HANSARD
Ms. Maureen MacDonald (Chair)
Mr.Chuck Porter (Vice-Chairman)
Mr. Alfred MacLeod
Mr. Keith Bain
Mr. Graham Steele
Mr. David Wilson (Sackville-Cobequid)
Mr. Keith Colwell
Mr. Stephen McNeil
Ms. Diana Whalen
[Mr. Harold Theriault replaced Mr. Keith Colwell]
[Mr. Leo Glavine replaced Mr. Stephen McNeil]
WITNESSES
Department of Finance
Ms. Vicki Harnish
Deputy Minister
Ms. Liz Cody
Assistant Deputy Minister
Ms. Nancy McInnis-Leek
Executive Director, Fiscal and Economic Policy
Mr. John Hoar
Fiscal Policy Analyst
In Attendance:
Ms. Rhonda Neatt
Legislative Committee Clerk
Mr. Alan Horgan
Assistant Auditor General
[Page 1]
HALIFAX, WEDNESDAY, MAY 2, 2007
STANDING COMMITTEE ON PUBLIC ACCOUNTS
9:00 A.M.
CHAIR
Ms. Maureen MacDonald
VICE-CHAIRMAN
Mr. Chuck Porter
MADAM CHAIR: I'd like to call the Public Accounts Committee to order, please. Good morning and welcome to our guests today from the Department of Finance regarding the fiscal imbalance. We will begin with introductions from the members and from our witnesses and then the deputy minister will have an opportunity to make some brief opening remarks and we will proceed in the usual fashion.
[ The committee members and witnesses introduced themselves.]
MADAM CHAIR: Thank you and welcome. Ms. Harnish, the floor is now yours.
MS. VICKI HARNISH: Good morning. First let me thank the committee for inviting us. Public Accounts Committee, of course, is a very important part of how government stays accountable to the Legislature and to all Nova Scotians. Deputies and senior staff take their role and responsibility to participate in this process very seriously. At the same time, it may not come as a complete surprise to you that Public Accounts Committee is not always how public servants would choose to spend their morning.
That said, in this case, my Assistant Deputy Minister, Liz Coady, other staff and I welcome the opportunity to share information with you on this very complex issue. While the numbers are complex and the issues somewhat abstract, this issue could hit Nova Scotians very hard and soon become much more meaningful in their everyday lives.
[Page 2]
Fiscal imbalance is really about the gap that exists among the richer and poorer provinces in this country. Richer provinces are able to provide more services and supports to their citizens and often at lower tax rates than those of us in smaller provinces. These realities determine where Nova Scotians will choose to live and work and they affect our quality of life and when we're talking taxes, they hit our wallets. I can't overstate the significance of this issue. Some context around the numbers that help define the significance could be a good base for today's discussion.
As you know, the federal government has presented us with a very difficult dilemma - keep 100 per cent of our offshore revenues as guaranteed in the offshore accord but get a lot less in equalization, or take the richer equalization program available to every other eligible province and lose our offshore revenue guarantee. In Finance, we like to crunch numbers and come to a bottom line that answers these questions very clearly. In this case, however, only the future will determine the financial impact of whatever choice we make, not just our own future economic growth in offshore activity but the future performance of other provincial economies, too.
To illustrate how even two years of new data can make a dramatic difference, when we released our provincial budget, we were projecting a minor loss of our offshore offset dollars, about $7 million, up until 2011 or 2012. Under the assumption we took the new richer equalization formula, this number was based on the most current federal data at that time, including the growth assumptions used by the expert panel on equalization. Since that time, federal Finance has updated that data by two years. The new information shows Nova Scotia is going to be hit a lot harder and sooner than we had estimated on Budget Day. Again, this was based on newer data and updated assumptions on a number of factors, including Ontario's economy. Given our offshore accord stretches out almost 10 years into the future, the uncertainty of our assumptions and unpredictability of our numbers grow substantially.
Certainly, the world of finance is also about assumptions and projections and we have been crunching numbers as part of our analysis of the dilemma presented to us. At this stage, we are exchanging our assumptions and data with the federal government and I've asked for their comment on the reasonableness of our modelling outputs based on the assumptions we are using but based on what we know now, we believe that next year, 2008-09, we'll lose just over $50 million of our offshore offset money through federal clawback of equalization entitlements under the new formula.
The issue of fiscal imbalance is also about much more than equalization and the offshore accord. It's also about other federal transfer payments, particularly for our social services. The federal budget made some significant changes on how transfer payments are calculated - again to the benefit of the larger provinces. Specifically, the transfer payment calculation for CST is now based on equal per capita cash. This mechanism will be applied to CHT as well, starting in 2013. So the more people you have, the more cash you receive
[Page 3]
and in post-secondary education there's no consideration of how many people you educate from out of province.
Although the federal government is increasing CST transfers by 15 per cent or $1 billion this year, Nova Scotia is only getting a 0.4 per cent increase in CST cash payments for 2007-08. Ontario gets a 17.3 per cent increase and Alberta a 56 per cent increase. The equal per capita funding means that Alberta, Ontario and B.C. will maintain their increase and see their share grow as a result of future population expansion as well.
I do have, Madam Chair, a handout that speaks to those numbers if I could ask that that be distributed as well, just for illustrative purposes. With these eye-opening numbers, I will end my comments with a final statement. The Department of Finance is paying a lot of attention to this issue. My staff have worked on this issue for months before the federal budget and literally every day since the federal budget came down. As part of that effort, we're pleased to be here to help ensure our position is well understood and our concerns are addressed by the federal government.
MADAM CHAIR: Thank you very much. The opening round of questioning with be with the NDP caucus. Mr. Steele, you have 20 minutes.
MR. GRAHAM STEELE: Thank you very much. Last week, we were dealing with the issue of ministerial vehicle leases, which is interesting - even entertaining at times - but when you get right down to it, it's only symbolic. The amount of money involved, really, in comparison to the $7 billion provincial budget is very small.
Today we're dealing with the big money, the really big money. Every little twitch of the federal government on this issue can have an impact of tens of millions, hundreds of millions or billions of dollars. Yet, compared to last week, we have only a fraction of the information that we had to deal with ministerial vehicle leases. Last week, when we were dealing with thousands of dollars, we had a thick binder of material - information on every single ministerial vehicle lease right down to the contracts.
Today we're dealing with hundreds of millions or billions of dollars and, frankly, we've received practically nothing. That applies not only to the Public Accounts Committee, but to the Legislature generally. I think - especially those of us in Opposition - we feel like we've been left in the dark.
The Premier had promised that on this issue the Liberals and the NDP would be "in the loop". But, we're not. We're not in the loop at all. We don't know what's going on, we don't know who's meeting with who or what they're saying. We don't know what the facts are, we don't know what the strategy is. I'm hoping to use some of my time this morning to try and draw out some information about those topics. I do believe members of the
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Legislature should have considerably more information about this topic than they actually do.
Let me start then by asking simply whether the facts as you've stated them this morning, Ms. Harnish - is that something with which officials in the federal Department of Finance agree?
MS. HARNISH: The numbers I have just provided this morning on this sheet, for example, for illustration, come directly from the federal budget documents. The number that I told you for next year, based on our most recent review of data, would, I think, be something with which the federal government would agree.
Projections going forward are very dependent, of course. We've run multiple scenarios with a variety of assumptions and they'd be very much determined by many kinds of things. Whether or not all of our scenarios would match with all of the scenarios the federal government would have run, of course - who knows? But, I think it's fair to state that next year's numbers on EQ wouldn't be disputed.
MR. STEELE: You see, one of the difficulties with the whole topic of fiscal imbalance is that it is a very vague term. As one of the local newspaper columnists pointed out, it's a term so vague and imprecise that it essentially means whatever the speaker wants it to mean. So it can be used by our government to mean one thing, it can be used by Dalton McGuinty and the Ontario Government to mean something quite different and it can be used by Stephen Harper and the federal government to mean something else again.
I want to move beyond the phrase, fiscal imbalance, and probe a little bit about the underlying facts. As long as the facts are in dispute there really can be no meaningful debate. Does the provincial Department of Finance have a projection out to 2020 of the impact of the most recent federal budget?
MS. HARNISH: We have several, under a variety of assumptions.
MR. STEELE: Okay, and is there any reason why you couldn't table those with this committee?
MS. HARNISH: I would be pleased to go back and discuss that with the minister.
MR. STEELE: Okay, but can you think of a reason why, if you have a variety of scenarios based on a variety of assumptions, that you couldn't? Those are purely factual.
MS. HARNISH: Well, assumptions . . .
MR. STEELE: Why couldn't you share those with the committee?
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MS. HARNISH: Yes, scenarios are never factual, they're based on a variety of assumptions so all we know for sure is, none of them are accurate, but with the assumptions employed, they're our best calculation.
MR. STEELE: But why couldn't you share those different scenarios with different assumptions with this committee?
[9:15 a.m.]
MS. HARNISH: Mr. Steele, I'd be more than happy to go back and make sure the minister is fine with that.
MR. STEELE: But, of course, you're not answering my question. Why can't you just say yes, that's a background document that we shouldn't share with you? What is the element of it that you need your minister's permission?
MS. HARNISH: Well I would like to ensure that he's comfortable with that because of the wide variety of assumptions employed. But I'll go back and have a conversation with him for sure.
