what my colleague Ms Caplan was saying that we're not rewriting Hansard here and we're not rewriting everything. We indicated to Ms Campbell that we didn't need a lot of different charts in here, that we didn't need to go over everything that's been presented. I understand Mr Wiseman has a lot of background in this and certainly that can be worth noting, but it's been noted in Hansard many times.
What we're looking at here is a generalization of some of the presenting, its themes. That's what we've asked Ms Campbell to do, to look at themes and to make some comments on some of those. So while it would be nice to indicate all of these indicators, I don't see the necessity. I think we've added something from the Conference Board of Canada, we have something from the ministry, and I just really question how thick this report is, since it's only a gathering of some of the information and an overall look at two weeks' work. I don't want to see a two weeks' Hansard go in to the minister. Let's stick to an overview of what we asked Ms Campbell to do.
Ms Campbell: I have a question, though, arising from Mr Wiseman's comment. Does the committee want further reference to consumer confidence included in the second paragraph on page 3 or are they satisfied with the reference as it appears?
Mr Sutherland: If there were other sources, if you want to comment on those other sources that mentioned about the consumer confidence issue, then fine, but otherwise, it can probably be the way it is.
Ms Campbell: I have one further question under the heading of "The Past Year" before proceeding, and that is to go back to a comment that Mr Phillips made about employment figures, comparing 1994 with 1989. Is the committee agreeable to including figures from 1989 and 1994 re employment?
Mr Sutherland: If I may, the only thing is that many of the figures that are cited here, because it is titled "The Past Year," don't go back and do comparisons to put the perspective, whether we choose 1989, 1992, 1985 etc. So I'm just wondering, if we deal with a section "Unemployment," then we can deal more with that perspective basis under those individual areas rather than this, which is the title, kind of the summary of the past year.
Ms Campbell: The next heading on page 3 is "Provincial Budget, Deficit and Debt." This particular section summarizes the comments made by the forecasters on that theme. Are there any comments from the committee?
Mr Sutherland: I'm just wondering if we could, on the ministry's comments, make some reference that in the forecast for eliminating the operating deficit, some of the basis for that is on the fact that that's without doing any increases in taxes.
Mr Carr: Just very quickly on this same point, I take it now, with some of the changes in the federal budget, that the numbers are almost irrelevant now anyway, with the transfers and what's going to happen with the provincial deficit. If we listen to the Premier at 10 o'clock, I guess he's going to tell us the changes. Should we put in, just in the very last line, that this report and all the figures that the ministry put were prior to the last federal budget? Because I suspect we're going to write a report saying, "This is what the government thinks is going to happen." At the same time, we probably have a Premier, whose press conference was at 10 o'clock, telling us they are not, for whatever reason.
Can we put a last line so that people know this report was pre-federal-budget, so that everybody knows? Quite frankly, I don't even know why we're spending a lot of time even looking at this area, because as you know, the ministry figures are probably churning the computer data out now to change everything based on the projections and the $3 billion we're not going to get, or whatever the numbers are. So we're spending a lot of time looking at data that is quite frankly outdated, and the people should know that in the report. If not, then we're being dishonest, and we're quite frankly lying to them if we say, "This is the situation as of February 28," because it is not.
Mr Sutherland: I have no objection, from what Mr Carr is suggesting, if we want to have one line making reference to the point. I think there are other sections, of course, where we want to deal with the issue of federal transfer payments to the province. So if we want to put a line in here saying that -- now, I think during the presentation the minister outlined his concern regarding federal transfer payments and any potential changes in the budget. By the time we're finished writing this report, I don't expect you'll have any new projections from the Ministry of Finance in terms of, "Okay, within a week we've got all our new projections, based on what the federal budget is, of where all our forecasting is." But if we want to go back and see what the minister had mentioned about a potential impact of transfer payments, I don't think that's a problem.
Mr Carr: The only point I wanted to make on it -- and I know the NDP will have the numbers, and the political spin from the Premier is coming -- is I would hope we could do it in a factual way, not being political, trying to slam the federal government on it, but just making note of that fact, without commenting in a "We support it" or "We don't support it" type of way; if we could just say, "All the figures were done not knowing the transfers." But I certainly would hope, and I think to be in a non-partisan way, we wouldn't use this as an opportunity to slam the federal government on what it may have done yesterday.
If we can just put it in for factual, without commenting on whether it's good, bad or indifferent, I hope we could have the wording that just basically says the numbers that we're looking at have changed as a result of the federal budget, without getting into the comments -- and Mr Johnson has returned from what the Premier has said -- without getting into the political spin on whether it was good, bad or indifferent. Perhaps we could just have some agreement that the researcher will write it in a non-partisan, "these are just the facts" way of doing it.
Mr Kwinter: Throughout this document, I think we may have to change a few of the words, because notwithstanding that the hearings are held before the budget, this document will be going out after the budget. I don't think we should change any of the numbers, because that again is rewriting history, but I do think it would be useful to just have a footnote saying all of these projections were made prior to the release of the federal budget, period, and deal with it that way.
The Chair: If I understand the committee members properly, then a footnote with respect to the whole document saying that this document was arrived at prior to the federal budget being released, or something to that effect.
Mr Kwinter: If I may, I have already made some notes that I'm going to talk about. Let me give you an example: page 5, the last paragraph, where it says, "The upcoming federal budget has been the focus of national and international attention." I think it's quite simple to just say, "The federal budget has been the focus of national and international attention." We can remove the term "upcoming." Remove the term where it says "will," "would," just to put it in the proper context, without touching any of the numbers, because that, as I say, is a whole other exercise. I think if you just put the footnote saying, "All figures were projected prior to the federal budget," that lets people know that that's what it is.
Mr Kwinter: Just on a very simple point, on the bottom of page 4, the second line, it says, "According to the Bank of Montreal, the critical problem is the accumulated deficit." I think that should say "the accumulated debt."
Mr Phillips: I would think they probably have figured it out pretty quickly. I'm not sure how we can build it in here, but just so at least the committee has some understanding, if they've got it handy, and I would speculate that they've done the quick calculation.
Mr David Johnson (Don Mills): Mr Chair, you may have gone by page 3 -- I'm sorry to be a little late; I was at the Premier's announcement -- but on page 3, there's a tally with regard to the investments in machinery and equipment reaching an all-time high of $20.8 billion in 1994. I think it was the auto parts association that was before us talking about the investment in bricks and mortar in the province of Ontario. This particular item on page 3 is pertaining to machinery and equipment, but the auto parts association, it's my recollection, differentiated between bricks and mortar and machinery and equipment and made quite a point of talking about the investment about bricks and mortar. I wondered, perhaps a question through to the legislative research if my memory is correct to start with, and secondly, would this be a good point to insert that particular comment?
"Performance has also improved because of increased investments in machinery and equipment. Even so, the Automotive Parts Manufacturers' Association (APMA) told the committee that more investment in `new bricks and mortar' was taking place outside of Canada."
Mr David Johnson: Right. I'd certainly mention this. So you now have investment in two different spots, but number two, I thought they were a little more specific in terms of their reference beyond indicating that most, or all, of the investment was taking place outside of Canada in terms of bricks and mortar. Wouldn't it be a good idea to bring these two comments together in one place?
Ms Campbell: This particular section is dealing with the economic summaries and forecasts that were presented by the Minister of Finance as well as the forecasters. If it's the committee's desire to insert a comment made by another group, it's their decision to make.
Mr David Johnson: I see. This front part has nothing -- it just seemed to me that if we were to consider the total investment climate in Ontario and look at all the factors, then machinery and equipment is obviously important, but it's not the total story. The total story goes beyond that to the buildings and what they call the bricks and the mortar. The point that was made by the auto parts association is that they have witnessed some investment in terms of machinery and equipment, but there's been an appalling lack of investment in terms of bricks and mortar, which from their point of view, as I can recall, demonstrated a lack of faith, I guess, in the current situation or the immediate future. It just seemed to me that to get the total picture, if it was all brought together at some point -- now, I don't know where the proper point is, but would that make any sense?
Mr David Johnson: It would certainly be my wish to expand to incorporate the total investment picture, and if you think this is as good a point as any, then I would say yes, if that could be done on page 3, to look at the total picture of investment in Ontario.
Mr Sutherland: Can I just make a comment in response here? In terms of if we look at the tone of the paragraph, we're looking at general comments overall. Mr Johnson's reference is accurate, but it's citing a specific industry's comments about what is happening, and therefore I think the way the researcher has done it is appropriate in terms of it coming under the sectoral comments, because obviously, with auto playing a large part in manufacturing, it does have a significant impact but it would not account for all the investments in machinery and equipment in the province. So I think the way it's presented now is appropriate.
Mr Carr: Obviously, you saw what I was getting at earlier. I was told that we had to put it in because this is what the minister said and we were supposed to reflect it. As we see now, we will reflect it as long as it reflects strongly on the government, and if somebody came forward and said something negative, we'll bury it in the back of the report.
You can't have it both ways. You can't argue like you did with me and say, "No, the minister just said this, so we have to agree with it," notwithstanding the fact it's supposed to be an advisement to the minister, but then when there's something we disagree with which may put a spin on it that isn't quite what the government wants, the parliamentary assistant says, "No, we can't put it in." You can't have it both ways.
I'm told by the Chairman that this isn't a political document, that we're supposed to be sitting here and doing it in a non-partisan way, and I'm told I'm crazy because I'm saying there's politics involved in it.
Mr Johnson has made a very valid point, and the parliamentary assistant stands up and says, "No, we have to have what the ministry says in there," all the positive things, but anything negative that was reported -- I thought you told us we had to put in a reflection of what we heard, except when it's negative to the government, and then we'll bury it in the back under sectoral and not put it in the front of the report. You can't have it both ways and I think the public are seeing just what a sham this whole process is.
Quite frankly, what I'm going to do with it, because I've sat on it two years, I'm not going to waste a whole lot of time debating it, like I've done this morning. I think the public knows that if it's something good, you'll put it in; if it's something that doesn't reflect well on the government, you're not going to put it in the report. It's a complete and absolute sham that elected members are spending time giving advice to the minister when they're only going to tell him the things that he wants to hear, and it's an absolute waste of all our time.
Mr Sutherland: I did not indicate that I was going to ask that the comment in the sectoral section on the auto sector be deleted. My comment was this: I thought that was the appropriate place to put it because it's referring to their specific sector. The comments here are referring to all the sectors and are the comments of the forecasters, the Ministry of Finance forecast and the other forecasters, that we had in here, and all parties had input on which forecasters would be in here.
Mr Carr has been on this committee in the past years. He knows full well that in every report to the Minister of Finance we have always cited what the ministry has said in terms of the forecasts in terms of the main body of the report, and we are not doing anything out of the ordinary this year in terms of developing the body of the report.
The comment made by the auto parts manufacturers is an important comment. It should be in the report and I think the researcher has chosen the appropriate spot within the sectoral comments because they're referring to their specific sector in terms of their comments on investment. They are not talking about all the investment in all the sectors in the province that way. They're talking about their specific sector, and that's why it's appropriate to be in that section on the auto sector rather than here on page 3.
I only raise the issue for a couple of reasons. One is that it's hard at this point to contemplate a sector that's more important to our economy than the automotive industry, certainly in terms of exports. We all know and we've all heard through these hearings that exports are really driving the economy now, and any success we've had over the last year or two is due to the exports. I think we all realize that the automotive component of that is key. This industry, the automotive industry, is key to our success and has been in Ontario and will continue to be in the future. So their comments, I think, are a little more important than just to describe them as one sector of our economy. It's a fairly central component of our economy.
Secondly, the point they were making, I believe, is that an investment in machinery and equipment does not show necessarily a long-term commitment. Machinery and equipment can be picked up and can be moved. I think the implication here is that if the circumstances are such in Ontario that the investment climate is not appropriate, then the machinery and equipment, I presume, could be moved to other provinces or the United States or wherever.
Bricks and mortar show a long-term faith and a long-term investment. If the industry is going to build bricks and mortar, then there's a commitment, something that one can count on, presumably, in the longer run. That, and their comments, clearly illustrated to me that, yes, we've had machinery and equipment, but that's an essential thing to keep business up to date, number one, on a year-to-year basis -- it shows no long-term commitment, the machinery can moved -- but number two, and in terms of a long-term commitment to this province, it isn't there.
There's concern with regard to the total investment environment in the province of Ontario, and that's demonstrated by the fact that there is very little investment in bricks and mortar in Ontario. Most of the investment is taking place outside Canada.
If we want to get a true picture of the investment, then rather than simply the comments with regard to machinery and equipment, if this is truly to be helpful to the Minister of Finance, we need the total picture. What we've got on page 3 is far from the total picture; I think it's almost misleading.
Mr Kwinter: If I could be helpful, Statistics Canada reports the investment activity in the country on a quarterly basis. One of its indices is the investment in machinery and equipment. It's not political; it's factual. You may not like it, but you can't question it. If they say that the investment in machinery and equipment at this particular time is at an all-time high, it's at an all-time high. It has nothing to do with whether you agree with it or whether you don't agree with it.
It would seem to me that in this particular section, the Minister of Finance is reporting -- I would have a question if the number was wrong but I assume the number is correct -- that it has reached an all-time high of $20.8 billion. It isn't a matter for political discussion; he's stating fact. I would suggest to my colleagues that anyone can check it and the only time we would have any objection to it is if he misrepresented what the figure is.
But you should know, if you listen to your radio, that whenever you hear the financial analysts talking about the latest report of Statistics Canada, they always tell you, and you'll always hear it, that one of the components is that the investment in machinery and equipment is up or down.
As I say, you may not like the political spin, the implication of that, but it's a matter of fact and the only question we should have in this particular section is whether or not the Minister of Finance has reported it accurately.
Mr Carr: No one's doubting that. All we're saying is that the facts he's reporting in this section are the ones he likes; he's picking and choosing. In the first paragraph, specific reference was made to motor vehicles and auto parts. The parliamentary assistant wants that in when the spin is that it's good, which it is, because exports are up. He says we can only talk about it in the sectoral. Then why in the first paragraph do we talk about reference made to motor vehicles and auto parts? The reason it's done is because it is good news in terms of the exports.
I have no argument with what Mr Kwinter is saying other than the fact we want to make: What the Minister of Finance is doing is picking and choosing the facts he wants to put in there, and anything good, he wants to put in. We're going to be reporting to him, supposedly advising him, with the facts that he likes, and anything that he did not like will not be in this front section of the report.
