[Page 293]
HALIFAX, MONDAY, MAY 3, 2004
SUBCOMMITTEE OF THE WHOLE HOUSE ON SUPPLY
2:58 P.M.
CHAIRMAN
Mr. William Dooks
MR. CHAIRMAN: We'll start with the opening remarks by the minister. If you'd also introduce the staff who are with you, I'd appreciate that.
Resolution E7 - Resolved, that a sum not exceeding $14,134,000 be granted to the Lieutenant Governor to defray expenses in respect of the Department of Finance, pursuant to the Estimate and the business plans of the Nova Scotia Government Fund Limited and the Nova Scotia Power Finance Corporation be approved.
MR. CHAIRMAN: The honourable Minister of Finance.
HON. PETER CHRISTIE: Thank you, Mr. Chairman and committee. I am joined today by Vickie Harnish who is the Deputy Minister of Finance. On my immediate right is Liz Cody, the Assistant Deputy Minister and just on the right of Liz is Joyce MacDonald, Director of Financial Services.
Mr. Chairman, and members of the committee, I'm pleased to have this opportunity to appear before you today to represent the Department of Finance. My Cabinet colleagues and I have deliberated over many difficult decisions over the past few months, but I am pleased and proud that we were able to deliver the government's third consecutive balanced budget in Nova Scotia on April 22nd. Our fiscal prudent planning over the past five years is paying off. Balancing the budget was the first step. Acting upon a debt retirement fund is the next step.
[Page 294]
Of course, we took that step with the introduction of the Financial Measures (2004) Act last week. Our plan demonstrated to creditors and to investors that the province is serious about managing its economy and providing the opportunities necessary for future growth. Despite the difficulties we faced in 2003, we ended the year with a higher than anticipated surplus of $14.5 million. A $14.5 million surplus is a significant achievement in a year in which income taxes were lowered, investments in health care and education rose plus we had floods, a hurricane and a blizzard to contend with.
Our commitment to the people of Nova Scotia is never to return to deficit financing. For 2004-05, we have introduced a budget with a $2.1 million surplus. That's in addition to increasing the Department of Health budget by $230 million to where it is now of an overall budget of $2.34 billion. Nova Scotians told us their priority was health care and we listened and we acted. This is a positive budget. It is a budget worth more than $6 billion. Within this budget our government continues to provide tax relief to Nova Scotia's lowest income earners. About 53 per cent of Nova Scotians will keep their full 10 per cent tax cut, about 96 per cent of Nova Scotians will still pay lower taxes in 2004 than last year, plus we still have about $50 million circulating throughout the economy.
[3:00 p.m.]
Mr. Chairman, we intend to return to our tax reduction program when the time is right. We are still committed to making Nova Scotia's tax structure as competitive as it can be. The Department of Finance is made up of five divisions plus debt servicing with a net funded staff level of 153.1 FTEs. As a central agency, the Department of Finance provides services to all government departments and agencies. Finance provides support in the area of payroll and pension services, government accounting, internal audit, investment management, economic impact analysis, statistical support as well as taxation policy development and coordination.
Each one of these divisions plays a very important role in helping achieve the goals of establishing a fiscal climate conducive to economic growth and providing central agency support and policy direction for effective management of the province's finances and pension administration. The Controller's Office ensures that the Province of Nova Scotia continues to be a leader in the adoption of Generally Accepted Accounting Principles and the Public Sector Accounting Board recommendations. The Controller's Office also oversees the division of government accounting, internal audit, corporate information systems, the SAP system, payroll and capital markets.
The Division of Fiscal & Economic Policy is responsible for the development of an overall income tax strategy and a process for ongoing evaluation of the province's tax rebates, credits and expenditures. This division is also responsible for performing economic modelling and forecasting of provincial revenues, analyzing economic impacts for economic development projects, and other investment opportunities for the province is another
[Page 295]
responsibility. One of the central functions that staff in this division performs is representing the province in negotiations with the federal government and other provincial governments on the issue of tax policy and transfer payments. It is this division that represents Nova Scotia at the table when discussions are occurring regarding equalization and CHST programs.
Pension and Investment manages the Public Service Superannuation Fund, the Teachers' Pension Fund, MLAs' pension plan and the Sysco pension plan. This group ensures that the public pension plans are managed prudently and that the funds are invested to maximize returns within acceptable risk tolerance levels. The office of the assistant deputy minister is responsible for policy and planning, liability management, fiscal and economic policy, tax policy and statistics. Together with the deputy minister, one of the central roles that the assistant deputy minister plays is the coordination of the budget process with our colleagues in Treasury and Policy Board and with all departments and agencies in government.
As Minister of Finance, I can assure you that the development of a budget involves a large number of individuals from all across government. The operating budget for the Department of Finance for 2004-05 is $14.134 million in net program expenses. This is a $899,000 increase from the 2003-04 estimates of $13.235 million. The increase is mainly related to changes in amortization that the Department of Finance received. The amortization increase is a combination of two factors - new projects being approved and the change in amortization policy previously announced.
We have redirected funding to support the community accounts project. The community accounts project is an initiative that will result in the collection of a broad range of social, health and economic statistical information that will be used to support community development and primary health care renewal. The collection and sharing of the statistical data will allow government to make social policy decisions on the basis of evidence rather than intuition or past experience.