MR. STEELE: Okay, because one of the things that I worry about on this topic, of course, is that the department gives us what it wants to give us but not the underlying assumptions and analyses. It is really only when you have the underlying assumptions and analyses that you can have a real debate.
I want to go back to my original question, which was whether the federal Department of Finance and the provincial Department of Finance have a common set of scenarios or factual assumptions on which the debate can be engaged, or are they coming from a different place? Do they have their own analyses?
MS. HARNISH: I'm sure they do, but we have not been provided with it. Beyond one year's worth of data, the assumptions that they would have produced would not have been shared with us.
MR. STEELE: So you do have one year of data that you have in common with them?
MS. HARNISH: In 2008-09 because most of your data would be relatively known and a lot of it based on historical information by now. As you know, they now use that data based on a two-year lag and a three-year average, beyond that it would be pretty much given. So I think we would agree on the 2008-09 numbers because there are very few assumptions in it.
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MR. STEELE: You see, the difficulty we have here is if we are trying to persuade the federal government to take a different course, surely there has to first of all be some kind of a common understanding of what the facts are. You can look at the projections into the future and have the debate based on that. From what I hear you saying, there's no agreement with the federal government even on the factual assumptions, even on what assumptions are reasonable, and based on those reasonable assumptions, what the future holds. I'm concerned about that because given the vagueness of the umbrella term "fiscal imbalance" if you can't agree on what fiscal imbalance means and you can't agree on the factual assumptions, it's hard to see why or how the federal government would ever change its position. Are you familiar with Professors Paul Hobson and Wade Locke?
MS. HARNISH: We are.
MR. STEELE: I understand from media reports that Professor Hobson has done his own analysis for Nova Scotia and that Professor Locke has done his own analysis for Newfoundland and Labrador. Have you seen those?
MS. HARNISH: I haven't. I believe Liz has seen them.
MR. STEELE: Has the provincial Department of Finance invited Professor Hobson in to discuss his analysis?
MS. HARNISH: Liz has reviewed it. Liz, you may want to speak to that.
MADAM CHAIR: Ms. Cody.
MS. LIZ CODY: Yes, we did. Paul Hobson came in and we sat down and we talked through his outputs and his assumptions going in.
MR. STEELE: Is that something that you can share with the committee?
MS. CODY: If Paul Hobson would agree to that.
MR. STEELE: Again, there is an analysis out there and the answer that we're getting back is - for whatever reason, legitimate or otherwise - no you can't see it. Do you see the difficulty we have?
Listen, I understand it's Professor Hobson's analysis. My point is simply this, Finance has projections and assumptions that you can't show us without getting permission from your minister. Professor Hobson has analyses and assumptions that you have seen but you can't share with us. We are the elected members of the Legislature and we are completely or almost completely in the dark about what is going on in this file, and that is a problem.
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The federal Finance Minister apparently is coming to Nova Scotia today, but again we are in the dark - we have to read about it in the newspaper. I understand that as of a few minutes ago, the reporters didn't know where or when that meeting was going to be held, nor do they know what's on the agenda. So I'm just wondering if you could share with us where and when that meeting is going to be held?
MS. HARNISH: It's being held this afternoon when the federal Finance Minister arrives and I think it was confirmed yesterday the meeting will be held at the airport, and I believe that media was going to be invited in later this afternoon to meet with both ministers.
MR. STEELE: Oh yes, I'm sure that they will but again, as of this morning I don't think the reporters knew when or where the meeting was, I don't think the media advisory has gone out and, of course, we, the members of the Public Accounts Committee weren't aware that the minister was coming in. What's on the agenda?
MS. HARNISH: You know what, I haven't seen an agenda. It is our assumption that this fiscal imbalance issue is going to be addressed. We also understand that the minister will be talking to Minister MacIsaac about things like Atlantic Gateway, but there's been no formal agenda provided to us. So I really can't tell you if Mr. Flaherty has anything more on his mind or not.
MR. STEELE: So do I take it from your answer that the agenda for this meeting is being set by federal Finance?
MS. HARNISH: For this particular meeting, it was requested by Minister Flaherty. I can tell you that there have been many conversations at many levels, for the last six weeks, over this issue between the provincial and federal governments.
MR. STEELE: Before I move on, I just have to say, again, my concern over this issue is the lack of information that is available. The federal Finance Minister is coming in today, apparently at his request. We don't know what's on the agenda. This topic may come up. But the underlying problem is that there doesn't seem to be a common understanding about the facts or the assumptions or reasonable assumptions.
It's difficult for me to see how there can be meaningful discussion between the provincial Department of Finance and their federal counterparts when there isn't even an understanding on the basic facts and assumptions. How are we going to deal with that issue? I've seen this is in the Legislature dozens of times where the opportunity for meaningful debate is eliminated because you end up arguing about what the facts are, and it's only when you have a common understanding of the facts that real meaningful debate can be held. I'm concerned about the apparent lack of common ground with federal Finance about what the facts are.
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MS. HARNISH: Could I respond?
MR. STEELE: Sure.
MS. HARNISH: This debate is not about a set of scenarios or a stream of numbers. This debate is completely about the formula that's going to be used because, depending on many things, the actual dollar impact at the end of the day could be within a wide variability. However, the facts are that the federal government has provided us with an option and a choice between two formulae; a less rich formula which is based on an historical kind of way of determining equalization, or a richer enhanced formula, which is then subject to a cap. The cap is the fiscal capacity of the lowest non-receiving province in the current year and for the next year - we believe that will be Ontario - and inside the calculation of the cap, the federal government is including the equalization offset dollars that Nova Scotia is entitled to under the 2005 accord, and it's also including 100 per cent of resource revenues. So the facts are, effectively, this newer, richer formula will be clawing back some of what we are entitled to under the 2005 accord. How much is dependent on many things including gas prices, the economy, our capability at fiscal capacity in many other areas, and the capacity of the lowest, non-receiving province over time.
So whether or not we lose $50 million or $1 billion, the fact is that we're going to lose money by accepting the enriched formula and it is our belief that that is contrary to the agreement that we struck with the federal government in the 2005 accord. And there's no disagreement over that.
MR. STEELE: But I think there is disagreement, not here in the Province of Nova Scotia, but certainly there is disagreement at the federal government. You hear phrases coming from the political people, things like, they can't have their cake and eat it too. That's one of Mr. Flaherty's favorites. One of Mr. MacKay's favorites is to say, this is a choice between a good deal and an even better deal. So as long as you have the political people saying things like that, I would say there is a difference of opinion with the federal government over the fairness of this.
So let me ask you then, just very simply - what is our strategy? Whatever we were doing to persuade the federal government before their budget to do something different didn't work. So what I would like to hear from you this morning is what are we doing differently now that we know it's in the federal budget that is going to result in a different decision? What is the strategy?
MS. HARNISH: Well, Mr. Steele, before the budget was introduced, of course, we made representation on many occasions to the federal government. We brought up to speed many of our business and industry groups locally. We went to the Senate. We addressed the Senate Committee. We addressed the EQ panel, the expert panel. We addressed the Council of the Federation. Certainly we made our position well known up to the federal budget and,
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quite frankly, we were surprised when we saw the federal budget on budget night, that they had actually failed to take into account our very strong presentations that a deal is a deal and the accord speaks elsewhere.
MR. STEELE: Okay, what are we going to do differently from now on, since that didn't work?
MS. HARNISH: Since the federal budget, there have been ongoing discussions with the federal government still, with the MPs. We have been out trying to convey this information as we can, as well, to places like the chambers of commerce. We have put information up on our Web site. The decision to take back part of what we were provided under the 2005 accord was made by the politicians and I guess the decision to reverse that is going to be a political decision.
MR. STEELE: So what is different about our strategy? I know about all those things that we did and I know the province, and the Finance officials in particular, worked hard to put forward Nova Scotia's case before the federal budget, but it didn't work. Now I'm wondering, what is it we are going to do differently because it seems to me, if we continue doing the same things that we did before the budget, it's not likely to have a different result. So what I'm looking for is what in the strategy now, post federal budget, is going to be done differently?
MS. HARNISH: Well, you have very limited capability other than political pressure, at this point in time. As you are aware, the budget is in front of the House right now, federally. I believe they will be doing second reading within the week so our window of time is somewhat short as well. Our political folks have pulled out all stops, to my knowledge, to be addressing this with their colleagues in Ottawa and we are hoping that pressure by taxpayers, as well, on their MPs will help to convince the federal government that, in this case, the 2005 accord needs to be honoured.
Certainly, we are having legal opinions done as well on this to see if, when push comes to shove, there would be a case to take this to the court. Our Justice Department is reviewing the circumstances at this point but I believe the Premier has said we would rather talk about it than litigate. Negotiate, I think was the term he used, as opposed to litigate. Litigation can drag on in the courts forever, as you know.
MR. STEELE: Yes, I know and I don't think there is any hope of court action succeeding and I'm a little surprised that it has come up because it just seems like not the way to go on this kind of affair.
MS. HARNISH: We agree. This was a political agreement in the beginning and one would hope that we could have a political resolution.