Mr Kwinter is absolutely correct in what the minister has pulled out, and he is reporting the facts and the facts aren't wrong. What he is doing is selectively reporting the facts that have a good political spin on the government. That's what we're pointing out. In the first section, you say we can't have reference to sectors because that comes in the back of the report, and yet when the exports are up you want it in there.
All I'm saying, and I'm not going to argue this point, for the folks at home who are looking at this is that this document is nothing but political spinmanship. The minister is going to put the parts in the beginning that make the government look good. The ones that don't are not going to be in this report and it's not going to be an accurate reflection of what's happening. Quite frankly, it will not be worth the paper it's written on.
The Chair: Order, please. I would just like to remind everyone on the committee that the research officer has compiled the information she's had. She's edited it to give us a concise report. It's not a political document in any way, shape or form. As we debate this further, we are at this point in time dealing with facts, and as Mr Kwinter has pointed out, we should be concerned about whether the facts as they are reported are accurate or not, and I think that's a very good point.
There will be a point at the end of this report where we make our recommendations. I have no doubt it will become very political at that point, but it would be helpful to get through this factual stage of the report right now so that we can get on with the business of writing this report.
Mrs Caplan: I'm trying to find the right word. I'm being very careful in what I say -- obfuscation, premature obfuscation. I believe that if he really wanted to be honest with the people watching this, he would acknowledge that our very fine legislative research person, Elaine Campbell, has compiled what is a compendium of what we heard before the committee.
This report could well become a political document when the NDP caucus gets finished with insisting on what recommendations it will and will not accept, but at this point in time it is her best reflection of what the committee heard. The committee can attempt to add to the report those things that members heard and feel should be in the report that perhaps in good conscience Ms Campbell overlooked or decided in her wisdom and judgement not to include at this point, but it is unfair to suggest that Ms Campbell's report is a political document. That's not fair. From my review of the report, everything that is in it is in Hansard. Whether you agree with it or not is the part that we will debate during recommendations.
At some point I may agree with Mr Carr. We have agreed in the past and likely at some point we may agree in the future that this will become an unacceptably politicized document. But I would tell the people watching the debate at this time that there is an election in the air and that what they're seeing here today is some premature posturing.
Mr Sutherland: Could I just come back and deal with it? As to the specific reference made to motor vehicles and auto parts in the other section, I believe, if you look back, the reason that is cited there is because that's what the CIBC used. It is their reference, not a question of a specific group. I believe research has already told us that she's tried to reflect the comments solely of the forecasters, including the Ministry of Finance as a forecaster, in this section, and that if there is that reference made there, it was made by one of the forecasters.
I can guarantee you two things: We are not going to ask for the removal of the comment made by the Automotive Parts Manufacturers' Association in the next sector, and I can tell you that I'm certainly not going to ask for any changes in the next paragraph, which probably isn't the most positive paragraph in terms of comment on things, just to let the people at home know that some of Mr Carr's comments aren't reflecting everything that is being presented to us here.
Mr Carr: A final point and we'll move on: What I'm trying to say is that we've been doing these reports for four years now. We give recommendations. None of them have been listened to in terms of the minister anyway --
Mr Carr: -- from everything, from the way it gets reported. We're just sitting around here trying to portray that the minister is not putting a spin on what he wants in a report done by a committee with the majority of the people on there who are the NDP, and that's fine. For most of the report, he doesn't even follow the recommendations and there's no sense being political with it because 99% of the people in this province will never read it or hear about it or report it.
But I do want people to understand that a report that comes from this committee that has only selected good things in the first section that the government wants us to report is not being fair and honest with the people. I recognize that, and we're not going to spend any more time on it, but I want the people to realize that what we're doing, putting in this report, is selectively giving the government a spin on the good things it wants and it is not reflective of what people said.
If Elaine thought there was any accusation put on her, she is accurately reflecting what the minister has said, but of course the minister didn't talk about the negative things like the auto parts manufacturers did. I just want everyone to realize that what is going to be in this report in the front section is going to be the minister's spin on things and it is not going to be an accurate reflection of what is happening in the province of Ontario.
We can keep talking about this all we want and keep going for hours, but the fact remains that this section will be a political spin based on what the government wants to put in it. I recognize that fact and quite frankly I'm going to live with it. Let's move on and get on to the next section rather than debating this thing for the entire day.
Mrs Caplan: Let me try to be helpful here to Mr Carr if I can. I would have no problem supporting an additional paragraph that might give him comfort that would reflect something he thinks was left out that is in Hansard. If he can find it in Hansard and it will add the kind of balance he thinks should be in this, I would support that kind of an addition.
Mrs Caplan: All I'm saying is that this report as it is written by our researcher is a reflection of what is in Hansard. We the committee have the opportunity to add to this report other things that are in Hansard.
Mrs Caplan: Made by forecasters. We can put that in if it's there and you feel it's been left out, Mr Carr. I would support putting that in and let's have the big debate on the recommendations. That's where we're going to disagree, obviously. But let's get through this part of the report and put in those things that we believe legitimately have been left out or exclude those things that we think put on a bias or a spin that was unintended by the presenters. Other than that, frankly I want to congratulate Ms Campbell on an excellent compilation of what we know we heard and what we see in Hansard when we review it.
Mr Carr: Just for Mrs Caplan, that's what Mr Johnson was saying. Page 22 of the report talks about the auto parts manufacturers, where they say, and I quote, "It spoke of the erosion of the perception of Ontario as a good place to invest." That's what we're talking about putting in, what the auto parts manufacturers are saying. That's what we wanted in there.
The Chair: But that wasn't the case, as I understand it. However, if you can find that in Hansard, as Mrs Caplan has suggested, I think that would be helpful to Ms Campbell with respect to including that information in this section.
Mr Carr: Then why on page 3 are we talking about, "Specific reference was made to motor vehicles and auto parts"? Should that not be taken out and put in the last section? You can't have it both ways.
Mr Norm Jamison (Norfolk): I think this conversation basically has been one that's evolved around a certain aspect, and that is, if we really put it into context, we're talking about forecasters. The section is headed "Forecasts by Forecasters." I believe it's become abundantly clear that the vast majority of this committee is agreeing that those forecasts as outlined there are correct as far as the forecasters are concerned. Again, given that this section deals with forecasts by economic forecasters, there's no sense in my opinion in skewing that section of the report by adding something that doesn't come from forecasters.
Mr David Johnson: Just two final points: I guess this will be it too. I too think Ms Campbell has done an excellent job and I just want that to be clear. We're just talking about reordering some of the material that's in here. Going through here, she's had to listen to a lot of submissions, go through a lot of words and certainly has come forward with material that reflects volumes and volumes in a short period of time. Having worked with people in the civil service for over a couple of decades, I can say that to me she seems to have done an excellent job. At the same time, just because she's done an excellent job doesn't lose for us the ability to question how things are ordered within the report.
Secondly, although the difference between forecasters and other deputations has been clearly established, I find that boundary a little bit artificial. For the auto parts industry, for example, with some 520,000 jobs and national sales over $100 billion, my guess is that the people who write their reports are very sophisticated. The man on the street would probably say that they've got excellent abilities to forecast and therefore they are forecasters. I know by the rules that we've laid out they are not called forecasters, but I think that many of the deputants who were involved --
Mr David Johnson: Well, your wife doesn't have the weight of 520,000 jobs and $100 billion in national sales. I'm sure we would all agree around here that the auto parts people have a high degree of sophistication in terms of coming forward with political -- or sorry, not political -- with economic analysis, let's say.
The Chair: At this time I would like to proceed, and I'd like to turn it back to Ms Campbell to take us forward. If you have any questions at this point in time with respect to where we are and what we've accomplished, I'd appreciate your raising them with the committee.
Mr David Johnson: Yes, that "overhead costs had decreased," but nowhere does it put that in the context that I can see, as somebody pointed out to me, that total spending in the province of Ontario has continued to increase during that period of time. Each and every year, the total spending, including capital spending and the crown corporations, if you lump it all together, has continued to increase.
Mrs Caplan: In fact, I think it is there if you translate the graphs. I think that would be appropriate because this is correct as far as it goes, but I think it's out of context, and the context really is the relationship to the government's expenditure plan over the last few years. I mean, the reality is, as we know, that spending in the first two years was up 30%. It's down from that point because that was when reality hit. I remember the Premier's speech about "time to smell the coffee" or whatever, so I think this is out of context with what the reality on government spending had been since the fall of 1990.
Mr Phillips: I guess we all appreciate that the auditor has quite a different set of numbers than these, and you do make a point in the next paragraph that he commented on them. But he would say, as he said at a committee meeting, that the deficit in 1994-95 is not $8.3 billion, that it's somewhere around $10.7 billion, and the capital expenditures, assumed to be $1.8 billion, then the government reports things like $4.4 billion and shows $2.2 billion. I think for the public there's quite a discrepancy between what the government shows as expenditures and what the auditor would call financial reality. I don't know how to get that in other than saying it here, and later on we get into the auditor's comments.
The other comment I'd make is, "Government overhead costs had decreased by 16% in the last three years." It seemed to me that the material we got handed today from Mr Christie on some of the -- this is point 2, "Ontario Financing Authority (OFA)/Public Debt Interest (PDI)," and then government overhead costs and capital, for example, some of the things that used to be shown as government overhead are now shown as public debt interest, where quite a number of people who used to be shown, as I say, as government overhead now get lumped into public debt interest and that's somewhere else on the book.
Mr Phillips: The point is just that I'm trying to get a determination of the reality of the government overhead decreasing by 16%, because it then, in point 3, I think talks about a number of people who used to be shown as overhead now are part of the capital budget, if I read this note properly. So I guess we may have to take the 16% decrease with a little bit of scepticism. I can't get apples to apples to apples comparisons here because of the changes going on with what's called capital corporations.
Mr Sutherland: If we do read the note, I think we can say in regard to the apples to apples in terms of what the government said, that overhead costs had decreased by 16% in the last three years, you note in number 3 of the document presented to us it said, "The 1987-88 public accounts started to report separately on capital-related salaries and wages and other direct operating expenses."
What we're really saying here is that that process was actually started by the previous government, your government, in terms of doing that. So in terms of there being significant changes in what's included in the capital, the sense I have is that there hasn't been significant change, that the change really occurred in 1987-88.
Mrs Haslam: You're welcome, Mr Chair. I wanted to go back to something we were talking about at the bottom of 3 and the top of 4. There were comments about bringing in a chart and looking at the reduction of program spending being down in two years and government overhead costs had decreased by 16% and you wanted to take a look at that in the overall expenditure aspect of government overall spending.
If you're going to do that, then I would like to make it a definite difference between the program spending versus interest, and that's part of the problem when we take a look at those kinds of figures. In truth, program spending is down for two years in a row. If you're going to look at overall government spending being up, I'd like to see some mention made of how much of that is interest versus the idea that program spending is down and overhead costs are down. Part of the increase is the borrowing interest.
Mr David Johnson: I guess Ms Haslam is right, there is the interest and there are the capital programs and there are the crown corporation programs, but they all have to be paid out of the pockets of the taxpayers, either now or in the future. I don't have really any problem segregating them out, except that it's really the total picture that conveys I think the accurate one to the Minister of Finance, because all the money has to be paid, no matter whether it's interest or expenditure in a crown corporation, a capital program or no matter what it is. It all has to be either paid this year or deferred through a deficit and have somebody pay it in the future.
I guess downplaying the interest on the debt is a little bit equivalent, if you were a homeowner with a mortgage, to saying: "Except for paying my mortgage, I'm doing okay. If I could just forget about paying my mortgage, then I'd be in a wonderful situation." But it's an obligation that you've assumed because of actions you've taken in the past as a homeowner to purchase a home or as a government to not balance the budget in the past. Unfortunately, budgets haven't been balanced, so the debt and the interest continue to mount, and that's part of the real picture that the Finance minister has to face as he sets the target.
In terms of the overhead costs, maybe the parliamentary assistant would comment. I'm not even sure, again, how relevant -- I've lost a little bit of the thread on these overhead costs. Supposedly they're down by 16%, but again they're just part of the total picture and it's the total picture, to me, that matters. I guess it's a warm feeling to say that our overhead costs are down, but I'm not sure how much relevance there is in that since our spending continues to go up, albeit, I'll admit, at a very much decelerated pace than it had been for several years before. The spending is flattening out. There's no question about that.
But to pick out individual little components and say this component has gone down or that little component has gone down, within an ever-climbing expenditure total accumulation, I'm not sure really of the significance of that in terms of assisting the Minister of Finance in writing his budget.
Mr David Johnson: To answer your question, Ms Campbell, although Mr Sutherland has made his views known, I would say I don't find it particularly helpful to the minister. If this is a document that's to be helpful to the minister and to reflect any kind of overall situation, I would say yes, by all means, take them out. As far as I'm concerned, they're not particularly helpful.
The Chair: Certainly we need to get a consensus with respect to that. There's a suggestion that those last two sentences be removed. I hear the government saying no. Mr Johnson would like to see that. I'd like to get a broader perspective with regard to this.
Mr Kwinter: My problem with the sentences is that, the way they are presented, from an editorial point of view, it gives the impression that these are comments by this committee. I'd be a little happier if it were identified with somebody.
Mr Carr: I think the government side said they wanted those in but that they did want the total spending in, albeit broken down like Karen wanted, and I just wanted to compliment them. There were some things that they wanted to take out, and when they have wanted to put that in, because I have been fairly critical this morning, I want to compliment them and say that's good because that's an accurate reflection, getting the bottom line. Then you can break it down with the interest payment, which is a big chunk of them.
When they do something and want to include something in there that I think is correct, I want to commend them. I would like to commend them on this because I think that will give an accurate reflection, and on this particular point I agree with them.
Mr Sutherland: Group hug. Just to respond to Mr Johnson's comments about these two sentences, that "Program spending had gone down two years in a row" for the first time in 50 years and on government overhead costs, about whether they're relevant or important, I guess I have to laugh a bit hearing those comments coming from the opposition, because Mr Johnson and some of his colleagues, and I know Ms Caplan, who's the critic for Management Board, is often citing these alleged increases in administrative spending and all those things that people don't want more of.
In spite of those many questions asked in the House and the many press releases that come out from the Tories and Liberals talking about increased administrative costs, I think it's important that the public see that those costs are being reduced and that the majority of the funds are trying to be spent on the actual front-line services being delivered, that we are dealing with those costs at the top, which I think all the public wants.
In terms of program spending, I think that's important to note too because when we're looking at the out years and what pressures may be on the budget, whether program spending is going up or going down has some impact on what the future pressures are that have to be managed. They are two important issues that need to be cited and made reference to.
Coming back to what Mr Kwinter said about what forecasters look at, certainly many of the analysts who were commenting on the federal budget yesterday made reference to comments relating to program spending.
Secondly, as someone with experience on municipal council where capital and operating are clearly separated, so that I think for transparency and accountability the public who view the budget-making process at the municipal level have a very good understanding of the difference between those two budgets, I would point out that there is a minor capital budget line included in the operating budget of every municipality. It's important I think that those be separated and clear.
The concern that I have, and I echo the concerns of the Provincial Auditor, is not with the separation of those two budget lines, but with the confusion that you cause by moving it off book so that it is not clear, transparent and accountable, number one; and number two, that you are not following the Provincial Auditor's advice in presenting your budget in the same way as you present your reports to provincial accounts, further adding to the confusion.
I want to be very clear that what I'm calling for is greater accountability and transparency, and I'm supporting the Provincial Auditor in his call for the government to present its books in a way that will lead to complete transparency, clarity and end the confusion so that there is accountability to the taxpayer. I want to make that point.
The other point, and I don't want to get into a partisan wrangle with Mr Sutherland, but it is very important to know that the massive increase in spending in the first two years and in the first two budgets presented by the Rae government led to many of the problems that we face today in Ontario. The year-over-year deficits of $10 billion have put us in a very precarious fiscal position. The fact that the Treasurer has reported in the two sentences at the bottom of page 3 and page 4, if we put it in the context of this is what the Treasurer is saying and put it within context, I think is again in the interests of accuracy and accountability.
Mr David Johnson: Well, I'm content, first of all. I'm not arguing this point any more. I think Ms Haslam's suggestion is a good one and that's fine, but I just wanted to take issue a little bit with Mrs Caplan with regard to municipal budgets. The city of Mississauga, for example, has no debt and there's no differentiation between capital and current. Everything is paid for up front.
Mr David Johnson: But it's all one, it's not amortized over a period of time or whatever, so it's all paid. Metropolitan Toronto, for example, pays out of its operating budget, I think it's six mills towards capital projects.
Mr David Johnson: But the key thing here is we're talking about how it's paid, and it's paid on an annual basis. The borough of East York, as I was leaving, had instituted a plan to do exactly the same thing and we were about halfway through that plan when I left two years ago. So I assume by now they may have arrived at that situation. I don't know all other municipalities, but the point is that there is to some degree a fine line between what's capital and what's operating.
On the debt, the debt is largely deferred operating costs. As the debt is reflected here today, a lot of that would be program spending that took place the last several years. But we didn't balance the budget at that point in time, so the program spending was put into the deficits, which rolled into the debt, and now we've had to borrow money. About 60% to 65% of the money we borrow is from overseas, the United States or Europe or Japan. We've had to borrow money to cover that program spending which we didn't pay in the operating budget of that year.
So without arguing a point too far, the total spending is somewhat reflective of program spending too, because some of it is simply deferred program spending, which is in the interest, and again there is a fine line between capital and program and different jurisdictions treat it in different fashions. But at any rate I'm content to leave it the way it is and put in all the various categories of total spending.
Mr Sutherland: I just want to say, going back to the first two years and the budgets, I think since we're talking about context, let's put some context in there. I know that both opposition parties have wanted to say that it's because we did all this exorbitant amount of new spending that we got to the high debt level, and that just isn't the case.
If you go back and look at the first budget you will see a lot of the increase was because of the recession, because of increase in social assistance. I can cite you the figures from 1991, the 250,000 people in Ontario who exhausted their unemployment insurance benefits, and of course we know, once UI runs out, they're likely to go on social assistance. Much of it had to do with increased costs associated with the recession and open-ended programs --
Mr Sutherland: -- in other words, the nature of them that if people are eligible, the province is then committed to providing them. So I think we need to keep that perspective in mind when we go back and look at that.
Then of course we ran into the situation of revenues declining two years in a row. I want to remind folks that the Tories in their 42 years never had to deal with a revenue decline two years in a row. As a matter of fact, in the 1982-83 recession, revenues increased. Of course we know that in the boom years the Liberals were fortunate enough to be in power while things just poured in so much.
Mr Carr: Just a quick point: I can't leave that going, because of course what happened in the first budget is they increased the salaries by 5%. It was ironic as I sat and watched the Treasurer of this province stand up and say, "We're going to fight the recession, not the deficit," and watched while they stood and cheered. He thought they were going to spend themselves rich and in the first budget they increased the civil servants' rates by 5%, and then of course, as you know, we had to go into the social contract and the layoffs of nurses and various people. So I can't let that one go.
Mr Carr: But ultimately you're stretching it if you think the people of this province believe that Bob Rae is a good fiscal manager, because quite frankly, as I said to my mother this morning, asking Bob Rae to comment on another budget and fiscal responsibility is like asking the Ottawa Senators how to win the Stanley Cup. So I couldn't let that comment go by about how well you've managed the finances. You dug the hole so deep, the last two years you had no choice.
The Chair: We continue this afternoon with the writing of our report. We were dealing with our report as it is in draft form. I believe Ms Campbell will continue to guide us very carefully through this.
Ms Campbell: Before we broke at noon we were on page 3, under the heading "Provincial Budget, Deficit and Debt." The members had some comments regarding the first paragraph and had some recommendations for some editorial changes to that particular paragraph. For one, they asked that there be some reference to spending figures on the part of the government in terms of actual numbers.
They also requested a bit of a wording change in the bottom line on page 3, to read, "The minister also reported that program spending had gone down two years in a row." I think that's as far as we had been able to get.
The Chair: Then we'll move on to page 5, where there is the ending of the last paragraph on page 4 and an additional paragraph, again under the heading of "Provincial Budget, Deficit and Debt." Any comments from committee members with respect to those paragraphs? Seeing none, the next section of the report is "Other Themes," on page 5.
Mr Sutherland: In the second paragraph, it's the reference to what the Minister of Finance said about the federal budget and then, "How would transfer payments to the provinces for health, education and social services be affected?" At this stage, because we don't have a specific section on federal transfers, I would like, since the reference is made here, that this be elaborated a little more in terms of the comments the Minister of Finance made about what we receive in terms of 29-cent dollars versus what the other provinces receive. A couple of comments to that effect I think would be appropriate, maybe at the same time that this paragraph, this sentence, asks a question, really, asking, how would they be further impacted compared to what already has been there?
Basically, the Minister of Finance and we have certainly said for a while that the issue of federal transfer payments to the province of Ontario is an issue. Since we don't have a specific section regarding the issue of transfer payments to us from the federal government and that impact, in the second paragraph under "Other Themes" on page 5 we have the sentence, "How would transfer payments to the provinces for health, education and social services be affected?" I wanted one or two comments on what the Minister of Finance had said, on what the current situation is, and then I guess this sentence is saying how they would be further impacted in terms of the budget. That's really what I was asking for.
Mr David Johnson: Mr Chair, just to Elaine, if I could: We have, it seems to me, established that whatever comments are in here have to have been made in somebody's deputation, essentially, and I think the parliamentary assistant is suggesting we take some of the comments from the Finance minister with regard to transfer payments. I'm just trying to recall, were there comments that he made about --
Mr Sutherland: There was the one chart that was presented which showed that specifically under the transfer payments, particularly the Canada assistance plan, which is the one we've had the strongest argument with the federal government over, that we're receiving 29-cent dollars and that the other provinces are receiving 50-cent dollars under that specific program. If we want it clarified under the Canada assistance plan funding -- because of course, as you know, there are the two other programs, established programs financing, and of course we don't receive equalization payments so we don't have any concern about that.
Mr David Johnson: Perhaps then, if I can direct it to the parliamentary assistant, your suggestion would be that something be included in here as to what he said with regard to the transfer payments in the past, I presume.
Mr Sutherland: No. I'm talking about the existing situation as the Minister of Finance presented it when he made his presentation. Then the question here that's been put forward I think should remain.
Mr Carr: The only point I want to make is that if we're going to do that -- and I made this point before. I had the 1984 budget and the 1994 budget and I compared. As you know, the budget puts the pie charts in the back, very simple to understand: revenue coming from the federal government. If we're going to do that, what I'd like to do is make a comparison, say a 10-year comparison, because as you know, what it showed was that in 1984, 17% of our total revenue came from transfers from the federal government. In this budget, the last pie chart in his budget was 16%. Even though the total dollars have gone up almost double the rate of inflation, their percentages are still almost the same.
If we're going to be like we talked about this morning, doing the bottom line with regard to the total spending, I think we should make a total comparison between the federal transfers and what's happening today. I use that as an example because I pulled out, and I think I showed you last time, when Mr Grossman was the Minister of Finance, to get a 10-year period. What it shows is that, percentagewise, transfers from the federal government are only down one percentage point in total revenue dollars, but more importantly, those absolute dollars have gone up.
If we're going to do that, and if we're really going to compare what's happened, then what I would do, and I mentioned this to Elaine last time, is that I can get or she can get out of the budget the pie chart that shows the total revenue breakdown of how it -- you know how it's done. It says federal government percentagewise, and then it breaks down the CAP and so on.
Let's be fair, then. Let's look back and see what it was 10 years ago and do the comparison and pull out of the same budget 10 years ago -- I just use that; we could use any one; going way back, I thought a 10-year might be an interesting one -- and what it will show is the total amount we receive from the federal government as a percentage of the total revenue.
I don't think the government will like the numbers, because what it shows is that even percentagewise we're almost receiving the same amount of our total dollars coming from the federal government as we were 10 years ago, and those absolute dollars, taking inflation into consideration, are up dramatically. So I would like to include that in this section if we're going to do that.
Mr Wiseman: I understand what the member is trying to do here and I think it would also be important to recognize that starting in 1984, there were drastic changes to unemployment insurance, so that the length of stay on unemployment insurance was altered, the number of people on welfare started to climb dramatically in 1987 and the number of people who are collecting welfare increased dramatically compared to the early 1984 numbers.
If you're going to try and say that because the percentage of dollars of total revenue in Ontario has remained roughly the same, somehow there isn't culpability on the part of the federal government in terms of the neglect of Ontario, it is a specious argument at the very best, because if you start to take into account the rest of the parameters, the rest of the factors -- like unemployment, growth in welfare and the total number of dollars that were being taxed away from Ontario -- you start to get a different picture entirely.
You start to see in 1987, for example, that there were 500,000 people, roughly, in January 1987 collecting welfare in the province of Ontario. That starts to climb dramatically when you note that in June 1987 the Bank of Canada begins its assault on the so-called inflation rate, which was 3.8% in 1987, and it starts to push the interest rates up, which pushes the dollar up, which puts a lot of businesses out of business.
The fact that the number of dollars as a percentage of total revenue remains the same is misleading in that it's in 1987, because of the actions of the fiscal policy of the federal government, that you start to see welfare go right through the roof, to the point where I believe the last date -- I have the figures -- where welfare doesn't start to go on an upward climb, a continuous upward climb, I think is somewhere in May or June of 1987 and from then on it just climbs straight through until it hits 1.3 million, roughly speaking, about a year ago or so.
It's interesting. If you want to just take the one number, you had better also put in the rest of the numbers, and one of the numbers is the huge increase in the amount of taxes Ontarians have paid that have been sucked out of Ontario and the fact that the services do not come back.
For example, the amount of money being spent on unemployment insurance in the province of Ontario is less than the amount of money taken out of Ontario. The amount of money that's being spent on immigration in Ontario is not commensurate with the number of immigrants who come to Ontario. The number of dollars that are being spent in Ontario in training does not compare to the number of dollars that are being spent on a per capita basis in other provinces.
For example, one very clear one is that I would like to see the revenue extraction from Ontario that went to the federal government over a 15-year period. Right now the people of Ontario pay roughly $52 billion in taxes to the federal government and receive back, prior to yesterday's budget, $37 billion in services.
That's a gap of $15 billion. I would like to know if that's a traditional gap or if this is a gap that has grown in terms of percentage over a period of time, and it's getting bigger. From yesterday's budget, they've added another $1 billion to the impact on Ontario compared to other provinces. Where the total impact to all the rest of the provinces is $1.5 billion, Ontario gets hammered with $1 billion. It's fine for Mr Carr to be an apologist for Brian Mulroney at this point, but I would like to see the rest of the numbers if that number goes in.
Mr Sutherland: I guess the point of Mr Carr's comparison is that maybe in those dollar values they have increased, but the point regarding the Canada assistance plan is that it's supposed to be funded on a per capita basis and traditionally it's been a 50-50 split between the federal government and the provinces on a per capita basis. With the actions taken by the previous Mulroney Tory government and carried on by the current government, Ontario, with the 5% cap on increase -- of course, this was done right as the recession took full hold and we had the significant increases in the numbers on welfare. That has meant that we're now into the situation the Minister of Finance talked about, where it's 29-cent dollars.
You can take the pie chart from 1984 and the pie chart from 1994 and do it in percentages and you can look at the overall dollar value. The point is, the program was funded and it continues to be funded in just about all the provinces on a per capita basis and the results of the chart show that. That's why putting it forward in this way in terms of the 29-cent dollars seems the more appropriate way, because it's the impact of the federal government not funding full per capita in the province of Ontario.
Mr Carr: I didn't think that one would fly, because it certainly shoots down the Premier's argument. I think what people are interested in is the bottom line, the percentage of revenue, how much we were getting from the federal government, percentage, which everybody can understand, in 1984 versus now. It doesn't justify the argument, because as I said, the percentages are almost the same; 1% difference in the dollars we're talking about. That is substantial.
I understand what you're saying with the population increase and so on and Ontario versus the other provinces. What I want to show people is that basically the bottom line percentage of revenue that we receive from the federal government is virtually unchanged in terms of our total dollars. I understand it won't fly because it shoots down the Premier's argument about Ontario being shortchanged. The NDP members might be interested in looking at it and I can assure you it will be in our minority report, so if you do get a chance to look at our minority report, you can look in there and see exactly what the facts are.
It won't be me putting the chart in. That chart is the one done by your Minister of Finance for this year and the one that was done way back, and it's been a tradition to do them in pie charts. It makes it very simple for people to see. What it also does is they will see a breakdown in that pie chart, because it will be 17% from the federal government -- that breaks it down, established program funding and CAP as well, as you know. That will be interesting to look at. I understand the NDP won't put it in there. Rest assured it will be in our report.