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MR. STEELE: My last question, because my time is rapidly running out, is just to refer to something you said in your opening statement this morning. "The new information shows Nova Scotia is going to be hit a lot harder and sooner than we had estimated on Budget Day." I wonder if you could just take the last minute here to elaborate on that.
MS. HARNISH: To tell you why?
MR. STEELE: What is this going to mean to Nova Scotians?
MS. HARNISH: Well, it's going to mean in 2008-09, for example, we will see $50 million of our offshore offset money effectively removed from our budget through clawback to our equalization entitlement.
MR. STEELE: And is it going to have any effect on this year's budget?
MS. HARNISH: It will not affect 2007-08, no. Those numbers are fixed.
MR. STEELE: So the impact is going to start to be felt next year.
MS. HARNISH: It starts in 2008-09, yes.
MR. STEELE: And can you project out over a number of years about the cumulative impact of that?
[9:30 a.m.]
MS. HARNISH: We have projected out a variety of assumptions. You have heard Paul Hobson's number of $1 billion over the next time period. Look, the assumptions he has addressed there, they would have been within the range of some of the assumptions that we have used. It's very determinant on a number of factors, of course, but it could be a very large number.
MADAM CHAIR: Order, please. The time has expired.
Mr. Glavine from the Liberal caucus.
MR. LEO GLAVINE: Thank you very much, Madam Chair, and certainly thank you to the deputy minister and her staff for being with us today to hopefully shed some further light on, as you well stated, a very, very complex issue - one in my view that we probably should be still here in the Legislature debating and I think presenting a strong united voice in minority government to the federal government. I know there are a number of reasons why we're not here, one of them passing by on the weekend.
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That being said, this is an issue all about really the fiscal health of the province for well into the future and one that will impact on this generation and future generations potentially. So I feel it is a topic, I certainly share a common sentiment with my colleague, that does need much, much greater exposure at the legislative level and with the best information provided for all of us to be engaged in, to have the federal government have a reconsideration of the direction that we do seem to be going right now.
I'm just going to start off with taking a look at this year, the Canada Health Transfer was $638 million; the CST, $280 million; equalization equalling $1.464 billion. In your estimation, deputy, was that a fair dollar figure for Nova Scotia for this year in terms of that transfer to the province? We know that historically it has been absolutely essential to, of course, meeting some of the service requirements of this province.
MS. HARNISH: Let me address each of the transfers I guess in turn. Equalization has been enhanced, as you're aware, through a new formula. As a result of that formula, we received $80 million more. It certainly isn't what we would have liked to have seen. The Council of the Federation reviewed equalization a couple of years ago and at the time they suggested that a different formula be used, a 10-province standard. It was going to put into equalization an additional - how much, Liz, do you remember - $2 billion to $3 billion nationally over and above what the federal government had allocated. The Council of the Federation panel found and believed that the federal government could afford that extent of transfer. They chose not to. So, of course, on EQ it's much less than we would have liked to have seen.
On the Canada Health Transfer, that number was set in 2004 when the Premiers and the Prime Minister met. There was an injection into CHT at the time. It was not the amount that we would collectively as provinces have liked to have seen put into CHT. Certainly over time, the federal proportion has eroded significantly. At one time it was 50/50 provincial-federal sharing on health care costs. As you're aware, health care costs nationally and internationally have been just romping ahead at 8 per cent or 9 per cent a year, increasing costs. It really is an unsustainable level of increase. The federal share over time has diminished to - well, they've topped us now to about a 25 per cent cost-sharing. Clearly that's a lot less than one would like to see.
On the Canada Social Transfer, we had high hopes that there was finally going to be additional money put into that, particularly because the federal government had repeatedly said that post-secondary education was a priority area. We believed they may well put upwards of an additional $2 billion plus into that particular pool. What they have put in this year is an additional $900 million but that is to compensate other provinces like Ontario and Alberta, in particular, for a change in the way money is allocated. It used to be a combination of tax point transfer and per capita cash. Well it is now going to be on a go-forward basis solely per capita cash allocation. So in order to make that transfer while leaving the less wealthy provinces whole, they topped it up. But, as you can see, we didn't see any of that
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money - it went to the wealthier provinces. So again, we were extremely disappointed. Yes, we had high hopes before the federal budget that it would be a more generous package. It has not been.
MR. GLAVINE: Thank you and I appreciate that comment. Just looking at that per capita cash, do you think that makes sense anymore? I find that in many of our ways of transferring dollars - whether it is to a school system or to the municipality - when we get into the per capita basis, I think we run into real problems.
MS. HARNISH: Well, we would agree, there's no relevance to expenditure need and to cost of providing services associated with per capita cash transfers.
MR. GLAVINE: Certainly during the last federal campaign, I was hopeful with Mr. Harper's campaign commitments on two things that are relevant to today's discussion: to fix the fiscal imbalance - both the horizontal imbalance among the provinces and the vertical imbalance, the provinces to the federal government - but also to protect Atlantic Accords for Newfoundland and Nova Scotia. So those now seem to be - obviously, they are being more than toyed with. They are being dramatically altered which, as I said in the opening, could have enormous impacts down the road.
Just, however, to start at the point of preparing this year's budget, when did you first find out that the floor of the equalization amount would be $1.308 billion?
MS. HARNISH: In February - it surprised us a lot. Previously there had been an allocation mechanism, there was a fixed Canadian dollar pool set for EQ in 2004 and a fixed escalator, so we knew how much would be allocated nationally, under the old formula, for 2007-08. We anticipated the sharing mechanism of that fixed amount would be unchanged from the previous three years. Under that scenario, we should have received $1.385 billion. That sharing mechanism was based on a combination of fiscal capacity and historical transfer amounts.
Without any forewarning, we were provided in February with a new number that was based on a revised sharing mechanism, solely based on fiscal capacity only. It was a unilateral decision, whereby the 2004 sharing mechanism had been a joint decision of Premiers and the Prime Minister. So we were really caught off guard when this number came through.
MR. GLAVINE: In regard to the federal government accepting the expert panel's recommendations which stated, move to a ten province standard from the five, move to 50 per cent inclusion of non-renewable resources and to apply a fiscal capacity cap for equalization, when did you first get an indication that the federal government would move toward the expert panel's recommendations?
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MS. HARNISH: Well, when an expert panel made its final report to the federal government, one suspected that whatever happened, a new formula would be somewhat based on those recommendations. What we never really anticipated - we couldn't conceive that the federal government would decide to take back our accord. We were quite appalled when the expert panel actually concluded that offset entitlements should be included in a calculation of CAP. It clearly showed that they were in compromise mode, as opposed to technically accurate mode and that was because of the strong representations of provinces like Saskatchewan and Ontario about their dislike for Nova Scotia's and Newfoundland's offshore agreement. This was a compromise position; there's no technical basis for it. It has always been our belief and in fact the accord itself says that this money, this offset agreement, was on the basis of giving us economic development incentive money. It just happened to be tied to the EQ program through a formula.
There are many economic development programs provided nationally - we've always said that is a good thing, it strengthens Canada. The Quebec money, the $900 million into the aerospace program that was just provided within the last four weeks to Quebec, is that type of initiative. Certainly, that kind of transfer payment, that economic development incentive is never included in a calculation of fiscal capacity and it is not included within the EQ cap calculations.
MR. GLAVINE: So that when the federal budget came down, the only real piece - well, you may not have been happy with the equalization - in terms of a surprise was the offshore accord was not protected, is that a fair statement?
MS. HARNISH: It was, yes, that was the surprising piece of budget night with respect to EQ.
MR. GLAVINE: At no time in your department's discussions with the federal counterparts was this ever on the table as being a suggestion, an area that may need reworking?
MS. HARNISH: Well we certainly have suggested it in spades time and time again and we have suggested it through many forms and mechanisms and at many different levels. We believed that Minister Flaherty had made a commitment that this in fact wouldn't be factored in when we were at Niagara on the Lake last July, I think it was. He was scrummed and asked about that and our interpretation of his response was that he was going to protect the offshore accord. I think it is pretty fair to say that we were extremely surprised on budget night.
MR. GLAVINE: If I may then, I would now just like to move to the actual night that the budget came down. Did you only find out the night the federal budget came down that the federal government had chosen the expert panel's recommendations?
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MS. HARNISH: Yes, look, our staff were in lock-up all day as were many others. When the minister rose in the House, our staff called in and that was the first time we had any inclination of this.
MR. GLAVINE: So when did you find out that the accord was not fully protected and that there now was a choice between more money and ripping up the accord or less money and keeping the accord?
MS. HARNISH: Budget night.
MR. GLAVINE: That was it?
MS. HARNISH: Yes.
MR. GLAVINE: Just to be clear, the accord is still there but the cap will claw back equalization because of the offshore revenue putting us over the cap?
MS. HARNISH: That's right.
MR. GLAVINE: So in effect, that goes against the very principles of the accord?
MS. HARNISH: We believe so.
MR. GLAVINE: Yes, so therefore this is the issue that we, as Nova Scotians, need to be pretty strong on in that regard?
MS. HARNISH: It is.
MR. GLAVINE: Just to move then to our budget which was introduced just four days later. I know the time span there, everybody was certainly pressured. I assume you began immediately to have discussions with Finance officials federally to the full extent of the choice that was at hand. Is that correct and what was the extent of any conversations that went on over this new vital piece of information coming forward?