One more point I would like to make about this is that in October 1987, when the free trade deal was signed, the unemployment rate in the GTA -- I'm sure my Liberal colleagues will remember this -- was roughly about 3.5% or 3.6% unemployment. If you recall, that was a very low unemployment rate and the economy in southern Ontario was humming away with record housing starts. In my area, Ajax and Pickering, there were 1,400 housing starts in one year alone, whereas today it's like 200. The unemployment rate was very low compared to now, where the unemployment rate in the GTA is over 9%. So if you're going to take a look at the numbers because of the changes in the unemployment insurance that the Tories made and then the Liberals made, the number of people on welfare is higher as a percentage than it would have been under the previous rules.
It's okay, Gary, Mr Carr, whatever, to talk about percentages of totals, but what about the percentages of the totals in the other areas, like unemployment, that in Ontario were extremely low in 1987 until the federal government increased the interest rates and increased the dollar value and did the free trade deal? I think it's important to take a look at all of those numbers and I would be interested in seeing if there is intellectual honesty in the way you present that number in your minority report.
Mr David Johnson: -- social philosophy -- the point that would be interesting to me is that it seems fairly evident that one of the reasons that the federal government isn't giving the same percentage, for example, on welfare to Ontario as to some other provinces -- and historically, my recollection is that the formula had been 50-30-20, 50% from the federal government, 30% from the provincial government and 20% from the municipal government, but that has changed in Ontario.
I believe now in Ontario, if the municipalities still pay their 20% -- some do and some don't, I guess -- the province probably pays a little over 50% and the federal government somewhere around 29% or 30%. I believe those are the numbers that have come out. The sense I have is that one of the reasons is that the rates for inflation in Ontario, on average, are well above the rest of the country.
Now, there are many different classes, so somehow you can meld them altogether, all the different classes, and take an average of what's paid in welfare in the rest of Canada. The Ontario rate is well above that. My sense is that there has been a reluctance at the federal government to match what it views as being unfettered increases in the province of Ontario.
Mr David Johnson: There may be different reasons for that. One reason that is cited on some occasions is the fact that the Ontario rates are higher and that certainly attracts people from other provinces.
You can shake your head, but I think it's fairly apparent to most that there's some degree of that involved in the number of cases in the province of Ontario. Plus, simply because of the fact that the payments are higher, I think there's a strong reluctance on behalf of the federal government to match what it views as being uncontrolled expenditures in the Ontario rate of welfare.
I don't know if there was any mention of that made in the briefs that were put before us, but if there was, I'd certainly like to -- I doubt it very much, because I don't suppose the government would put that forward. But you can imagine the position of the federal government in having to match at any level, no matter what rate is introduced. There is a limit to the matching ability.
Mr David Johnson: No, no. I'm talking about the rates across the rest of the country. If Ontario had that sort of model, then how close would the federal moneys match the formula? I don't know if they'd match it bang on -- probably not -- but still, I don't think there's any doubt that the federal contribution to Ontario would be much closer to the 50-30-20 model than it is today.
Mr Phillips: Just two or three points: The mention of free trade: It's interesting in that what we heard, I think, from a lot of the people who came before the committee was that the one thing Ontario has going right now is our exports to the US, that that's driving the economy right now.
As a matter of fact, an interesting statistic is that five years ago 85% of our exports went to the United States from Ontario; today it's 90%. We all talk about becoming much more of a global economy, but it's going the other way. As a matter of fact, our absolute trade with the Far East has gone down over the last five years in absolute dollars.
The reason I mention that is just that I think probably the reality is that whether we like it or not, if we are going to have a successful economy in the future, we've got to be able to successfully trade globally. Whether the free trade agreement was exactly the right agreement or not is obviously open for debate, but there's no doubt our future rests, as I say, on our ability to trade. That seems to be what's driving our economy right now, our manufactured exports to the United States.
I would just signal something that is of concern to me at least and that is that over a four-year period exports in Ontario went up $21 billion; imports went up $27 billion. So our exports are not growing as fast as our imports. I'm told not to worry about that because a lot of these imports come into Ontario and then they're shipped across Canada, but at least it's a question for us all.
On the debate about the federal government, the provincial government and share of revenue and what not, the thing I get from people is firstly a recognition that there is no federal taxpayer, provincial taxpayer and municipal taxpayer. We're all in this thing together somehow or other.
As you actually see in the budget, next year I think the federal interest payments are going up -- I'm not sure I'll be able to lay my hands on it right now -- by about $6 billion year over year. One thing Ontarians know is that they're paying 42 cents of all of those interest payments. I think all of us have a clear interest in making sure that we get the federal fiscal house in order, the provincial fiscal house in order, and I think most municipalities have their own fiscal houses in order.
Undoubtedly it will be an ongoing debate over the next few weeks, because pretty clearly the government would like to run against the federal budget. I hope I'm not being overly political in that respect. That's just reality. I'll just say to us all that the public, as I hear from them, say, "Listen, you're not helping me if you're constantly fighting and not solving." We'll see, as I say, how that unfolds over the next few weeks.
Mr Sutherland: On the comment on the imports and exports, because I believe Mr Phillips also raised this in some debates in the House, it's my understanding that traditionally does happen when we come out of a recession. It occured when we came out of the last recession.
Some of that has to do of course with the discussion we had earlier about investments in business equipment and machinery, that a lot of that does come from outside the country. So as the economy is picking up, factories start to reach capacity and they're going to make the new investments. Of course, they're purchasing that and you see those import figures go up.
Just responding again on the issue of the transfer payments, though, if Mr Johnson can tell me somewhere where part of the Canada assistance plan deal is that there's a sliding scale of some sort that the federal government only picks up 50 cents of whatever the overall amount, only picks up 50 cents until you get to a cap to what the payments are on the social assistance, I'd like to see that.
I haven't seen anything like that and I don't believe that's how the Canada assistance plan was formulated and founded. If the federal government feels, for whatever reasons and considering fiscal reasons, yes, that there aren't more dollars and it wants to work out a new arrangement, then it should enter into a negotiation process with the different provinces.
The point of the matter is, we're not saying, "Okay, feds, you've got to go and spend more on your overall costs on social assistance transfers to the provinces," but what we are clearly saying is, why is it that someone in Ontario only receives 29-cent dollars and someone in Manitoba, Alberta, New Brunswick may receive 50-cent dollars? Is it a sense that Ontarians aren't valued in the same way by the federal government as the other provinces?
That's really what the point of it is. If they want to renegotiate and enter into that negotiation process with all the provinces, fair enough, let's do that. The feds may want to say, "We want some new conditions," but let's treat all the provinces in an equal way and let's not arbitrarily pick on some of the better provinces, and particularly because of the timing of when it occurred.
As we went into this last recession, no doubt about it, Ontario was far harder hit because the manufacturing sector was far harder hit, and while exports may be up now, there's no doubt, no one can dispute the fact, that there was a great deal of adjustment in the manufacturing sector in the implementation of free trade. You know, there were commitments made about adjustment programs from the federal government, and I would dispute anyone to put forward where those much-heralded adjustment programs really came from the federal government to that.
Mr David Johnson: A last response on this welfare thing: If you just look at the numbers and think about what happens in other components, you may say, "Well, it's all different, because there's an agreement on the welfare system, agreement on payments, but why doesn't the federal government contribute the same amount to welfare in Ontario on a proportionate basis as it does in the other provinces?"
Why doesn't the provincial government fund education the same way in Metropolitan Toronto as it does in the rest of the province of Ontario, and Ottawa-Carleton for that matter? Both those regions get zero provincial money for education where in the rest of the province they get in some cases very large chunks of education from the provincial government as opposed to the municipal government.
Why does public health get 40 cents of every dollar in Metropolitan Toronto but 75 cents of every dollar in the rest of the province of Ontario from the provincial government? Why, a couple of years ago -- I don't know if it's still true -- was funding capped by the provincial government to homes for the aged? You know, it has happened at the provincial level.
Mr Phillips's comments about one taxpayer, there's only one taxpayer: I guess that's something we should start every meeting with. I think every meeting that I've attended here I've heard that comment from somebody, so maybe we should all just together, at 10 o'clock in the morning, say, "There's only one taxpayer," and remember that and build from that, because inevitably somebody says it during the day and it's the key aspect.
I think there's the squeeze, there's the demand for more money than that one taxpayer has the capacity for, and the provincial government has decided that it can't fund education in Metropolitan Toronto and that the property taxpayer has to fund the whole bit. The provincial government has decided that it can't contribute the same amount to public health care in Metropolitan Toronto and that the taxpayers of Metropolitan Toronto will have to fund public health to a higher degree than the taxpayers of the rest of the province of Ontario. I suspect the federal government, whether it has said it or not, has decided the same thing.
If the province of Ontario's going to put the rates of welfare up 30% on average above the rest of Canada, as I understand it -- and I'd be interested if anybody else has other numbers, but our numbers show the average welfare rate in Ontario is about 30% higher than the average of the rest of Canada. If that's true, that 30% is a lot of money. I think there's some $6.5 billion spent on welfare from the province here in Ontario; 30% of that is almost $2 billion extra.
If that was taken out of the expenditure, then the federal government's amount, which I guess must be somewhere around $2.5 billion -- I don't know if anybody has that number here today. Do you know, Gerry? About $2.5 billion, somewhere around there?
Mr David Johnson: So if you reduced the cost of welfare by that 30% and then took that $2 billion or $2.5 billion on top of that reduced amount, then it probably would be about 50% again of the total cost of welfare, in a rough calculation. I'd be interested to see somebody go through that calculation.
Governments have come to the conclusion there's only one taxpayer. That one taxpayer can only afford so much. In my estimation, the governments have come to a conclusion at too high a level that the spending is even too high as it is, but to increase that spending even more is totally impossible.
All I'm saying is I suspect that somehow the federal government came to that conclusion that we can't continue to match high welfare rates in the province. Heaven knows where they'll put it up. Maybe they'll put it up 50% higher than the national average or 60% higher. When does it stop? There's only so much money available and we can no longer afford to match that. That's all I'm saying.
Mr Wiseman: I'd like to talk about that one taxpayer too for a second, and that one taxpayer in Ontario is paying $52 billion in taxes to Ottawa and receiving only about $37 billion in return in terms of services.
In 1989 it was the federal government that unilaterally capped the increase of welfare payments to the provinces to 5% and it was about that time where the number of people on welfare -- because of the high interest rate and the high dollar policy putting a lot of people out of work and the changes to the unemployment insurance system started throwing a huge number of people on to the welfare system. I think what you're looking at is somewhere in the neighbourhood of about 600,000 people on to the welfare system with a 5% cap.
If you want to take a look at the numbers, I think you'll find that the number of people who have been forced on to welfare because of the federal fiscal policies of high interest rates to curb inflation, you will find that those numbers are absolutely astronomical in terms of dollars.
But if you want to talk about the one taxpayer, the one taxpayer in Ontario is paying more money in collective taxes both at a federal and a provincial level by some $8 billion than they're getting back in services, and that even includes paying the deficit off in Ontario.
If you take a look at that $15 billion or $16 billion difference between what the taxpayer in Ontario is paying to the federal government and you take out the deficit in Ontario, there's still an $8-billion surplus going to the federal government which I think, if you want to talk about the single taxpayer in Ontario, is quite a lively contribution to the social safety net across the country. But it seems that what has happened in both the Liberal government now and the previous Tory government is that they think the federal deficit should be balanced on the back of Ontario.
Well, I think $15 billion to this date is an awfully healthy contribution in surplus by the people of Ontario to the federal deficit, and now our services -- for them to be cutting back and having to take another $1 billion out of health and education and universities and colleges at this time, when that single taxpayer in Ontario is already paying his fair share and more of it, I think is just a little bit too much. It strikes at the very fabric of what holds this country together and that fabric is getting awfully frayed.
Mrs Haslam: Actually, I was just going to recommend that, if they want to have a debate, we could set one up and maybe we could get back to looking at the report and dealing with what we're here to do.
Ms Campbell: I just have one question concerning that second paragraph under the heading "Other Themes." Mr Carr had made the suggestion of including a comparison of federal transfers as a percentage of provincial revenues in 1984 and 1994. Does the committee wish to have that included?
Mrs Haslam: When you go to page 7, Ms Campbell, I must admit that I looked at that last paragraph under "The Future," and I wasn't quite sure what you were meaning by this when you said, "In its 1995 projections, the board took" --
Mrs Haslam: Yes, but you talk about "...assumed that the federal government will meet its deficit target...." In its projections, the board took this from the provincial transfers and $2.1 billion from federal spending on goods and services. I'm sorry, but I'm having problems understanding exactly what you mean by that paragraph. If I'm having problems, then somebody else who wants a copy of this may have problems also. If you want to explain it to me now or cover it in a little clearer manner, I would appreciate it.
Ms Campbell: Perhaps it could be reworded: "In its 1995 projections, the Conference Board took $0.5 billion of the federal budget from...." It's the federal government's transfers to the provinces. I can see your point. It could be worded a little more clearly.
Mr Kwinter: Again, just a matter of syntax: In the second paragraph of "The Future," the third last line, I would suggest that it say, "The federal budget would meet its deficit target," as opposed to "will," and on page 7, in the second paragraph, the first line, "that the federal government would meet its deficit target."
Mr David Johnson: I don't know whether to put it in here or the next section, my comment, but the first line under "The Future" says, "Forecasting organizations provided a limited number of short-term economic projections for Ontario." Did you mean two years, Elaine, by "short-term"?
Ms Campbell: The phrase "limited number" refers, I guess more specifically, to the number of variables that were spoken of, but if there were organizations that did have longer-term projections and the committee wishes to have them discussed in further detail --
Mr David Johnson: Maybe I should just say that one forecast was the Royal Bank's, and the Royal Bank indicated that a 3% growth rate in the GDP between now and 1998, so I think they're saying 1995, 1996, 1997, 1998 -- I interpret it to be four years -- would be a 3% growth rate.
Mr David Johnson: I'll quote from the Royal Bank then. How's that? It says: "Ontario's fiscal plan calls for the (restated) budgetary deficit to decline to $6.3 billion in 1996-97 and $4.2 billion in 1997-98 from $10.2 billion in the current fiscal year. In our view, this fiscal plan is excessively optimistic for a number of reasons" -- and they're clearly talking about Ontario.
"The projections are based on an overly generous assumption that real growth will average 4.3% per year between now and 1998. A figure of 3% would be more realistic. Moreover, we believe, interest rates are likely to be at least 200 basis points higher than assumed."
I don't know how I could interpret that any other way than they're saying that the growth rate for Ontario in 1995, 1996, 1997 and 1998, in their view, will be 3%. Can I just seek your guidance? Should that be there under "The Future" or should that be under the next section?
Mrs Haslam: No, that's what I was going to say. I thought it belonged under "Real Growth (GDP)" because that's where it has been kind of drawn together on this particular subject, rather than the overview. It does on page 6 mention that the Royal Bank put three caveats on, so I think it's been very clear here and I would see it going under "Real Growth (GDP)."
Mr Sutherland: Yes, but I believe that figure, again -- I don't have it right in front of me but I believe with that slide they are quoting other sources that indicated that. I thought OECD had done some analysis which had indicated similarly, that Ontario was going to do that. So if we want to have that specific source the minister is citing, we can try and follow up on that.
Mr David Johnson: I don't mind whatever information. I just can't in my mind determine where the OECD would have analysed Ontario. Normally, I think they would analyse Canada, but if they did analyse Ontario and they did so over a period of time, then I for one would like to see that.
The point I was trying to make before, which I've been guided to ask be included in this section, which I accept, and my concern is that I feel the 4.3% growth rate over a four-year period is unachievable. If indeed it's not achievable -- and the Royal Bank, for one, agrees, and I believe, number two, the Conference Board of Canada agrees that it is either rosy or unachievable -- the penalty to be paid in not achieving it, of course, is that the deficit calculation is partially based on the growth, and if the growth does not materialize, then that will have repercussions in terms of making the deficit higher than is forecast. That again will add to the debt and that will continue us in the problems that we've experienced in the last number of years.
I think it pays us to be very cautious about growth figures, and I'm not only talking for the two years 1995 and 1996, where perhaps there's greater consensus, but looking beyond 1996 to 1997 and 1998, and that seems to be part of most schemes or most plans to balance the budget and to hit a zero deficit.
It seems to me that the figures that are being quoted and used by the ministry are extremely optimistic. The Royal Bank certainly thinks so. The Royal Bank thinks it's over 1% too high on average. In my recollection, and perhaps Elaine would check back in the minutes of Hansard -- I didn't get a chance to do it -- I think the Conference Board said, though it wasn't in their brief, so if you look at the written material you won't see it, but I believe in their comments somewhere they said that after two years they expected growth to decline, and that had a lot to do with the fact that most of our growth is driven by exports and most of that goes to the United States, and the United States had experienced a couple of years of good growth and they didn't expect that good growth to continue on past 1996. So they expected the United States growth to go down and ours to suffer as a result, and my summary of their views was that they were about the 3% growth rate figure too for the four-year period of time.
I think the minister should know that (a) if the Royal Bank, which has clearly said that, and (b) if the Conference Board of Canada has said that, then when the minister is doing his calculations for growth over four years and doing his deficit calculations based on that growth, he should be aware that there are a couple of well respected bodies that would suggest that a lower growth rate be more realistic.
Mr Sutherland: I don't have a problem if there are references to the out years 1997 and 1998 as to what the bodies have said about their sense of those projections. I just want to put on the record that the Ministry of Finance did indicate, of course, that it would be revising and updating its forecast information for when the budget is presented. So we'll all wait and anticipate what those forecasts may say at that time.
Ms Campbell: Could I just verify that the committee has requested, under "Real Growth," references to the Royal Bank's four-year projections as well as the Conference Board of Canada's expectation that there will be a bit of a decline after two years, and also a reference to Ontario compared to the G-7 countries in terms of real output?
Mr Wiseman: I have some problems here in terms of the projections on employment-unemployment, and the reason I have them is because of the activities of the Bank of Canada and what Paul Martin said in his budget yesterday. What he said in the budget yesterday was that he sat down with the Bank of Canada and they agreed on what the inflation targets are going to be.
According to his budget document that was put out, A New Framework for Economic Policy, the federal government believes that if the unemployment rate drops below 8%, the Bank of Canada should kick in, increase the interest rates to drive the unemployment rate back up to 8%. In fact, according to one of the documents, the non-accelerating inflation rate of unemployment for the Bank of Canada is around 9%. In other words, the Bank of Canada is going to keep unemployment rates high to keep inflation low.
I think we need to be very cautious here in terms of predicting what the employment level is going to be and the unemployment level is going to be, because the only group that came in to talk about the non-accelerating inflation rate of unemployment was the Committee on Monetary and Economic Reform.
It seems to me that if we're going to recommend to the Treasurer, or the Finance minister, about projections on employment and unemployment, some comment has to be made in there that the Bank of Canada may very well keep the unemployment rates above 9%, which would throw all of our projections and their projections -- the Royal Bank, the CIBC, Toronto-Dominion, Informetrica, McGraw-Hill, and everybody has just sort of ignored that point, that the Bank of Canada has a policy of keeping unemployment high, between 8% and 9%. If we don't throw that in as a cautionary signal to the minister, then our previous projections on growth could be off as well.
Mr Wiseman: Yes, regardless. It's just that if the Federal Reserve in the United States is trying to dampen the economy by putting people out of work and our Bank of Canada follows that policy lockstep -- and David Crane wrote about this on Sunday, February 12, 1995, where he said that we can do better than an 8% unemployment rate. So I would like to see some comments put in here about the Bank of Canada's non-accelerating inflation rate of unemployment.
Mr Kwinter: With all due respect, Mr Wiseman, who I am beginning to think of as a one-trick pony, keeps bringing up this issue time and time again. He's latched on to something and it sounds great to him, but I can tell you, I have never seen any evidence at all that the Bank of Canada determines the unemployment rate.
There is no question that the Bank of Canada has a role to play in keeping inflation under control, and that may have an impact on the unemployment rate, but I can tell you that the unemployment rate is a function of our productivity and of our ability to absorb the people who are out of work. To put into this document a statement to the effect that the Bank of Canada has a policy to keep the unemployment rate at a certain level I think borders on the irresponsible. I don't think that's the case. I'm not denying in any way that by some of their measures to keep inflation under control there may be a cause and effect, but I totally reject the concept and the idea that the Bank of Canada has a policy to keep people out of work.
The Chair: Mr Phillips, I think, wanted to speak. If you didn't want to speak to that specifically, then I guess it would be wise for Mr Wiseman to respond. However, you are on my list next, Mr Phillips.
Mr Phillips: The fact is that the Bank of Canada has certain guidelines around inflation that are set by mutual agreement with the federal government. When the Bank of Canada has attempted to get its interest rates down and move down faster than the US, get very close to the US interest rate, we ended up with a bit of a run on our dollar.
I go back to the point I made before, and that is, to a very large extent our interest rates are driven internationally and they are high in real terms because people still want a risk premium for lending money to Canada because of our high government debts and deficits. The empirical evidence of that is, among other things, as I say, when the Bank of Canada tried to get its real interest rate down much closer to the US, suddenly we found people wanting to bail out on Canadian dollars because they believed the Bank of Canada wasn't going to provide the necessary defence for the dollar.
Mr Wiseman: I want to talk just briefly to what Mr Kwinter was saying, and I'm going to quote from a couple of articles, because I think it's important. In his article, David Crane says that A New Framework for Economic Policy, which is the federal document that was put out to talk about the economy --
"The report states that the `core rate' of unemployment was at least 8%. By this definition, 1.2 million Canadians could still be out of work, yet the government could claim it had achieved `full employment.'
"The federal paper defined the `core rate' as `that rate of unemployment which cannot be forced lower without causing inflation to accelerate.' Economists call this the non-accelerated inflation rate of unemployment or NAIRU.
In Fortune magazine, an article written by Vivian Brownstein and Joseph Spiers, of January 16, 1995, "It's not that the Fed hasn't been trying to rein in growth -- it raised interest rates six times during 1994 -- there's just more momentum out there than almost anyone had thought." This article is a rather lengthy article. It goes on to talk about the fact that they're using the interest rate increase at the Federal Reserve in the United States and in Canada to put people out of work to curb inflation.
There have been other articles that have been written about this very topic, and I think that there's enough evidence that both Thiessen, who is the current chair of the Bank of Canada, and John Crow, who was the previous chair of the Bank of Canada, have said it on more than one occasion, "We're going to increase interest rates to curb inflation." It's not a heretical thing, Mr Kwinter; it's out in the public, it's what they say publicly.
The fact that Paul Martin in his budget speech yesterday said that he'd met with Thiessen to say that that's exactly what they're going to continue to do is a matter of fact. It has nothing to do with me being irresponsible or conjecturing.
The information and the proof is there. I can amass a whole lot more if you would like, but the point of the matter is that if the Bank of Canada is going to use interest rates to curb inflation and keep people out of work, it makes it very problematic for us to put in this document that unemployment rates are going to go down below 9% or 8%, because that is simply not what the Bank of Canada will allow to happen. And if they do allow it to happen, you're absolutely right in terms of your international comments. The Federal Reserve in the United States won't allow it to happen in the United States, but their non-accelerating inflation rate of unemployment is pegged around 6%, whereas we've pegged ours at 9%.
Mr David Johnson: I'm not too sure what the point of all this is. Precisely, the Fed -- I think it's fairly obvious -- is raising, as Mr Wiseman has indicated, the rates to curb inflation, in their view, but then he immediately draws the line between inflation and employment, and indicates rather than the Fed raising interest rates to control inflation that they're raising interest rates to keep employment.
Mr David Johnson: He's drawing an immediate and hard connection there, and I'm not so sure that isn't a naïve approach. I suspect there are other factors. He's also not looking at what might happen and what has happened in the past without inflation control, namely, that there has been at other times in our history, and American history I guess, a boom-and-bust cycle, perhaps with inflation being a prime contributor, when employment would suffer even more. So it's quite conceivable that the consequences of not controlling inflation could have a more dire impact on employment, could lead to higher unemployment, and I think that's certainly one of the reasons why the Fed is taking that sort of control. They're trying to even out the economy rather than have it boom for a certain period, go through inflation and then have a bust.
The other factor is that the interest rates in Canada are to a large extent driven by those who hold the money, and increasingly those who hold the money are not from Canada -- I think about 65% of what's loaned through the province of Ontario today, this year, goes outside of Canada, either to the United States, Japan, Europe or someplace like that -- and it's fairly evident to me at any rate that there is a concern of people in those countries holding paper from Ontario and Canada in general.
There's a risk factor associated with that. There's the political uncertainty of the Quebec situation. There was the uncertainty of the Canadian budget. Now perhaps some of that uncertainty has been removed, but still there are continuing large deficits and the debt will continue to grow in Canada.
The deficit program that was announced by the federal government is not a deficit elimination; it's simply a deficit reduction program over three years down to $25 billion. What happens beyond that we still don't know. We have to trust that the federal government will do the right thing at that point in time.
So there's still risk, there's still uncertainty out there, and I think to dismiss those people from Japan, Europe or the United States who hold Ontario paper as not looking for a fairly healthy rate of return to balance off that risk I suspect is to ignore part of the point.
There was one other deputation that was made that commented on employment and unemployment: the Canadian Bankers Association. I just have a small quote picked out of what they said but I don't have the larger context. The small quote says, "Some Canadians appear to still not understand the link between persistent deficits and job creation; that to create sustainable jobs and growth, we must stop the growth of the debt." That's a direct quote from the Canadian Bankers Association.
I'm not sure if the Canadian Bankers Association qualifies as one of our forecasters. I'm still not able to determine what puts you into the forecasters' category and what puts you into the non-forecasters' category. I think they would consider themselves to be forecasters. But that seems to be a very relevant point as well when we're talking about employment and unemployment. The Canadian Bankers Association is making the point that if we let the deficits run up and if we let the debt run up, then we'll certainly have higher interest rates. That will be bad for economic growth; that will be bad for job creation. Just ask the Ontario home builders what a 1% increase in interest rates will do to the home-building industry. Every increase, they can almost measure the number of fewer homes that will be built in Ontario.
Mr David Johnson: And jobs. That's right. Every one of those homes represents jobs. So that increase is important. As the deficits run up and the debt runs up in Ontario and in Canada, they contribute, as the Canadian bankers have said, to higher rates and consequently higher unemployment.
I would ask Elaine to work that comment in, because I think we all agree around here that employment and unemployment, wrapped together, are probably the number one issue. To us they're certainly the number one issue in Ontario. We should be looking at whatever steps are possible to put the groundwork in play to allow for more jobs to be created. The bankers association says right here in its comments that deficits are a negative factor and the debt is a very negative factor in terms of creating jobs. I don't know if that can be included in one of these two sections or not, since they may not be counted as a forecaster, but if they can be, then I would ask that the Canadian Bankers Association comment be included here.
Ms Campbell: Could I make two suggestions? If the committee agrees, we could add a footnote to that section or it could be discussed in the next section of the paper under job creation and employment.
Mr Sutherland: Actually, it would seem to me that the comment Mr Johnson is asking for from the Canadian Bankers Association may come under some of the comments we have on the issue of the deficit in general and its impact. It's more of a comment than a forecast. That is my sense of the comment, and that would be a place to put that.
Just in terms of how some of the information is presented, in the first sentence on employment, you have the Ministry of Finance's projections. I think in the chart they said that it would average 142,000 jobs for the next four years; that is what the ministry forecast is. Perhaps we could just add that in as well.
I also believe the Conference Board made some references to what it thought job creation would be this year in Canada, and I thought that might be something we want to add to provide a little more perspective.
Mr Kwinter: If I can just make one last comment, hopefully the last comment on this particular issue, the classic definition of inflation is too many people chasing too few goods. Because there are too few goods and too many people who have money to buy them, they drive the price up. The role of the Bank of Canada is to try and keep a balance so that the capacity of the economy to produce those goods keeps pace with the ability of people to buy them. The direct short-term correlation of that is that you could have a possibility where the Bank of Canada puts the brakes on because it sees inflation going up, which means that our interest rates are going to go up, all of those things, that it raises the interest rates to dampen it. The short-term result of that is that some people may not be able to have the jobs that they normally would. I have no problem with the cause and effect.
I do have a problem where it is perceived or it's presented that the main purpose of the Bank of Canada's fiscal policy is to keep people out of work, which just isn't true. That's my concern. That might be a spinoff, unfortunately, but the major thrust of the Bank of Canada is to make sure that interest rates stay as low as possible, which means that there isn't an artificial component built in because of inflation. That's all there is.
Mr Wiseman: I'd like to thank you for that, Mr Kwinter, because that very clearly defines the difference between the way you think and the way I think. Too few goods being chased by too many people: The traditional view on how that problem should be solved is that you hire more people to produce more goods, so that you bring the price of the goods down because of supply, not because of demand. If what we're going to say is that we're going to take the inflation rate out of the economy by laying people off, by putting people out of work so that they can't buy, that to me flies in the face of planning, of traditional economics.