MS. HARNISH: There were discussions at the political level very rapidly after the budget was tabled. I can't give you how many, but it was immediately and they were pretty much all at the political level. I did speak within the first day or so to the federal deputy as well just to affirm that we understood what was being done - in fact, I'm not sure, he may have called me, I think he did. But certainly there have been no negotiations or dialogue at the bureaucratic level in terms of them changing it, because clearly the bureaucracy in federal land has no latitude to do that.
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MR. GLAVINE: Of course, a very significant group of people to consult here were the Energy officials. Did that take place from your understanding taking a look at the five-year or six-year period as well as further out from that date?
MS. HARNISH: We have been working with the Energy officials since the day after budget at a staff level.
[9:45 a.m.]
MR. GLAVINE: So, looking at the potential of the eight-year extension, under the accord, was that looked into and considered during the deliberations?
MS. HARNISH: Which deliberations?
MR. GLAVINE: When you were taking a look at, do we now signal that we're going to take the new enhanced equalization, but let go of the potential value of the accord?
MS. HARNISH: We've been working in lock-step with each other ever since Budget Day, yes.
MR. GLAVINE: So did you, as part of this scenario, get anything hard and fast if we take the eight-year extension of the accord, what the true value could be for Nova Scotia?
MS. HARNISH: Well, we've run a variety of assumptions, as I told Mr. Steele. It's very much dependent on the assumptions that you use, not only of our own economy - gas prices, in particular - driving the value of the offshore amount, but also, more importantly, the fiscal capacity cap level which will be set based on the economy of the lowest non-receiving province, which is Ontario at this point in time. Assuming that lowest province stayed Ontario - and it could very well be B.C. or Saskatchewan down the road - our cap is set relative to how well they do.
Just as an example, initially we had been working with a cap dollar figure for Ontario, which has subsequently been revised downwards by a couple hundred million dollars for next year. That would be the basis of the differential between what we thought would occur next year, which is we thought the clawback would not kick in, and our belief now that the clawback in fact will be around $50 million next year alone.
MR. GLAVINE: We seem to have bought a bit of time, as an extension, to discuss, but do you think the decision that's been made and you've indicated that we would probably receive $50 million less next year - is this the direction that your department now is moving forward under that the new fiscal arrangement is what really will take place?
MS. HARNISH: You mean which of the two options?
[Page 16]
MR. GLAVINE: Yes.
MS. HARNISH: Well, quite frankly, it's our position that we shouldn't be forced to choose between the two options. We'll be running scenarios to determine which one is better, but that's not good enough.
MADAM CHAIR: You have two more minutes.
MR. GLAVINE: Thank you. Now I want to move forward, trying to negotiate with the federal government to get the offshore accord back. Is there anything being done at the bureaucratic level that would be assisting government in making their case?
MS. HARNISH: We've been working non-stop at our end of the bureaucratic level in terms of ensuring we understand things, explaining the implications under a variety of assumptions to our ministers, to the political folks who are doing the discussions, working with energy on crafting varieties of assumptions, seeing what their take on energy dollars will be.
Certainly Liz and I and Nancy and her staff spend a large amount of time on that. I can't tell you what the feds are doing at the bureaucracy - I'm assuming they're doing much the same thing. We had had discussion with them to the extent of sharing the outputs of our models to make sure our models are accurately capturing the new formula and they have verified that.
MR. GLAVINE: Do you think our political representatives here in Nova Scotia have well represented your work and Nova Scotians?
MS. HARNISH: Is that a question a deputy minister should answer? In this case, I will, because it has been a non-stop dialogue.
MR. GLAVINE: Okay. I get a sense that Nova Scotians maybe at least expected a runner-up position to Danny Williams' approach. We don't even have a runner-up position here in Nova Scotia. I think Nova Scotians - from what I can gauge and sense, is that Nova Scotians just don't lie down and take a back seat here. In my estimation to date, we've made analyses, but I certainly don't feel we've hammered our cause to the extent that we need to.
MS. HARNISH: I would suggest that the fact that Mr. Flaherty is here today probably is because we have hammered our cause, maybe not as noisily as our neighbours to the east, but maybe as effectively.
MR. GLAVINE: Thank you.
MADAM CHAIR: Order. The time has now expired.
[Page 17]
Mr. Bain, from the PC caucus. You have 20 minutes.
MR. KEITH BAIN: Thank you, Madam Chairman, and good morning and thank you for being here this morning. The stated aim of the federal government at the outset was to narrow the fiscal gap between all the provinces. I think that was the intent. Do you believe they've been successful at narrowing the gap, or widening it?
MS. HARNISH: Well, if you take a look at the numbers for just this current year and the way the sharing mechanism has worked with respect to the transfers that are non-equalization related, you can see that our neighbours to the west, who have more money than us, also appear to have received a lot more of the increase in the transfers. It's worrisome to us that this gap appears to be not shrinking but getting larger, and that places us at a real disadvantage. When we want to do things to stimulate the economy, like looking at tax rates, for example, we're really hampered in doing that. We compete with Ontario, we compete for our young people with Alberta, and we have less capability now to do the things that we need to do to generate economic opportunity than previously.
MR. BAIN: Okay, thank you. There's no doubt that equalization payments from the federal government have been important to the economic stability of this province over the years, and since 1999, the Progressive Conservative Governments of Nova Scotia have been working toward self sufficiency. I guess my question would be, how successful have those efforts been, speaking revenue growth and percentage of revenue that comes from equalization, can you give us a picture there?
MS. HARNISH: In the late 1990s the percentage of total revenue that came from equalization, I believe, was in the 30 per cent range - Liz, you could verify that, probably - we're just under 20 per cent now of our total revenue being based on equalization.
MR. BAIN: Is the offshore accord a completely unique animal or are there similar economic development initiatives by the federal government and other provinces?
MS. HARNISH: Maybe this is what I referred to earlier when I was talking to Mr. Glavine when I said economic development kinds of initiatives are part of the fabric of Canada, I guess, and a lot of money is pumped into various provinces from time to time, depending on the opportunity presented - $900 million went into the aerospace sector just five weeks ago. There's a long history of monies going into the auto sector in Ontario, for example. There have been large contributions to the Pacific Gateway very recently. There was money put into Bombardier a couple of years ago. These are the types of initiatives that have a long history. It's our belief that the offshore accord is an initiative which is no different than those other activities. They're not captured under equalization, and certainly we have made very strong representation, because we believe the offset agreement is the same kind of contribution from the federal, from Canada, as those others, and should also not be included in equalization.
[Page 18]
MR. BAIN: So in a historical perspective, I guess, did Alberta enjoy any protections while it was developing its oil sands?
MS. HARNISH: Well, not its oil sands - for the first eight-year period, I believe, when Alberta was actually getting its oil industry up and running, that would have been in the 1960s, their resource revenues were fully protected. They were not included in the calculation of equalization at the time.
MR. BAIN: I guess that's the difference, everything was fully protected for them for that length of time and we're given two choices in this, I guess that's the way you have to look.
MS. HARNISH: Yes, that's right.
MR. BAIN: What would be the impact of the federal transfer payments on infrastructure in this province? What are the impacts there?
MS. HARNISH: Well, there are four new infrastructure-related programs announced in the federal budget and, quite frankly, we're still trying to figure out how each of these is going to be administered and the criteria that will be attached to each. It is less than clear and, in fact, it is still less than clear, I think, at Industry Canada, which would be the department responsible for that infrastructure fund.
There are four seven-year programs that were announced. One is called the Building Canada Fund. It is going to be a 50 per cent cost-sharing program for provincial programs, and the feds will share one-third for municipal projects. The estimated value for Nova Scotia over the seven years is $254 million.
There is a gateways and border crossings program, it is $2 billion nationally, but it is merit-based application. What that means for us would be difficult to say at this point in time because, again, the criteria are not fully established. We have hopes that we may be in for something there, that it may provide some opportunities for us down the road.
There is a straight equal-per-jurisdiction funding that was announced - $25 million a year per province for every province. It is for trade-related infrastructure like roads and highways and other transportation facilities. Again, we haven't yet figured out when the money is coming or how to get it, but talks will be underway on that.
Then there is something called the P3 Projects Fund that is worth $1.2 billion over seven years, nationally. The maximum federal share would be 25 per cent of any project and, again, we're waiting to see what that will provide, but some of these monies replace existing federal programs that were previously announced, I think MRIF and CSIF will be rolled in
[Page 19]
under one of these four umbrellas. So the absolute value, over time, is pretty difficult to determine right now.
MR. BAIN: So it is quite possible to say that it's not necessarily new money.
MS. HARNISH: Not all of it is new money, for sure.
MR. BAIN: Last November, Finance Minister Baker appeared before the Standing Senate Committee on National Finance and he warned Senators then, and I'll quote, . . . "inequities that if left unchecked have the potential to spin out of control, to fundamentally alter the nature of our federation, and in the process, put our nation's future prosperity at risk."
Did the recent actions of the federal government address the fiscal inequities that Minister Baker was worried about?
MS. HARNISH: When Minister Baker was making that representation, he was addressing, in particular, the expert panel equalization formula and making very strong representation at that point that not protecting our accord - if they adopted the panel report, it would not protect our accord - and that would be a large problem for us. We've already spoken, or I've already spoken this morning about our position overall on what we had anticipated and hoped the federal government would provide, which they really haven't, in total, as part of their new budget.