I have found another quote that you will find interesting, from January 26, 1995. It's a quote from Steve Poloz, who is the head of the central bank's research department, and he said that, "The non-inflationary rate has since climbed by a percentage point, mainly because of substantial rises in payrolls." In other words, he's saying that it used to be 8% but now it's 9%.
We'll get into this discussion probably under the inflation section, because I have a few comments there, but for us to ignore that one of the reasons the bank raises its interest rates is to put people out of work to keep the consumer price index or the inflation rate low is to fly in the face of what a whole group of people are telling us is the case. I'm very pleased that you articulated in that way your monetarist view of how the problem should be solved, because that's the reason we've got a problem: because we have such a high unemployment rate.
Mr Kwinter: That's the reason why you are where you are in the polls, because you have a view of how this economy should run that is totally opposed by most people who have to deal in the real world. It's as simple as that.
Mr Wiseman: Except for the hundreds of thousands of people who are unemployed because the Bank of Canada continues to increase its interest rates to put people out of work deliberately instead of doing what they know in their own minds is the only logical choice, and that is to be called back to work to produce more goods so that the price of those goods will come down so that more people can buy them and more people can be employed. I haven't had a more clearly defined difference in terms of the differences between our parties. You think it's okay for people to be out of work. I don't.
The Chair: Order, please, Mr Wiseman. We'd like to continue with respect to coming to some conclusion with a consensus on employment and unemployment in this draft, and I would ask Ms Campbell if she has any questions at this time with respect to what's transpired.
Ms Campbell: I'd just like to confirm if the committee was agreeable or not agreeable to Mr Sutherland's suggestion to include under employment a reference to a job figure that the minister had provided the committee, and also a reference to the Conference Board and job creation in Canada or Ontario.
The Chair: If there are no further comments with respect to employment, unemployment -- now, I'm presuming we've touched on both of those topics and we should probably go on; in fact, we even touched on the topic of inflation, but I'll ask if there are any comments with respect to --
Mr Sutherland: Could I just say that my sense and understanding of it is that what Mr Martin articulated yesterday was already the agreement in place between Mr Martin and the Bank of Canada in terms of targets for inflation. So I think those assumptions of what the Committee on Monetary and Economic Reform are indicating are built into these projection figures.
The Chair: I was looking for some agreement with respect to the suggestion that Mr Wiseman made that there be some notation or some comment with respect to non-accelerated inflation rate of unemployment. Do I have an agreement from -- Mr Sutherland.
The Chair: I'm sure we will, time permitting. That would then conclude inflation, which brings us to interest rates. I think we're all aware all these things are very closely related and interrelated. However, the topic of interest rates is our next subject-matter. Any concerns with respect to how the draft reads regarding interest rates? Seeing none, I would presume that this paragraph is acceptable to the committee members.
The next topic is the Canadian dollar, and there is one paragraph that comments on the Canadian dollar. Any comments from the committee members with respect to that? Seeing none, I presume again that's acceptable.
Mr Wiseman: These housing figures: If I remember correctly, the Ontario Home Builders' Association wouldn't agree with these. I think they were saying something in the neighbourhood of 45,000 and that would be the absolute top max and they think their numbers are even high.
Mr Kwinter: Can I ask that the researcher see if there's some way of restructuring that first sentence, in that when you say, "Very little was said about housing," it may give the impression that it is of no concern. The mere fact that in the forecasting section there wasn't a lot of reference to it: I'd like to see it say the same thing but sort of in a --
Ms Campbell: I have one question before we continue on to "Economic and Fiscal Policies." The memo that was distributed to the members this morning contained a couple of issues that had not been covered in the draft that was sent to the members last week.
One of the requests that had been made on February 16 was for information on revenue projections. Those were not included in the draft. My question to the members of the committee is how they would like to deal with the issue of revenue projections at this point in time.
There were some figures distributed by the Ministry of Finance in response to some questions Mr Phillips had sent to the ministry before the committee hearings started on February 6, and there was a table in response to a question that had been asked about the province's revenue outlook for 1994-95 and the next three years. Now, that table was included as attachment A in the memorandum that was distributed this morning. Would the committee like reference made to the revenue projections made in that particular table? That table includes taxation revenues, other revenues and federal payments, for a total revenue figure.
The Chair: Thank you. It would appear we have agreement with respect to that. Unless there are further questions, that then brings us to "Economic and Fiscal Policies," the bottom of page 9. Any comments or concerns with respect to this section?
Mr Sutherland: I guess this is where I would think some of the comments by my colleague Mr Wiseman may be brought in just in terms of noting once again that there are certain economic factors we don't have control over, interest rates being one of them because they're set at the federal level, and could note the comments from COMER about "the accelerated rate of inflation," I believe was the terminology.
Mr Sutherland: Okay, "The non-accelerating inflation rate of unemployment," and that it would be appropriate somewhere here under "Economic and Fiscal Policies" to make note of the federal government's influence in some of these areas and also COMER's comments on that.
Mr Carr: I was just going to say what the researcher had put together looks fine for me. If the intention is to give advice to the minister, obviously you can touch on the interest rates because that's a big factor. If we're to get into debating what the federal government should be doing with regard to interest rates, then we should all quit and run federally. I think the section we've got in there touches enough on it because it does affect the whole projections of revenue and so on.
Quite frankly, if this is going to be a recommendation to the provincial Minister of Finance to get into some of the theories, and notwithstanding the fact that we disagree on them with Mr Wiseman, just from the standpoint -- we can talk all we want about the federal government, but unfortunately the Minister of Finance can't do a thing about interest rates, so we should stick to the things that we can do and influence the minister on. Quite personally, I think the amount we've put in there under interest rates is acceptable to me.
Mr Sutherland: If I could just respond to that, I think we'd agreed under the interest rates we were talking about the forecast. What I'm asking for in this section is just to be noted that we all understand that there are other factors that influence the provincial budget, interest rates being one of them, but that has more to do under federal jurisdiction than provincial jurisdiction. I thought it would be important to just have some comments noting those. There may be a few other federal factors of influence there, and then that would be an appropriate place just to tie in the COMER comment about advice on what interest rate policy should be.
Mr Wiseman: I'm not going to belabour this. I have a really quick comment. A 1% increase in interest rates: that's $165 million to the interest payments in the province of Ontario. For us not to include a cautionary signal at some point in this document about the non-accelerating inflation rate of unemployment and the Bank of Canada's policies to raise interest rates or to be forced into raising interest rates by the Federal Reserve in the United States, to me, does not do our job.
I think there has to be a cautionary signal that we are aware of what we've been told, other things that we've read, and that the Minister of Finance should be concerned about the fact that projections on unemployment and on interest rate payments over the year could be thrown out of whack because of an action by the Bank of Canada which would be based on their perception of what is causing inflation to go up. I'm just going to leave it at that because I think I've made my point more than once.
Mr Kwinter: I've looked at the section under "Provincial Deficit and Debt." If the government side wants to include that statement, I have no quarrel with it; I don't agree with it but they can include it. But I don't think that's an appropriate place to do it.
The first paragraph in this section deals with the advice that was given to us on how to establish clear fiscal priorities and implement an explicit debt reduction strategy, and then the rest of the whole section deals with deficit reporting and basically addresses the problem that the auditor has. There's nothing else in there, and to have this particular statement stuck there, totally out of context, to me doesn't read properly, doesn't float properly. I think we have to find a place to put it; I just don't think that's the place to do it.
Mr Sutherland: I guess I was suggesting that it would maybe somehow be incorporated either into the first paragraph, before "Provincial Deficit and Debt," or, if it doesn't incorporate into that first paragraph, just add it as a second paragraph before "Provincial Deficit and Debt," noting that there are some factors there. That's what I was suggesting.
Ms Campbell: Is it then the committee's wish to include another paragraph or a line before the heading "Provincial Deficit and Debt" stating to the effect that the committee recognized the role that other factors play in influencing the development of provincial economic and fiscal policies, for example, interest rates?
Mr Kwinter: Can I make a comment on page 12, the last line of the first paragraph? I would recommend that we change that number from $1,450 million to $1.45 billion. I think most people reading that will not understand what that number is.
Mr Sutherland: On page 10 in the second paragraph it says, "He felt that the statements, the result of modified cash accounting procedures, did not fairly present expenditures for that fiscal year." I guess I'm just wondering where the source for that comment came from, whether the auditor stated that here at committee or whether he's referring to his report of the public accounts on 1992-93.
Mr Sutherland: Okay. I guess I'm not sure how we're going to resolve this, because I have the auditor's report and his note from the public accounts of that day. In the one paragraph, he says, "In my opinion, except for the failure to record expenditure in the year in which it has been incurred as described in the preceding paragraph, these financial statements present fairly, in all material respects, the financial position of the province's consolidated revenue fund." This line here seems to be inconsistent with what was said at that time, so I don't know how we reconcile those two different statements.
Mr Sutherland: Yes, that it did not fairly present expenditures for that fiscal year, and yet in his actual statement he did say, "These financial statements present fairly, in all material respects...." Now, I haven't reviewed the Hansard --
Mr Carr: Just on the same point, what the auditor said, I don't have it with me, but the auditor did give us a one-page sheet that I think had some graphs and figures which were self-explanatory. I would suggest that in this section we use the figures that he presented in his one-page release to us in here. That would help explain exactly what he meant. His presentation was very simple. If the researcher will remember, he dropped a one-page report and I think it would be very helpful if we incorporated that in this section so that everyone will know very clearly what he meant to say.
Ms Campbell: On February 16, when the committee was giving report-writing instructions, the question was asked, did the committee wish to have that particular table included in the report? The opinion of the committee was that no, that table would not be included. However, on page 13, the middle paragraph, there is reference to some of the figures cited in that particular table. Would the committee like to have more detail? Let me repeat that. Would the committee like to have more in the way of numerical detail from that particular table inserted in this paragraph?
Mr Phillips: I think it would be worthwhile, because I think in describing transactions of the previous fiscal year, you did. I think that's the page you were referring to, Mr Carr, and it points out that there's the deficit per budget of $8.5 billion and then what the Provincial Auditor calls the real deficit of roughly $10.5 billion, and he goes on to outline the various areas where in his opinion it doesn't reflect financial reality. So it would be worthwhile because, as I say, I think in an earlier paragraph you talk about -- actually, on page 12 at the bottom -- the transactions that took place the previous year.
Mr Sutherland: It's highlighted. I would just say that we have, what, three or four pages on this specific issue. There is quite a bit of detail there, so I'm not sure there is a need for a lot more specific figures to be put forward. We outline the history on the public statement, outline the auditor's concerns, particularly his concerns regarding transfers, some of the loan-based financing etc. That's all outlined in there, so I'm not sure that we need additional figures put in.
There are a couple of comments that I would like some addition to, that is, the two statements that were certainly made by the auditor that the budget is not another set of the books and his acknowledgement that it's not his role to audit the budget. I think they probably come into play either on page 12 or page 13. I can't really at this stage cite the exact spot where they should go in, but I think those two comments need to be acknowledged.
Mr Carr: The reason I wanted to put them in there, and I didn't get the original one which I thought was simpler to look at, the graphs, but I would support as a compromise what Gerry suggested, the reason being the auditor went to a great deal of time to put that backup material to justify his comments. I was told this morning that we might not always agree with what's in the report but we should be telling it like we heard it, except when in detail it is critical of the government, then as we hear today, just now, we are told we have enough info. When it fits our purpose, there's enough info already there; when it doesn't, then we like to expand on it.
I would agree with Gerry that it should be in there. I'd forgotten, Elaine, that we did try to get it in originally and the government didn't put it in. Failing that, I'd like to have at least the information that Mr Phillips is requesting be put in there, because I think the people of this province would like to hear about the auditor and the material he put forward.
Mr Sutherland: I guess my only point is, if I look at the issue here, we have roughly about four pages of comments on the auditor's comments. Obviously, of any of the topics in this document, this one has been given the most amount of time and attention. So to indicate that somehow the issue is being downplayed or something like that, I don't think that's the case, given the fact that the auditor was one presenter out of many presenters. I know others did comment on it. I don't think we can say that there isn't much attention being given to this issue.
Just in terms of a couple of other comments that I think should be acknowledged, I believe the auditor acknowledged as well that the Public Sector Accounting and Auditing Board hasn't developed standards on how capital should be dealt with, as to whether it should be amortized or what have you. So some reference to that probably should fit into these pages as well.
Mr Carr: One quick point on having enough for the auditor in there: In most of the sections, we've weighted heavily and put in a lot of what the Minister of Finance has said. Ironically as you know, as I said earlier, this report is supposed to be advising him and a lot of what we're doing is reporting what he said to then advise him, which to me is a little bit ridiculous. Having said that, the fact we've put in the Minister of Finance as much leaves us room to say the auditor, who in my opinion should be listened to -- then we're saying to him, "Sorry, we've got enough in there."
He was not just one presenter. It is the first time an auditor has come before this committee in the history of this province to articulate a problem that he feels is out there. So I think we should expand on it. I don't want to go on too long with it because I doubt whether we're going to win this battle, but on the one hand we give a lot of time and space in the report to the Minister of Finance, I would say pushing his slant on what is happening in a report that's supposed to recommend to him what we do -- to me that's a little silly -- and at the same time, we say to the auditor, who for the first time in the history of this province comes forward with some information, "No, we've got to cut him down because he has enough information in there," I just think that's wrong, but I suspect I'm going to lose that battle.
Mr Sutherland: If you go through and read these four pages, there are all kinds of comments here from what the auditor said, so to say that somehow we're not reflecting the auditor's comments is simply not accurate. Reference to what the auditor has said, what he has asked regarding the public accounts and the change to the accrual system is noted in here. His comments on the budget, what the auditor would like, how the auditor would like the budget to be presented, those comments are all reflected in here. I just want to say I don't think that's something that's not being dealt with.
I'm sorry, I did have one other issue I wanted to raise. I'm not sure if this is the one Ms Haslam wanted to raise or not, but we also had the gentleman from the Ontario Road Builders' Association make some comment about how governments should be amortizing capital investments and his sense of supporting that direction. So some reference to the comments from the gentleman from the road builders' association probably would be appropriate in this discussion as well, about how to amortize public capital.
Mrs Haslam: I think there were two presenters who made a comment on the auditor's way of doing budgeting and disagreed with the auditor, and that was one of my points. I didn't realize it was the transportation, but I remembered that there was some comment on the way business handled its capital, and that's exactly what I wanted to see reflected in here also. I agree with Mr Sutherland. He has picked out one of the points that I wanted to have on page 13.
Mrs Haslam: Actually, you're correct, and I appreciate that. Thank you very much. I just remembered I did this at home, and I didn't have the Hansards at home, and maybe this is an apt time to thank you for getting this ready so I could have the time to go over this and have comments, but I went over this at home and didn't have the Hansards available. I do remember that there were a couple, and that was the other one. That comment would be fine.
Mr David Johnson: I think that particular organization, the watermain and sewer association, I believe it is, was most supportive of the institution of the crown corporations in particular. They saw that as a benefit for funding many projects through the province of Ontario. I think they estimated some $2 billion a year in terms of financial requirements that would be required.
Just a couple of thoughts I had on this: It's hard to understate the importance -- to me, at any rate -- of the auditor's position. To describe the auditor as just another deputation I think is understating tremendously the position of the auditor, the position that the auditor holds in the province of Ontario. I think the members of the Legislature, and to some extent the people of the province of Ontario, look to the auditor to provide the kind of scrutiny and to ensure that the finances are handled properly in the province of Ontario.
Mr David Johnson: It's $800 million -- to realize how important controls are. There's a bank that's out of existence and there are I don't know how many employees who are out of a job. This is important in the private sector and it's important even more so, I suspect, with public funds, such as are being looked at here in the province of Ontario.
I think it's most important that the auditor's comments be given prominence, and perhaps that prominence should be given through the chart that the auditor provided. It clearly outlines his concerns with regard to the way the books are being kept in the province of Ontario.
Having said that, and I gather the government isn't going to support that, I must say I was pleasantly surprised, and I know that Elaine is in a tough spot, but I think there was a comment when we started this debate back a couple of weeks ago that there'd be one paragraph about the auditor -- I remember that being alluded to -- although all the typing is double-spaced, so if this is all put together it's not quite as many pages as it looks. But still it is clearly more than the one paragraph. I would compliment legislative research on putting in more information than I suspected the government wanted to see, frankly.
I think she's fulfilled her duties quite well in specifically mentioning the main concerns of the auditor with regard to the fact that moneys paid to universities, schools and hospitals were being treated as loans, loans that somehow were to be paid back, but that the auditor clearly indicated these are not loans, that there is no hope of that money ever being paid back from independent sources. Yes, in a circuitous route the government will give it money so it can pay back its own loans, sort of thing, but that's not what constitutes a loan; that's what constitutes a grant and that should be listed as a grant. That message may not have gotten through yet such that the budget apparently will not be constructed that way in 1995 unless the Minister of Finance has a change of heart, but at any rate that comment is reflected clearly here by legislative research through the auditor's comments.
I think the job that's been done here is beyond my expectation. If we had free rein to make the auditor's comments even more clear then that would be better, and in particular his chart, but at least --
Ms Campbell: I'd like to clarify a few points. On page 13 in the middle paragraph, both Mr Carr and Mr Phillips had requested more numerical detail from the table that was presented to the committee by the Provincial Auditor. Is that the committee's wish?
The Chair: It certainly wouldn't appear that we're going to have a successful vote, but we can at this time call a vote. I'd like a formal motion put forward, unless you'd like me to keep it simple and say, are the members in favour of additional information? All those in favour? Those opposed? I guess we won't have any more information with respect to that paragraph.
Ms Campbell: I'd just like to review what Mr Sutherland and Ms Haslam requested. Mr Sutherland had requested that there be further reference to the auditor's statement that the budget was not another set of books and that it was not his role to audit the budget. You also made reference to the PSAAB not having developed high standards in dealing with capital. Is it the committee's wish to include those references as well?
The Chair: It appears we have agreement with respect to that. Does that conclude your questions? Any further comments on the auditor's section of this draft report? Seeing none, that moves us to page 14 and the heading "Taxation."
Mr Kwinter: On I guess it's either the third or the fourth paragraph, depending on how you classify the third paragraph, the paragraph that starts, "Witnesses commented on a number of specific tax issues," considering that later on in our report under beverage alcohol and food services we actually refer to the fact the Ontario Restaurant Association did not recommend harmonization, I think we should modify the second sentence to say that there was almost full and qualified support for the harmonization, but there certainly wasn't absolute support, because we have in the report later on that they are not recommending harmonization.
Mr Kwinter: I'm not sure that my reading of what they wanted was elimination. I think their concern was that all of their members had what they considered to be an incredibly expensive keying system on their cash registers and that to convert all of that again after they had converted it once to accommodate the GST would be counterproductive. I think if you take a look at your own report -- I can't remember the exact -- we could find it.
Mr Kwinter: They were opposed to harmonization. All I am saying is that we should just qualify, as we've done earlier, that almost everybody said something, but not everybody. I don't think it's fair for them to say, "Well, we certainly weren't part of that, yet it says that we were."
Mr Larry O'Connor (Durham-York): In fact, I'd go so far as to say that the third line is in complete contradiction to the second line. "One group called for its elimination" certainly isn't full and qualified support for harmonization. What I'd say is, I agree with Mr Kwinter, if you couldn't in trying to qualify that put a word to help qualify the qualified support.
Mr David Johnson: Just to back that up, my recollection, which I think is fairly clear, is that there were no ifs, ands or buts about it. The Ontario Restaurant Association does not support harmonization of the GST and the PST. I don't know what product you're ending up with here, but whatever it is should reflect the fact somehow that they do not support that harmonization.
Mr David Johnson: Well, I see there on 18, but I'm still looking at the words on page 14, which I think are going to be changed. The way they stand here right now, one could interpret that there was full support for the harmonization of the GST and PST but it was qualified in various degrees. Is that what you meant? I don't know exactly what you did mean by that.
Ms Campbell: Could it be reworked to read: "Witnesses commented on a number of specific tax issues. Some offered full or qualified support for the harmonization of the GST and PST. One group called for its elimination"?
Mr David Johnson: Yes, I believe that's true, but they also spoke against the harmonization, so it would be more fair to say one group called for the elimination of the GST and, in the absence of that, that the GST and the PST not be harmonized.
Mr David Johnson: Something of that nature is what I understand is their position. The other comment I would make is that the Canadian Tax Foundation had had some good information with regard to the level of taxation, but it was primarily in Canada as opposed to Ontario. It did measure Canada with regard to other G-7 countries and OECD countries -- primarily, I guess, OECD countries -- and it did measure it as a percentage of GDP.
I think it would be somewhat useful to show those comparisons. I'm thinking particularly of the personal income tax and the property tax, which I notice is mentioned down here a bit later, on the top of page 15. If there could be some reference made to the Canadian Tax Foundation's measurement of those two taxes, I think it might be useful.
Mr Kwinter: I don't want to belabour this point, but I think, if given the opportunity, every single deputant who appeared before us would have called for the elimination of the GST. The fact that someone actually did call for it is interesting and should probably be referred to, but I think the point is that the Ontario Restaurant Association, from my recollection, called for the elimination of the GST. Having said that, they implied that if it isn't going to be removed, they would oppose harmonization.
I just want to make sure that the sentence that says, "There was full and qualified support for the harmonization of the GST and PST," does not reflect the feelings of the Ontario Restaurant Association. The separate issue, about eliminating the GST, is a separate issue. That was really the point.
The Chair: Would it be considered important and significant enough that we actually mention that the Ontario Restaurant Association didn't agree with this and they were the -- to the best of our recollections?
Mr Sutherland: Yes. In the first paragraph on page 15 -- I think we talked about municipal taxation. I think we also heard several comments about education taxes and somehow that should be separated out from municipal taxation and some comments made on that.
Mr Kwinter: In all of the deputants who appeared before us, I think one who made, certainly in my mind, a very significant observation was the shopping centre industry. The fact that their members, who are located in large malls -- their assessment is based on not only the space that they occupy within that mall, but the volume of business that they do, and the fact that the so-called big box outlets could be operating across the street and their sole assessment is based on their real estate value.
I think that clearly there is some inequity to the detriment of some small operators who happen to be in a shopping centre and I thought the presentation was very dramatic and very effective. I think it should be reflected as a concern because I think they have a valid concern, and that issue should be addressed. It would seem to me that this is the place to put it. I would welcome any comments or observations.
Mr Kwinter: All right. What had happened is that the -- whatever they're called; I'll do apologies to them. They have some organization and I can't quite recall the name of it, but it's the shopping centre owners/operators. What they are saying is that if you are a tenant in a shopping centre, the better you do, the higher your assessment, which means that everybody is apportioned the value of their real estate, plus their common area charges. But there's also built into every shopping centre lease a provision that your assessment will go up based on the volume of business that you do. So the more business you do, regardless of the fact that you're occupying the same space, the higher your assessment and the higher your taxes.
Across the street you could have what they call a big box operation, which could be a huge Canadian Tire or a Wal-Mart or someone else who has a massive store, and there is no tying of the amount of business they do to their real estate assessment. It's just based on the square footage, the value of their building. If they triple their business, they still pay the same tax on their property.
That is an inequity that works to the detriment of tenants in shopping centres, particularly small, successful operators, because the more business they do -- we're not talking business tax and we're not talking income tax; we're talking real estate tax -- the higher their assessment. It seems to me that's an inequity. The point was made and I for one found it quite convincing. I think that it should be addressed. That was really the point.
Mr Sutherland: I would like to have a little discussion about the impact of a significant tax cut. I don't know if any of the presenters in and of themselves raised it, but in some of the discussion and questions that were asked there was some comment about what impact it would have on stimulating economic activity, taking into account two variables, the high personal debt rate and the low savings rate. I don't know whether that fits into the two paragraphs already there on page 15 or whether that would require some separate comment on that.
Mr Sutherland: Okay. I saw that reference there and I was going to bring it up at that time and I thought, since that is just kind of forecasts, I would do it here. I have no problem taking it back and just elaborating what those -- I think you used the term "variables" in the other. Elaborating on that a little more back in the other section would be fine by me, or adding something right here.
Mr Carr: The thing I was going to point out that we may want to do then as well is, as you know, the Minister of Finance did a comparison of payroll taxes. He didn't do the personal income tax rate. Our personal income tax rate is 30% higher than Alberta's, as an example, and as you know, they also don't have a provincial sales tax. We do. That's where 23% of our revenue comes in. So although this may be difficult for the researcher, we may want to do a comparison of the personal income tax rates versus provinces.
Again, this gets back to the reason the Minister of Finance did payroll taxes. I think, very clearly, the reason he didn't talk about the personal income tax rate is that we don't come out as favourable. The reason he offered the payroll taxes as a comparison is because, as we see on page 15 there with the tax rate and the employer health tax, we were lower than the average. If he does the personal income tax rate, you'll see that we're at the very high end of the level. If you include all the taxes that we pay, and a big chunk of what we pay is the provincial sales tax, you'll see, versus Alberta, that we pay substantially more in taxes.
I don't want to get into doing that if it's too much work for Elaine, but just a comparison of the personal income tax rates may be helpful at that point as well. Having said that, getting back to the reason the Minister of Finance did it, the payroll taxes are competitive. That's why he laid it out.
Also, as the debate has been before, we didn't want to put in things that the presenters didn't put forward, but the tax people who came forward did Canada versus other jurisdictions, which was helpful, but didn't put in the context of Ontario. I don't know if the folks from the tax foundation would be prepared to do a breakdown of the Ontario tax structure, because if not, then certainly the researcher would have to do too much work and I wouldn't want her to have to include that.
Mr Sutherland: Let me also say that the reason the Finance minister presented the chart on the payroll taxes and premiums is, one, to show that we are competitive, yes, but of course there is a great deal of discussion going on now about payroll taxes and their impacts on jobs and limiting new job creation. Payroll taxes and premiums get blamed for quite a bit of why companies use more overtime but don't hire new employees. So I think it's important that that information was put forward to show that it is on that competitive basis.
Mr Carr: But getting back to our big debate this morning, the high personal income tax rate and the fact that we're one of the highest-taxed provinces in Canada, one of the highest-taxed jurisdictions in North America, is one of the reasons that we do not have the consumer spending we're having. Again, I don't want to get into the long debate on that; that isn't the purpose of this. We'll include something on that in our --
Mr Carr: -- dissenting opinion. Thank you, Mr Chairman. As a matter of fact, we titled our last one wrong, because I think we did put in a minority report. So thank you for correcting me on that a couple of times. But I don't want to belabour the point.
I will say this, again to give the government its due, for the first time there is the realization of a socialist government that payroll taxes kill jobs. That enlightenment I think is something that took a few years, because of course the overall feeling of people of the socialist persuasion was that all you need to do is increase corporation taxes and get the rich to pay and everything will be okay. I think we're realizing now that payroll taxes do kill jobs, and that's a long way from where we came.
I give the government its due on realizing payroll taxes are job killers. Let's hope that when we get to the recommendation section, we will recommend to the Minister of Finance that he does not increase any payroll taxes, because they definitely will kill jobs.
Ms Campbell: I'd just like to review the comments that were made under the heading "Taxation." Mr Johnson requested an expansion of the summary of the Canadian Tax Foundation's presentation. He specifically asked for comparisons of Canada with other countries with respect to such things as personal income tax and property tax. Is the committee agreeable to that?
Mr Sutherland: I can't remember all the information the Canadian Tax Foundation left us in terms of the comparison, and I'm not sure if they're the ones who did the recent study which basically showed that we're in the middle of the pack in terms of taxation versus many other western countries. If the request is on personal and property, if we're doing that comparison -- I mean, most people talk about overall tax rate and how we do that. If we could have some comparison that way in addition to the two specific areas requested by Mr Johnson, that would be helpful.
Ms Campbell: Mr Kwinter requested a reworking of the paragraph following the quotation, and that will be reworked to more accurately reflect the variety of opinions that were expressed, concerning the GST in particular.
At the top of page 15 with respect to property assessment and taxes, Mr Sutherland requested that we work in some reference to education taxes and Mr Kwinter asked for an expansion on the concerns presented by the organization that represented shopping centres. Mr Carr asked for some comparisons of personal income tax rates across the country.
Mr Sutherland: I think we'd be going more on the Hansard. As you recall, there was quite a bit of questioning of the different forecasters about, would a significant tax cut generate, for lack of a better term, a spending boom, or, because of the variables of high personal debt and the low saving rate, would those dollars be used for those two purposes instead, and then that would kind of counter the impact or the projected impact on consumer spending, so just some reflection of the discussion and comments from the presenters on that.
Mr Sutherland: I think the Ministry of Finance in its presentation had talked about some of the ones that are out there in different areas, whether that be viewing Jobs Ontario Training or Community Action that way, possibly OTAB. But we also had the comments of the Ontario Good Roads Association, I would suggest the Ontario Road Builders' Association's comments made references to Highway 407 as an example of how that could be -- I even believe the Ontario Trucking Association made some reference to that one, I can't recall the exact references but some discussion of references by the other groups as well as the one that was already mentioned here, by COCA.