MR. BAIN: That's all the questions, Madam Chair, that I have. I'll turn it over to my colleague.
MADAM CHAIR: Mr. Porter, you have until 10:10 a.m.
MR. CHUCK PORTER: Thank you, Madam Chair, and thanks to the deputy and your colleagues for coming in today. Just a couple of questions. I'm curious with regard to this, I guess what we're terming fiscal imbalance, call it whatever you want, how is it affecting the municipal government level? I mean, obviously, money tends to flow down through the feds to the province to the municipal units. Have we heard a lot about that and how that will affect projects out there?
MS. HARNISH: Have we heard a lot about which?
[10:00 a.m.]
MR. PORTER: From the municipal government, are we hearing from the municipal politicians with regard to projects that we may have been committed to over the next number of years?
[Page 20]
MS. HARNISH: Well, we're always hearing from the municipal government.
MR. PORTER: Then maybe the question for more clarification is how will this change, or will it change the outcome?
MS. HARNISH: There have been additional monies put in the federal government that will flow through the province's hands directly to municipal governments. They've made some changes, I believe, to the HST reimbursement to municipalities. There's some new programming again for public transit - some of that will end up in the municipalities' hands for sure, but there are always very large demands by municipalities for additional project money from the province. By not providing the province, in particular, with the kind of assistance we had hoped to see through transfer payments, our ability to spend on programs and services overall is somewhat restrained, and we certainly are not in a position to initiate new programs or to enhance our support for municipal projects.
MR. PORTER: You talked a few minutes ago about new programs, changing current programs or existing programs, and it sounds like there's much work to be done there as far as trying to clarify what that all means. How long are we looking at to get that clarification - you know, is it something that's going to take a month or six months, or a year?
MS. HARNISH: In terms of sorting out the entire federal budget?
MR. PORTER: Sorting it out, yes. When is our Finance Department, here in Nova Scotia, going to know what that all means?
MS. HARNISH: Well in some cases the federal departments responsible are still sorting it out. Our colleague departments will be working with their counterparts in Ottawa on each of the specific new programs that would have been announced in the federal budget to try to seek some clarity on the conditions for the money, the program criteria. These discussions have certainly started in many departments but I think it will be some time before all the particulars are worked out between the various departments.
MR. PORTER: So having said that, when this is all worked out - for lack of a better term at this moment - worked out, clarified, whatever we will refer to it as, do you think that the new dollars put in will offset some of what we seem to be losing with regard to the equalization?
MS. HARNISH: There's no large injection that is going to relieve a lot of problems. Many of the federal dollars - look, some of them, we're grateful for them, don't get me wrong - when money comes in for infrastructure, for example, just the fact that we have more resources available to support our own infrastructure needs is a good thing no matter how much it is. Some of the dollars require cost-sharing. Sometimes that's a problem for us because we don't always have the capability to put in our 50 per cent for new and
[Page 21]
incremental projects. So we certainly, on many occasions, have said to the federal government not to give us money we can't afford to use. So the extent of the cost-sharing requirement is going to some extent determine how much of this we can use.
The other criteria - sometimes money is provided for projects that we wouldn't have necessarily ourselves found a priority, and we are not able to spend the money on our own policy priority areas. Again, the federal government then sets the bar and calls the shots, and that becomes a problem for us at times because these cost-shared programs, and some of these programs are finite in time period and on more than one occasion the province has been left holding the bag at the end of the cost-sharing period, having to continue to provide funding for something we may otherwise have not started to fund ourselves. So there is sweet and sour associated with federal money.
MR. PORTER: Interesting. Realizing that this is a huge country with a couple of territories and 10 great provinces, and the feds have to do their thing as far as the budget goes, how much input, or do we have any, when it comes time for the federal government to put together their budget, their priorities for the coming years, not just next year? We realize that projects such as highway twinning and so on go into numerous years, and agreements go on for many years, but how much input does your department and this province have with regard to what our needs and priorities are when we talk to Ottawa - regardless of who's in government in Ottawa, it shouldn't matter. I'm just . . .
MS. HARNISH: We have many occasions to provide representation, as do all other provinces of course. We are only one voice of many. Certainly, at the Finance Department itself, we generally do meet with our colleagues in the bureaucracy a couple of times a year. We attend ministers' meetings and these would be all provinces attending and meeting with the federal minister against a specific agenda, generally, of late, a couple of times a year. There is a Finance Ministers' meeting scheduled, for example, in Quebec City this year in June, and I believe that we will see probably a second one sometime in the year. So we speak with them under these formal circumstances, and when we have specific issues we can always call them and address them with the bureaucracy or at the political level whenever it is required. I've never had my phone call refused.
So we have many opportunities to put our position forward; others do as well. All provinces have that opportunity. We work very diligently though Intergovernmental Affairs and through similar Premiers' types of forums, but, again, we are one of 13 provinces and territories who are making representation. Each department as well, across government, works with their counterpart department to ensure that Nova Scotia's priorities in those areas, and collectively the provincial priorities are known.
We meet with our federal colleagues at the bureaucracy in Atlantic Canada a few times a year through what is called the federal CDM, where we exchange information. There are many opportunities, one-on-one, to work with federal counterparts in the area. So we
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have lots of dialogue with them, as does every other province. So I think it is fair to say they would know where we are coming from. We represent very frequently to them but, again, they are balancing a wide variety of interests and often competing interests across Canada.
MR. PORTER: When you attend all these meetings, which is great, and more of them may be at the ministerial level, are we a small voice? We are a small province with a small population compared to say Ontario, Alberta, any of the other provinces really - are we a small voice out there, are we being heard?
MS. HARNISH: We try to be a very loud voice, but whether or not we are given the same weight as others, it is difficult to say. We do work very hard to align ourselves with other provinces who have similar interests so that we can approach them collectively on certain subject areas. For example, very often the Atlantic Provinces, and often even Quebec, share a common interest in certain areas, and so we try to leverage that as best we can as well.
MR. PORTER: So you wouldn't really say all right, well we are just from Nova Scotia, at these big meetings, we are really - thanks very much for coming but . . .
MS. HARNISH: We never say that.
MR. PORTER: But I guess maybe in saying that you are not getting that feeling of thanks for coming, you are from a little town down East there somewhere - and you often hear about sometimes how Upper Canadians think about the East, and I'm not referring to any specific comments that were ever made or anything like that, but I am saying just from travelling. Where are you from? Nova Scotia. Oh, is that Newfoundland and Labrador? Some people in this country don't know our geography, so I often wonder when we are going there and we are in these great meetings, that's wonderful, but are we really effective in trying to get our message across? You talked about our similarities. I find that rather interesting, too, because I wonder how Ontario can have anything in common with Nova Scotia when it comes to fighting for dollars. It appears to be everybody is out there to get what we can get and to survive as best we can.
MS. HARNISH: Well certainly we make our views well known, as do others, and we align ourselves. At the end of the day, the decisions sometimes are based on great public policy, sometimes they are based on other factors. We can't address all of those other factors.
MR. PORTER: Thanks very much. I think my time is just about expired.
MADAM CHAIR: Your time is about to expire. The second round of questioning will be 14 minutes per caucus, and I recognize Mr. Steele of the NDP caucus.
[Page 23]
MR. STEELE: Thank you, Madam Chair. Over the last couple of weeks, I have been reading a new biography of Angus L. Macdonald, who was Premier from 1933 to 1954, with a five-year break for the Second World War when he served in Ottawa. I guess what is interesting, and probably depressing, is that he was dealing with very much the same issues throughout his term as Premier. He actually spent a lot of time on federal-provincial relations, and he spent his career trying to convince Ottawa that they needed to share some of their wealth with the provinces who had the burden of delivering services but didn't have the revenue-generating sources to do that.
Unfortunately, towards the end of his career, he lamented that he had been unsuccessful in doing that, even after trying for 18 or 19 years.
Towards the end of my last round, Madam Deputy, I let you away, I uncharacteristically let you away with a vague answer - and I say "uncharacteristic" of me as I don't usually let witnesses give me vague answers. In your opening remarks this morning you said that the projection based on new data received from federal Finance, this deal is going to cost $50 million in 2008-09, and what I want to ask you now is what about the year after that and the year after that? You must have estimates of those years as well.
MS. HARNISH: Again, we have several. One of the determining factors very much is what happens in the Ontario or other economies because it sets the cap that we butt up against.
MR. STEELE: What's the range?
MS. HARNISH: Look, it's difficult to say for a specific year. It could be, depending on Ontario, I guess the upset of our range for the following year would be maybe $200 million potentially, again depending on gas prices and how much revenue we actually capture - it is very determined on a number of those things.
To get more specific out beyond, we get shakier and shakier in the validity of the assumptions of course.
MR. STEELE: But you're saying the $50 million is pretty definite, there is really not much shakiness in that?
MS. HARNISH: Yes, we're feeling that the $50 million, the $50 million to $55 million - I think it is a couple million more than $50 million - $52 million, $53 million, we're feeling that that's pretty much solid.