Mr Carr: Perhaps Elaine could also expand particularly on the financial aspects of it because, as you recall, the problem was that they talked about the partnership on the 407 not really being a financial partnership. I think there was plenty of detail about how that should work versus what's happening now. A particular emphasis on the financial aspects I think would be very helpful.
The Chair: Thank you. Any further comments on "Public/Private Sector Partnerships"? Seeing none, that brings us to "Job Creation and Employment." We have two paragraphs. One starts at the bottom of page 15 and continues on page 16 and another paragraph on page 16.
Mr Sutherland: A couple of comments: The Ministry of Finance in its presentation discussed what the government had done on its direct job creation initiatives, direct in those partnerships with private sectors, and I believe it cited some figures that would probably be appropriate to put into this section. I guess this kind of picks up on the last one because some of the same groups, certainly COCA, road builders, truckers talked about the importance of capital spending in the economy. Some reference to those comments would be probably appropriate in this section as well.
Mr Carr: The point I wanted to make too is just what Kimble said, to expand on it a little bit, because to my recollection there was a little bit more coming forward with regard to job creation than just what we've got here, which was a little bit about the ministry and then the OFL. I don't know if people didn't spell it out very clearly, which they may not have in their presentations, but a lot of what was talked about relates to job creation. I suspect that topic could and should be expanded, because obviously job creation is one of the number one issues of the people of this province and I think we can expand on that section, with the comments that we heard, by a great deal.
Mr David Johnson: On "Job Creation and Employment," then, on the same category -- and you have mentioned the OFL in here -- I did make the comment about the Canadian Bankers Association earlier and its view of the link between persistent deficits and job creation. Is this a point where that could be included? Because they certainly made a strong statement with regard to job creation.
Mr David Johnson: That's number one. Then, number two, the Council of Ontario Construction Associations also raised the issue in its brief, which will be no favourite of this government, I'm sure. Just to read a short piece from their brief:
"Another matter of great concern to contractors is the image of Ontario as a place to invest. What do potential investors think about moving to the most pro-union jurisdiction in North America where a new company can be unionized with only one employee signing a union card and where employees can't be fired no matter how bad their performance during a union sign-up campaign? Many employers are wary of such developments and exactly how much Bill 40 has retarded Ontario's recovery is something that should be studied seriously."
All of that translates into job creation. I would ask legislative research to include the Canadian Bankers Association concern, which directly refers to job creation, and I would ask that she also look at the Council of Ontario Construction Associations concerns with regard to investment and how that affects job creation.
Mr Sutherland: I have no problem with the comment from the bankers association because they're making a direct comment, in their view that deficits have a direct impact on the jobs. I think though that, given the nature of the discussion in this section, Mr Johnson's comment about what COCA is saying would be you've got to make several steps before you get it into the job creation section. As I indicated earlier, they made a lot of comments about capital spending and its impact on job creation, and I think those comments should be reflected in this section. I'm just not sure that the other comments he's citing fit into this section.
Mr David Johnson: To me it's a very direct link, but I understand the parliamentary assistant's point. There should be a category in here called "Investment." Is there such a category? I'm just looking through and I don't see it anywhere. Is there any objection to having such a category? Because in terms of an economic program, in terms of the budget, it would seem to me that investment is very crucial. Investment in businesses creates jobs, growth, assists in setting budgets, brings nothing but good things to the province of Ontario.
To address the parliamentary assistant's comments, my suggestion would be that we include a new section under "Investment" and that this particular comment of COCA would fit very nicely into there, and then we would have all of their comments, those that are supportive, I guess, and those that are not as supportive. But at any rate, we'd have all of their comments, and I think that's what we want. They have some very direct things to say about the investment climate. I believe that's very important to the province of Ontario. Is there any objection to that?
Mr Sutherland: If we are going to have that, then I guess I would certainly like us to include the data that was provided to us by Mr Christie, associate secretary of the treasury board, regarding investment levels in the auto sector since the 1980s. I don't think we need all the 1980s, but certainly the information that indicates the type of significant investment in that chart seems significant because we see that 1994 was a record year, according to this graph that was presented to us, in terms of the overall amounts and that 1993, while not a record year, was a very strong year as well.
Mr David Johnson: Whatever material fits within the criteria that we've set that can be included in the report, I would say, fine, absolutely. If Mr Christie's information has come in after the fact, I don't know if it's eligible to be included or not. I gather it relates to transportation equipment. Is that the one you're referring to?
The Chair: I think the point is that the questions were asked by all committee members of Finance officials and they have responded very quickly with respect to some of those questions and somewhat longer in time in others. I think these are just some answers coming back, if I'm not mistaken.
Ms Campbell: I just want to recap the instructions that were given under "Job Creation and Employment." It's my understanding that there's a consensus that this particular section should be expanded to incorporate more of the comments that were made with respect to "Job Creation and Employment," more specific comments. Mr Sutherland mentioned capital spending and the figures given by the minister. Mr Johnson asked for inclusion of reference to the Canadian Bankers Association's concerns about employment. He also discussed the Council of Ontario Construction Associations' brief and the concerns that it raised about Ontario as a place to invest. Is it my understanding now that that should go under the new category of "Investment," and it's agreed that there will be a new category called "Investment"? All right.
One further question: When we started discussion on the paper this morning, under the heading "Economic Summaries and Forecasts," the past year, Mr Phillips made reference to employment figures, comparing 1989 with 1994. It was decided that we would perhaps discuss that particular request under the section heading "Economic and Fiscal Policies." Is the committee interested in including those figures in the section of the paper under "Job Creation and Employment"?
Mr Phillips: I think the point this morning was that 1994 was not a bad year for job growth, but the point we were making this morning was that Ontario still, in 1994, had 84,000 fewer jobs than it had five years before. The rest of Canada has gained 240,000 jobs over that same period of time. So the point was really that while we've seen 1993 job growth and 1994 job growth, we've still got a long way to go before we get back to where we were in 1989 and then begin to pick up some of the people who are obviously unemployed and some not even in the labour force.
Mr Sutherland: I have no problem putting that in provided we have some larger context in that discussion. The reality of one of those reasons of course is that in this recession, far more than the other ones, we had more permanent job loss due to adjustments to free trade and general restructuring. It hit the manufacturing sector much harder than it did other sectors, which means Ontario suffered far more than many of the other provinces, which also gives more context as to why those numbers are the way they are. I'm not sure if we had some of that context presented to us, but if there's some way of incorporating that too, then I don't have a problem having that put in.
Mr Wiseman: I just thought if we wanted to have some context, one might go back to the 1989-90 budget and find out that in that year there were only 40,000 jobs created. There's another little fact to throw out in terms of context.
Mr Carr: Mr Sutherland is saying he wants to talk about the free trade agreement creating the problems. On page 3 of our report, which we've already gone through and approved, we say, and I quote, "Credit for the positive news was given to exports and investments," of which a high proportion has been to the US. I use the auto sector which came in as an example. We heard very clearly from them that we are exporting more into the US. So you can't have it both ways. You can't, on page 3, as the government, try to take credit for the increase and say, "Credit for the positive news was given to exports and investments," and then at the same time blame it on the free trade agreement when easily over 80% of our manufactured goods go to the US.
Either free trade has, as we say on page 3, helped increase -- "Credit for positive news was given to exports and investments" -- or it hasn't. The part I would support is what was put forward by Mr Phillips, but I certainly couldn't support what Kimble is saying, because quite frankly you can't at one time, in the beginning of the report, take credit for exports being up and at the same time, when it serves you politically, try to slam the free trade agreement.
Mr Sutherland: Mr Carr, I wish I could go through this world seeing everything as black and white as you and some of your colleagues seem to. There was adjustment to free trade. We all know that. Adjustments, whether they were directly related to free trade or just making an overall adjustment to compete in the overall larger market, had a tremendous impact. You also have to remember that, as you said, the largest amount of those exports right now are auto-sector-related. Of course we didn't have true free trade in the auto sector. What we had is what I'd call managed trade in terms of ensuring that there is Canadian content and jobs here in Canada and jobs in the States regarding the auto industry. That managed trade system was already in place before the free trade agreement, so you can't say at one time and then the other. That's not the case, okay?
Free trade did have an impact on Ontario in terms of adjustments, plus other restructuring, particularly in industries that aren't auto-related. I think of the food processing industry. We know we lost quite a few jobs in that industry shortly after the free trade agreement came in.
So very clearly there were job losses, there needed to be adjustment, but we also have to remember that the managed trade in the auto sector has been in place for a long time in terms of autos and auto parts going back and forth. You can't say all of this increase in exports is due to the free trade agreement. Much of it, because it's auto-related, would have been occurring anyway as a result of the auto pact.
Mr Wiseman: I think we have to go back again and take a look at what was happening in 1989, 1990, 1991. We have to remember that the interest rates were high, that the Canadian dollar traded at a max of 89 cents, and when I was talking to business people in my riding, when I went around and talked to them, they were telling me that the high dollar was killing them, because it had gone up so fast from October 1987 until 1990, a year and a half, two years max. It had gone up from about 72 cents in October 1987 to 89 cents in 1990. That is a huge increase when you consider that some of the businesses out there that trade into the United States had made long-term contracts, that these contracts were for delivery and for payment on delivery, and that they were calculated in 1987 dollars.
Now, when this goes up, and their margin is maybe -- for example, in the tool and die industry I was told that the margin of profit was maybe a tenth of a cent per item, and when you consider that the increase was about 25% to 30% in the value of the Canadian dollar, you can see how quickly that would wipe out anybody's profit margins in a business.
We heard early on in this committee, in the 1991-92 pre-budget hearings, from the mining manufacturers, who clearly indicated that when the dollar goes above 80 cents, their profits start to drop, and they had a number. It was in the hundreds of millions of dollars in terms of the value of their commodities dropping, and that takes a period of time to recover in terms of what happens when the dollar goes so high that these businesses that had created contracts and created long-term deliveries were losing huge amounts of money and being forced to lay people off.
So for the context of this discussion, I think we need to recognize that the damage that was done with the high dollar and the high interest rates, combined with the free trade deal and also the lack of recovery programs and programs that were promised by the federal Tories when they did the free trade deal, combined to created this huge drop in employment in the province of Ontario. It's only now that these companies are starting to become profitable. The dollar has stabilized out around 70 to 72 cents for about the last six to eight months and they can start to be profitable again. But if the dollar starts to go up again and there isn't any kind of stability, these companies are going again to be in some serious difficulty in terms of trade and in terms of trying to market their products.
One other point about some of the reasons the automotive sector is doing as well as it is is that the United States has a Clean Air Act, and the Clean Air Act is a fleet clean air act. In other words, they are penalized on the basis of the fleet emissions of their automobiles, so they have to make their big-engine cars somewhere other than the United States. It's really fortuitous for us that we have the infrastructure here already and that we have the workforce and we have the skills and we have the training programs and we have the capacity and the ability to produce those cars in Canada, because they have to be produced somewhere other than the United States. I think we need to take into account that it's a far more complex world out there than the simple world that the Tories continue to paint in trying to get things added into this budget document.
Mr Carr: -- and calling ours simple solutions, with your Agenda for People that you ran and were elected on. All I know is that in Oakville, the competition for the Windstar was between Canada and the United States. We won out because we produce the car faster, better, cheaper than the Americans. Some 90% of them go to the US, not because of any agreement; they go because that's where 90% of the sales are.
So if you want to get into the simple answers -- and Mr Wiseman gets into all the reasons -- the fact of the matter is the Ford Motor Co had a decision to make: Where can they build a car the fastest, the best and the cheapest? It happens to be in Oakville. We can compete with Americans on car production any day and we are beating them in one of the largest industries in North America. That's why I'm saying we should not be fearful of the free trade agreement, because we have nothing to fear with the Americans, because quite frankly we can outproduce them in many of the sectors. That's the comment I wanted to make with regard to the free trade agreement and Mr Kimble's comments about what happened.
Mr Carr: Oh, sorry, somebody else kept saying it. Mr Sutherland's -- Kimble's -- comments on the auto pact and so on. The fact of the matter is, in this day and age, the number of sales that go to the US is dictated by one thing and one thing only, and that's sales. There are no quotas. It doesn't have to be 90%. It just happens to be, with their economy being larger, that's where our products go.
In Oakville, we would not have as many people employed had we not been able to have access to that market and send 90% of the things that come off the end of our line in Oakville to the US. And quite frankly, with all the other discussions that are going on about why it happened and everybody trying to take credit for it, the fact of the matter is that with regard to the free trade agreement we have nothing to fear with the Americans because the auto sector is a perfect example of how we can beat them at their own game.
Ms Campbell: I just have a question concerning the inclusion of figures comparing jobs and employment in 1989 and 1994. There was reference made by Mr Sutherland to the use of context. What would the committee like used in terms of context?
Mr Sutherland: I guess the few basic points that I tried to make were that because the recession hit manufacturing harder than any other area and Ontario has the largest portion of manufacturing in the entire country, therefore the impact in Ontario in this recession was greater than in the other provinces. So when you look at the figures that Mr Phillips is putting forward about how we compare with the jobs created since 1989 versus the other provinces, I guess that's the context that needs to be taken into account, that the recession didn't hit all the other provinces in the same way and therefore their opportunity to rebound quicker was there.
Mr Phillips: I don't have a problem with it. I think there is probably a whole series of reasons for it; that one in the manufacturing sector I think, and the construction sector there is a series of reasons for it.
Mr Phillips: Metro Toronto has lost a lot. We could go on. I was just anxious to indicate in the document for all of us that employment continues to be a very significant problem that hasn't yet gone away.
The Chair: We are at this point halfway through the draft report. We have two sections left -- "Non-Tax Revenues" and "Regulation and Red Tape" -- before we get to "Sectoral Issues." I would like to ask the committee members at this time if, before the day ends, they would like to complete those two topics or, given that we are halfway through the document, if you would like to conclude the day's work at this time. I'm just putting this question out because the Chair would like to know what we should do.
I see the committee members all seem to be in agreement with what is here. I must admit I'm quite surprised. I thought maybe these two topics would bring heated debate and great lengths of discussion.
The Chair: I would suggest that since we have concluded that major section and the next section is "Sectoral Issues," of which there are a number and they are quite large in their individual sectors, the Chair will take it upon himself to adjourn this committee and we'll resume this committee tomorrow morning at 10 am sharp.