MR. STEELE: You see the difficulty, though, is that it's really playing into the federal government's hands when we say well the future impact of this, it all depends, it all depends on a number of things - because that's exactly what they want to hear. Peter MacKay
[Page 24]
would love to hear the Deputy Minister of Finance of Nova Scotia saying we don't really know the impact because it all depends. That's what he wants people to believe, because then he'll say just wait and see, it is the choice between a good deal and an even better deal; we can't predict the future so just wait and see.
It seems to me that part of the job of the Nova Scotia Department of Finance is to release the figures and assumptions you have so there can be a debate about the reasonableness of those figures. As long as we all say to Ottawa "it depends", it lets them off the hook.
MS. HARNISH: I think, just to respond to that, there's very much a danger in starting to get into a debate about numbers because this is not a debate about numbers, it is a debate about principles. If you are starting to fix this to one set of numbers, it all starts to become about the numbers. Over time we want to be protected, we want our money to be protected regardless of the numbers. That's the principle that we're trying to drive home here and it will rise and it will fall according to what happens here and elsewhere, but the principle is what we really have to hang our hat on. We were provided with a guarantee.
MR. STEELE: I know, but as a politician I'll say that the public very quickly loses interest in theoretical debates and often it takes concrete situations and concrete numbers for people to realize what the impact is. As I said at the beginning, last week we had a very entertaining debate about ministerial vehicle leases, and it amounts to a few thousand dollars. Now people understand that because they understand what it looks like and feels like to lease a vehicle. The vast majority of Nova Scotians have difficulty getting their head around the topic, even though hundreds of millions or billions of dollars is involved, and we really need to give them some solid numbers instead of saying to them it is a matter of principle, because it is very easy to disregard a question of principle where people don't realize what the impact is.
I want to ask some more questions about our strategy. I can't emphasize enough that if we discontinue to do today what we were doing before, there is no reasonable expectation that anything is going to change in Ottawa. Part of the role that I perceive for the provincial Department of Finance is providing the factual information, the data to the players. Now I'm wondering whether provincial Finance has offered briefings on its analysis to Nova Scotia's Members of Parliament?
[10:15 a.m.]
MS. HARNISH: Early on we released a set of numbers, the best data we had at the time on Budget Day. We would have made that very widely known, in fact, to anybody in a budget lock-up, any media, we provided it to the MPs and so on. At that point, even though the numbers appeared that we were not going to be hurt a large amount, we still were very determined that the principle needed to be respected. So I think the only thing that would
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have changed is new data shows that it's going to hit us harder and sooner than we had anticipated at that point in time.
MR. STEELE: That's a very interesting answer to a different question. The question I asked you was have you offered briefings to Nova Scotia's Members of Parliament?
MS. HARNISH: We did brief the MPs certainly before budget on a couple of occasions. I believe we have briefed them, I think the staff level have not, but I think that information has been provided on our positions to the other MPs through the political route.
MR. STEELE: Okay and would that be all MPs or just the Conservative MPs?
MS. HARNISH: Look, I couldn't tell you. I think mainly, thus far, the conversations would have been through the Conservative MPs, because of course one would hope that they would be making known to their representatives in Cabinet their support for our position. First of all, you go after the people who have the greatest amount of influence with the PM and others who are making these decisions.
MR. STEELE: Has a briefing been offered to Peter MacKay?
MS. HARNISH: I'm sure it would have been. I know there has been dialogue with Peter MacKay at the political level.
MR. STEELE: What about at the level of the Department of Finance, whether a factual briefing on Nova Scotia's analysis of the impact of the federal budget, whether that has been offered to Mr. MacKay?
MS. HARNISH: To my knowledge, it has not. We have not put out a set of numbers as the basis for briefings with MPs at this point in time.
MR. STEELE: Now, I'm sure it hasn't escaped your notice that the Conservative MPs are not only a minority of Nova Scotia's MPs, they're also a minority of Parliament. Can you suggest a really good reason why the same kind of background briefing shouldn't also be offered to Liberal Members of Parliament and New Democrat Members of Parliament?
MS. HARNISH: Certainly that would be a decision of the politicians.
MR. STEELE: Do you think a positive decision has been made by provincial politicians not to offer briefings to Members of Parliament who aren't Conservatives?
MS. HARNISH: I haven't discussed this with them, so I'm not in a position to say what they've decided.
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MR. STEELE: What work, if any, is the provincial Department of Finance doing in terms of making common cause with those provinces that seem to have now the most in common with us - namely Saskatchewan and Newfoundland and Labrador?
MS. HARNISH: Make no mistake, Saskatchewan has very little in common with us. Our position, they hate the offshore accord quite frankly, so any representation there would fall on deaf ears. We have exchanged phone calls and had dialogue with our counterparts in Newfoundland and Labrador at the bureaucratic level just to get a fix on what they're doing, what they're thinking, to the extent they're prepared to share that with us. I think we discussed Wade Locke's presentation with them just to see if they had any comment. It has all been quite informal to date.
MR. STEELE: Has there been any thought given to joint presentations to federal Finance, doing things together with them as more of a formal agreement with these other provinces to make presentations together so that people in Ottawa realize it's not just Nova Scotia working on its own? I'm reminded of the old proverb "divide and conquer"- as long as they know the provinces are divided, Ottawa's very happy.
MS. HARNISH: That would be dependent on where their Premier wanted to go, of course, and I think that dialogue would need to take place between the two Premiers.
MR. STEELE: Yes. And by way of comment, you said there's very little we'd have in common with Saskatchewan. I take it that is being the answer that, in fact, no particular effort has been made to find common ground.
MS. HARNISH: There is none with Saskatchewan.
MR. STEELE: Here's the problem with this kind of approach to things is, essentially, we are doing now, after the federal budget, exactly what we were doing before the federal budget. The provincial NDP is essentially being left out of the loop. The federal New Democrat Members of Parliament have not been briefed by provincial Finance or anyone else and yet it's an NDP Government in Saskatchewan. There are opportunities here that are not being pursued. Would it make any difference? Could it make any difference? I don't know, because nobody seems to be trying.
I guess if there is one message that I want to leave with the provincial Department of Finance today it is that if we continue to do things as we have been doing them up until now we cannot expect a different result. We must fund different ways of doing things, including perhaps a political approach to the Government of Saskatchewan or the Government of Newfoundland and Labrador or anything that will help us do things differently. I know the new Liberal Leader has suggested an all-Party common approach to Ottawa which is, frankly, something that we haven't tried, or we have tried it in the past on much less significant
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issues, but on this issue it seems that it is not something the government is willing to try. If we don't change anything, then the result is not going to change.
Other than the things that I've talked about, what else is the provincial Department of Finance doing to try and obtain a different result from the one we received so far?
MS. HARNISH: Well, our role certainly at the staff level would be to be producing information, running analyses, preparing information materials for distribution. Our Web site, for example, we are in the process of enhancing our Web site in this area and trying to get more information out publicly. We've met with certain business groups thus far. For example, the Chamber called and wanted to come in for a discussion, and Liz met with the Chamber just last week to bring them up to speed on the issue and our position on it. Thus far, much of the effort has been, I believe, at the political level, devoted to dialogue with their counterparts. One hopes that that might be productive. If it isn't, then when I guess the political folks feel that dialogue has been exhausted, we will have to determine where they would like to move as a next phase. Certainly, we will have information in preparation to support them in that next phase.
MR. STEELE: Now later this afternoon, at the airport, our Acting Minister of Finance is meeting with the federal Minister of Finance. In your view, what would count as a successful outcome of that meeting? In other words, how are the people of Nova Scotia to know whether that meeting was a success or not?
MS. HARNISH: I think the Premier has been quite clear in his position thus far, that we need changes made to the federal proposal and, therefore, the federal legislation with respect to how equalization for Nova Scotia will be determined.
MR. STEELE: So would it be fair to say then, as a result of today's meeting, there is no change to the federal government's decision that the meeting has been a failure?
MS. HARNISH: It depends whether or not there is still open dialogue occurring or if all dialogue has been shut down. It really depends on what basis they leave that meeting. If they want officials to start to talk, if they schedule further talks, that's a great thing because it means that the answer isn't no. It really depends how they come away at the end of the day.
MADAM CHAIR: Order. The time has now expired for the NDP caucus.
Mr. Theriault for the Liberal caucus. You have 14 minutes.
MR. HAROLD THERIAULT: Thank you, Ms. Harnish, for being here this morning. We all know the almighty dollar is quite a thing in this world, isn't it? We all know that we are all after all we can get, a lot of us. This province certainly needs a lot of dollars. We have
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a $12.5 billion debt. We have a deficit in our road infrastructure, alone of $4 billion, that's $16 billion right there alone just our debt.
Anyway, we're after dollars everywhere to do what we can and $16 billion right now in hand for us would be great, wouldn't it, it would put us in pretty good fiscal shape. It would put a billion dollars back in our economy alone without paying an interest payment on our debt every year. I could go on and on about a lot of money we need but that's just two things right there, that is $16 billion alone that would be great.
We know there's been a couple of formulae struck for the offshore accord for this province and for Ottawa. Do you know of any other negotiations or any other formulae that were put together that this committee may not know about? We know the federal government is after our royalties, we truly believe that now, a promise was made and now a promise is broken and they would like to have them all. I wonder if there were any negotiations, this government seems to like to lease, be in the leasing business, we found that out last week, of leasing something for the government.
How about this government leasing something out, like leasing our royalties to the federal government? I think this would be quite a negotiation. We could lease it out to the federal government for the next 50 years at, let's say, $420 million a year, let's lease it out for $16 billion, that would be a good thing in the next government over last year's money made from the royalties, the federal government after 50 years would have $20 billion, that's a good deal, invest $16 billion now and get $20 billion back later. We could clear up our debt here. We could fix our roads up. We could have another billion dollars in our economy from the money we didn't have to pay out for interest payments. Was anything like that negotiated that you know?
MS. HARNISH: No, not that I would be aware of.
MR. THERIAULT: So you don't know anything about any negotiations that went on about this accord?
MS. HARNISH: Any negotiations, I'm sorry, I didn't hear you.
MR. THERIAULT: You don't know about any negotiations that went on when the negotiations started about this accord?
MS. HARNISH: Oh, the accord. Back in 1986?
MR. THERIAULT: Accord for the royalties, for our oil.
MS. HARNISH: The 2005 accord negotiations are we talking about?
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MR. THERIAULT: Right back from the beginning.
MS. HARNISH: The actual offshore accord itself goes back to 1982, with the revision in 1986. In 2005, we reopened the accord and negotiated this offset agreement. At the time that discussion would have centred on the treatment of the royalties under the equalization formula and would have been quite specific to that particular item. The only other discussions, which never proceeded to actual negotiations, and we would have highlighted once more that the old accord provided for some other things like Crown share adjustment payments and so on, which were never concluded through regulation and we may want to enter discussions on that at some future date.
MR. THERIAULT: We have an Intergovernmental Affairs Office in Ottawa, I believe Ian Thompson.
MS. HARNISH: We do.
MR. THERIAULT: Has he been involved in any of the talks in Ottawa since this budget came down and before the budget came down? Do you know anything about that?
MS. HARNISH: We certainly would have kept Ian up to date on our position. I think he was there on budget night, was he not, with our staff in the lock-up afterwards so that he understood immediately what was going on. We have had ongoing dialogue with him, and Liz in particular has met with him and brought him up to speed on our position in all of this. I'm expecting that as he makes his way through Ottawa, he's very diligent in relaying our position to anyone he meets.
MR. THERIAULT: There hasn't been much come out about that office doing anything - not to the public, we never hear about it. I was to Ottawa two weeks ago. I kind of forgot about that office or I would have gone in and visited.
MS. HARNISH: You should make use of it.
MR. THERIAULT: Well, I kind of forgot about it because there's not much publicity coming out of that office. So he would be directly involved in the negotiation or lobbying on behalf of this province?
MS. HARNISH: He certainly wouldn't be lobbying, or negotiating I will say, at a political level. That's not his role but he would be making known our position on this and answering questions, providing clarification to anyone he came in contact with. Part of his role is as a lobbyist, or at least an information provider, to make sure that Nova Scotia's position is well understood by the folks in Ottawa and I'm sure that anyone he has come in contact with, he would have done that.
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MR. THERIAULT: We seem to have the folks all worked up in Nova Scotia over this accord, you know, and everybody is kind of down and glum about it. Do you believe before the next provincial and federal government that everything is going to look rosy?
MS. HARNISH: I hope so. I don't know, we'll see.
MR. THERIAULT: Madam Chair, I would like to hand the rest of my time over to my honourable colleague, Mr. Glavine.
MADAM CHAIR: Mr. Glavine.
MR. LEO GLAVINE: We have heard on several occasions from the Premier that he doesn't want to push too hard on the accord because he feels he still has a bargaining chip for the Atlantic Gateway funding but both issues, the loss of the accord and potential gateway funding, could actually translate into hundreds of millions of dollars. So I guess what it comes down to, to me, is, why can't it be both? How would the Finance Department be addressing that?
MS. HARNISH: Our role would be to support the Premier in any discussions or decisions that he has made about this. Our role is to provide him information, provide him analysis, provide him information products, support for his positions. It's not to determine how aggressively or not he wants to pursue this.
MR. GLAVINE: I guess that's where I was going because I was wondering, are you happy with the lobby efforts from the Premier on trying to bring the accord back to Nova Scotia? You've asserted this morning the need to have the accord restored, to honour the principles, honour the commitment the Harper Government made in 2005. I mean, has our Premier, in your view, represented it as strongly as he could have on this issue. You may arm him with facts but has he represented Nova Scotians, you and me and future generations, on this issue?
MS. HARNISH: Well, now, I'm not here to comment on political representation but I could say it is a very positive sign that we're still talking.
MR. GLAVINE: On a move-forward basis the federal government allowed us a full year to make the choice so that this year we could receive the money and then by this time next year we have to ultimately make the decision between the formula and the accord, and that's how we understand it right now. Do you foresee our choice being any different after a year than it was a month ago?
MS. HARNISH: I would have to have a crystal ball, I think. We're hopeful that, in fact, we can come to some sort of meeting of the minds with the federal government over
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this. We're still talking. We're still in dialogue. We hope they understand where we're coming from and that they're prepared to address it.
MR. GLAVINE: Just to revert for a moment here, Professor Hobson and Locke, basically these were independent studies that were done?
MS. HARNISH: Yes.
MR. GLAVINE: Yes. Did the Department of Finance and the government consider using a consultant to take a look? I know there's lots of expertise in our Department of Finance but take that, independent look at what the implications could be if we follow this through to 2011-12 and also factoring in the potential of an eight-year extension. Do you think there was wisdom in the department doing that, or do you think we should still follow that course of action?
MS. HARNISH: Our models are probably more sophisticated than Mr. Hobson's models would be and our data is probably more current and more complete than his data would be. So we've run a variety of scenarios and have certainly a large number of possible scenarios go forward. Some of them in the same ballpark as Mr. Hobson's.
MR. GLAVINE: So then have you given credence though to perhaps what Professor Hobson is saying with some of the scenarios and in doing the calculating in your department? If Professor Hobson is right, and we don't change and regain the accord, and the potential of losing those kinds of dollars to the province, are a pretty frightening scenario. Do you have credence in what Professor Hobson and Professor Locke have said in Newfoundland and Labrador? Do you accept their ultimate conclusion?
MS. HARNISH: It's one plausible scenario.
MR. GLAVINE: It's one of a number?
MS. HARNISH: Yes.
MR. GLAVINE: Are your scenarios tending toward that kind of potential loss for the province or are there some factors, as well that could neutralize that kind of dramatic loss for our province? Starting, of course, as early as next year and continuing to build?
MS. HARNISH: One of the major determinants is the cap that you're going to be measured against, which is based on the fiscal capacity of, as I said, the lowest non-EQ-receiving province. If that province remains Ontario, and their economy takes off, that raises the cap, and we may not butt up against it. That's really one of the major factors that you have to understand when talking numbers. Of course, another one is gas prices and production levels and just how much offshore revenue we generate ourselves. And, again,
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we think we've got some fix on what a reasonable set of scenarios is, but one's never very sure when forecasting energy prices, in particular, if it's going to be the same from one day to the next and that's a huge variable.
MR. GLAVINE: Thank you.
MADAM CHAIR: Order. The time has expired.
Mr. MacLeod, for the PC caucus. You have 14 minutes, until 10:52 a.m.
MR. ALFRED MACLEOD: Thank you, Madam Chair, and I want to welcome you here today as well. And I thought I'd take a little different tack in my questions, instead of trying to get you to answer political question or do political manoeuvres or try to figure out political strategy. I thought maybe I'd ask you some questions referring to your opening statement. In particular, on Page 3, where you talked about the CST and how that has changed. I was wondering if you could elaborate on that a little bit and maybe tell everybody what CST means because if we have some people watching or listening or reading Hansard at a later date, it would be good for them to understand what CST is.
MADAM CHAIR: Ms. Cody.
MS. CODY: CST is the Canada Social Transfer, and it's the federal agreement whereby which they transfer to us dollars for post-secondary education and Canada Social Assistance programs. It used to be covered under our Canada Assistance Plan. Basically, the way it all came about, back in the 1970s, the federal government used to provide for us cost-sharing arrangements around that, and then they grouped them into a block fund. They collected them together and said, we're going to put x-number of dollars in the pot. You can take it into your consolidated revenues and spend it according to your own priorities in these areas. They're not cost-shared dollars any more. We're going to give you that two ways. We're going to give it you in the form of cash and we're going to vacate certain tax points that we occupy right now, federally. So we'll move out of those tax fields and you can move in and increase your tax accordingly.
So that was fine. For years, though, the value of tax points differed across provinces. In the richer provinces, you would get more per tax point than you would in the poorer provinces. So what would happen there is they would get an equal per capita total, but they get more of it through the tax point value, and the residual would be the cash. What's happened with the latest budget is the federal government has moved away from recognizing tax points in any of this calculation and is now saying equal per capita cash for all. Those who were getting greater amounts through their tax points earlier, and a smaller amount through their cash, are getting a greater amount through their cash and it's now equal per capita for all provinces.
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MR. MACLEOD: What is the net effect of that on the Province of Nova Scotia?
MS. CODY: Basically what it means for us is we were getting more through cash than tax points previously but the pot is still the same. They have to redistribute the cash now, and because the richer provinces are getting more equal per capita cash, that's taking away some of our dollars. With the infusion of $800 million in 2008-09, under the old formula we would have gotten about $24 million, under the new formula we're going to get $6 million. So it has definitely shrunk the cash portion of the new money that we're getting and we'll get on a go-forward basis. When we move to a similar formula of equal per capita cash for health care in 2013 we're going to get hit again because right now there is still a differential between provinces based on their tax point values.
MR. MACLEOD: I think also in your opening comments the deputy made mention about the inequality in education. Would you mind elaborating on that a little bit as well.
MS. CODY: Basically that is the money that comes through on the CST. A large portion of that relates to post-secondary education. Premiers for the past several years have been lobbying the federal government for greater infusion of funding for post-secondary education. They've been asking for $2.2 billion to restore it to the level it was back in the early 1990s. If you were to inflate that to today's dollars we're talking more like $4 billion. Rather than give us the $2.2 billion they gave us the $800 million. They didn't do it immediately which is what we had been hoping, they're starting it in 2008-09. So we're not going to see, as I mentioned, the kind of dollars we would from one, the fact that the dollar input is that much less than the $2.2 - it's only $800 million - and the fact that there's this formula change which erodes our share.
MR. MACLEOD: That education formula is based on people that live in Nova Scotia, not necessarily students that come from outside?
MS. CODY: Absolutely. It's based on the census data and they capture students at their hometown in a census date. It's levied in June so students are leaving universities and they're back usually in their home province, but that's where they're recorded. If a student is coming from New Brunswick and studying for eight months of the year here in Nova Scotia when they fill out the census they are recorded in New Brunswick. When the federal government uses the formula and uses per capita amounts it's using the census data from Statistics Canada and that's the province that will get the benefit of that count. In Nova Scotia all of the out-of-province students go home, they are counted in their home province, the home province gets the transfer level to reflect their presence, but we carry the cost of them for eight months of the year when we educate them.
MR. MACLEOD: Has anyone ever done a study to determine - I know we have a number of Nova Scotia students who go outside the province versus the number of outside who come into the province - is it equal or are we still in the deficit position?
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MS. CODY: No, we're a net importer. We're bringing in more than we're sending out.
MR. MACLEOD: Okay, thank you very much and I'm going to turn over the rest of the time to the member for Hants West.
MADAM CHAIR: Mr. Porter.
MR. PORTER: A couple of questions. We've heard about a couple of interesting things but I want to go back to some terminology. Something that we often hear around here is "have" province, "have-not." I'll ask the deputy, are we a have province deputy?
MS. HARNISH: When you hear "have" and "have-not" that refers to whether or not we receive equalization or we do not receive equalization. Have provinces are those provinces who have a fiscal capacity which is greater than the national average fiscal capacity and are therefore not entitled to equalization. Have-not provinces, which is rather an unfortunate term and I dislike that term, are provinces who have a fiscal capacity - that means their own source revenues, the ability to generate revenues themselves on a per capita basis - would be less than the national average fiscal capacity and so we are entitled to equalization. The equalization amount that we receive generally, previously, took us up to the national average. Under the new formula with the cap provision, of course, that's no longer true. In some cases portions of our revenues are generated by resources. We will, in fact, have some of that clawed back under the cap mechanism. That's the origin of "have" and "have-not," in terms of terminology.
MR. PORTER: That's a very long answer to a very short question. I say that because of my next question. How many Nova Scotians understand what you just told me?
MS. HARNISH: Very few, in all probability.
[10:45 a.m.]
MR. PORTER: I guess what I'm getting at, too, is we keep hearing this out around, you know you talk to people on the street, well we're not a have province. They don't really understand what this is all about. So my next question is, how do we come up with these wonderful models, formulae? I like numbers a lot but I can't figure out people, and I'll say like yourselves, who are accountants and Finance folks, how do you come up with these wonderful formulae, ideas for transferring money and why is it this number and not that number? How does that all come about? I think people, including myself, don't really understand that totally - you know, don't have a lot of sense around that.
MS. HARNISH: There's a very long history to equalization. Liz has about 25 years worth of that history so if you really want the technical details - which I suspect you don't -
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she could talk for a very long time about the genesis of these models. But you're right, it is something that is not well understood. The nuances inside the new formula, for example, are not well understood and it is very complex to even explain them.
MR. PORTER: I'll ask you, as the deputy minister of this department, are we planning to put something out to Nova Scotians to try to explain this, regardless of where we end up? Right now we're not on what would be considered the positive side of things, so we'll all hold out hope, discussions are continuing, that's wonderful, I think that's great and hopefully we'll turn this around, to make it more of what we need here, but one way or the other, are we putting something out there to tell the people in this province?
MS. HARNISH: We have some information on our Web site at present; we're producing additional information materials to try to provide some clarity to these very complex issues, to the average Nova Scotian for sure, so that they can, at any time, log on and take a look at it. We try, in our communications materials, to convey this as simply as we can.
You're right, it isn't simple and certainly we do need to do more to try to pare it down to a very understandable kind of message.
MR. PORTER: Yes, and I'm somewhat concerned about the log-on, I think there are still quite a few who don't log on, and not to pick on seniors or the elderly, but those in that group who may be 55 or 60, who are still working and don't have time - you know, it's not part of how they were brought up, they're not logging on. Are we getting that message out there?
MS. HARNISH: We have produced information products as well, booklets and things of that nature. We've also held several sessions with the media, just technical briefings because perhaps the most effective way of getting information to Nova Scotians is to have accurate reporting through the media, because most people do read the paper or listen to the news. We have conducted several technical briefings just to ensure that the folks writing the articles accurately understand what's a very complex subject. We think we're making progress there.
MR. PORTER: Maybe I'll ask Ms. Cody, since you have 25 years of wonderful experience in formulae. Is there another formula - how often does the formula change, I guess is my next question? Is it every year there is a new formula that you've seen?
MS. CODY: No, actually every five years, it was re-negotiated between the federal government and the province. It is federal legislation so when I use the term negotiation, the federal government has the final say at the end of the day but we do take particular attention to bringing forward to the federal government our issues and concerns around any changes that they want to make.
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The formula that is out on the table today took two years of discussion amongst all Canadians by the expert panel. There were a lot of ideas and concepts on how to change the old formula that fed into those debates. So back to the deputy's point, it is an historical building on changes. So every five years you're not starting from scratch; you're taking the previous formula, you're assessing the strengths, the weaknesses of it, the improvements that have to be made and you're implementing them for the next five years. So what we've just come through is the most dramatic change to the formula in decades.
MR. PORTER: Is there a formula out there that's going to be a simple formula, do you foresee in the future? You know, like, keep what you have? If Nova Scotia earns royalties, as Alberta did, as an example used here earlier, do we ever foresee a very simple formula? If Nova Scotia's doing well, good on Nova Scotia, they're going to do well. As for Newfoundland or Alberta, or whatever the province, is this something that will never be a reality? Is that what we're looking at here?
MS. CODY: Well, the purpose of equalization is to measure fiscal capacity by provinces. You're trying to measure a province's ability to raise revenues. There have been a lot of different ideas on how to make the formula simple, but if you're really trying to evaluate how you're raising your revenues, you have to look to multiple tax bases and evaluate your ability to raise revenues from those tax bases.
So, for an idea to come on the table that's looking at personal income as a simple way to get at that, that's not how you necessarily develop or derive all your taxes. It's from a multitude of tax bases.
So, the short answer to your question, many smarter people have been thinking about that for years to try to make it simpler, but it hasn't happened yet.
MR. PORTER: I'm sure they are, many smarter people than me and a lot better with numbers have thought about this and it is, in all honesty, and I know I'm running out of time, but just a last comment would be, the people in this province and I'm sure across this country, really do not understand any of these formulae in any province by any federal government. I think there's a great deal of work that must be done to simplify this process so that we all understand it. Or, at least can understand why it's being done, why there's a formula and so on. Thank you, Madam Chair, I know my time is up.
MADAM CHAIR: Thank you very much. We have now concluded the questioning portion and we will have an opportunity now for the deputy minister to make some closing comments. But, before that happens, I want to say that I'm concerned, as the Chair of the committee, that we have not received information and analyses that exist in the department that we require to do our work and have an informed examination of the issue here today.
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While I don't want to be disrespectful, it's not, frankly, up to the Minister of Finance to determine what documents this committee receives. It is up to this committee what documents we require and we are very well aware of the fact that we do not get to have Cabinet documents and we do not get to have advice to Cabinet; however, if there are documents that are analyses and information, the scenarios of and the models you make reference to, then with all due respect, it's my view, based on the practice of this committee and the legal advice that we have from Legislative Counsel, that information is proper information this committee should have. I would respectfully request that that information be provided to this committee voluntarily today. So, I do want to impress very much on the Deputy Minister of Finance, who's sort of a 'frequent flyer' here at this committee, that we do expect full disclosure of information when we have witnesses from your department.
With those remarks, I would open the floor to you to make some closing comments.
MS. HARNISH: I have no closing comments, Madam Chair, just to thank the members for their time and attention today and to once again thank my staff for coming with me today.
MADAM CHAIR: Thank you very much. We stand adjourned until next Wednesday morning. Thank you.
[The committee adjourned at 10:54 a.m.]