We have also established funding for evaluation of our risk and control frameworks for debt management and investment plus our SAP operations. You will recall that the Auditor General recommended the need for a review of the risk and control practices and processes in SAP. The funding shows we have taken his comment seriously and are willing to act. SAP is an excellent example of how this government is promoting good fiscal management through the Public Service.
We are helping third party entities improve fiscal accountability to the taxpayer through the SAP project. We have made software licences available to school boards and now we are rolling out the program to district health authorities. More importantly, we are providing expertise with a provincial information technology team to assist with the transition to the SAP model of financial accounting. Within the Department of Finance there has been a decrease in specific areas of funding. The largest decrease occurred in the area of the
[Page 296]
Corporate Services Unit as the Human Resources section has been transferred to the Department of Transportation and Public Works.
Along with the operating budget of the Department of Finance, as minister, I am responsible for the appropriation for debt servicing costs. The 2004-05 debt servicing costs are estimated to be $1.007 billion. I would like to point out to the members of the committee that this number represents gross debt servicing costs. Often when we speak of debt servicing costs, we speak of net debt servicing costs. These are gross costs less earnings from sinking funds. The net debt servicing cost for 2004-05 is $877.8 million, a decrease from the 2003-04 estimate of $892.8 million.
The Province of Nova Scotia has made significant progress in the way credit rating agencies view us. Last year we received upgrades from two of the province's credit rating agencies. Both DBRS and Standard and Poor's have improved the province's credit rating. This is proof that the province is doing the right thing when it comes to managing its finances. The province's exposure to foreign debt continues to fall. As of March 31, 2004, the province's exposure to foreign currency stood at 16.9 per cent - well below the legislative target of 20 per cent by September 2004.
The government's contributions to benefit plans represent the government's share of funding of premiums to the pensioners' extended health plan for retirees under the Public Service Superannuation Act, former employees of Sysco and Hawker-Siddeley. It also includes expenses related to LTD, self-insured workers' compensation, and accrued/unused vacation time. The estimate for 2004-05 was $7.89 million, an increase of $340,000 from the 2003-04 estimate. The increase is primarily due to the increase in WCB costs. The 2003-04 forecast is up slightly over the 2003-04 estimate. The forecast for 2003-04 is $15.868 million. The $8.318 million increase is due to the initial recording of the WCB chronic pain liability. The increase is the result of a ruling from the Supreme Court of Canada. The 2004-05 estimate includes $500,000 for the annual liability.
The restructuring appropriation primarily includes costs associated with the contract negotiations as well as a business process re-engineering and processes that cannot be easily attributed to a specific department or program. Because the restructuring vote contains an amount for contract negotiations, the amount will vary from year to year. In order to protect the government's bargaining positions, the funds are held centrally until a contract has been settled. Once the wage settlements are known, the funds are then rolled out to the appropriate departments in the following fiscal year.
Last year the government announced the debt retirement plan. This year we have enshrined the debt retirement plan in legislation. The debt retirement plan is made up of three components: an annual budgetary contingency for debt reduction; the creation of a fund specifically for debt retirement; and, third, legislation that commits extraordinary revenues to the province as well as money from the sale of provincially owned assets to the Debt
[Page 297]
Retirement Fund. This year the government has committed $10 million to debt reduction. The 2004-05 budget contains a Debt Retirement Fund contingency of $4 million and a further $6 million will be deposited in the Debt Retirement Fund. This Debt Retirement Fund calls for the net direct debt of the province to start to decline in 2007-08. In order for this to happen, the debt retirement plan will have to be in the order of $106 million in 2007-08.
I mentioned earlier the province had received an upgrade in its credit rating from two of the credit rating agencies. One of the reasons cited for the upgrade was the government's commitment to debt reduction. While this is not the only reason for the improvement, it is safe to say that these agencies will be watching the province's progress on this front carefully.
The requirement to reduce the provincial debt is being driven by more than just reaction to the credit rating agencies. It is the next logical step in the government's plan for long-term fiscal sustainability. As I have mentioned, one of the components of our debt plan is the annual debt retirement contingency that must exceed the difference between annual capital spending and the amortization of Tangible Capital Assets by 2007-08 fiscal year. When we released the debt retirement plan in June of last year, government's commitment to a stable investment in infrastructure of $250 million each year until 2007-08.
The net direct debt of the province will continue to increase until 2007-08. The reason for this increase is attributable to the government's investment in capital assets. It's not growing because of deficits or overspending - it is a result of a very deliberate approach to reinvesting in the province's infrastructure and in our future.
This year, we are spending $250 million on capital improvements - $112 million in our roads, bridges and highways; $45.9 million for new schools; $13.4 million to renovate and upgrade schools; $25.5 million for the expansion of our community colleges, court houses, correctional facilities, ambulance and information technology systems. These are assets that will provide real benefits to Nova Scotians for years to come. These are economic necessities for right now. Failure to address these issues now will only result in increased costs in the future.
The sinking fund installments and the serial retirements are made to provide assurances to lenders the province will have the cash in hand to meet bond principal repayments when they become due. The money in the sinking funds is carried on the books of the province as an asset, therefore, an increase in the funding for the sinking fund installments and the serial retirements represents no increase in the debt of the province. Any extra borrowing to meet these requirements of this fund is offset by the assets of the fund.
Mr. Chairman, before closing and taking questions, I would like to take this opportunity to thank the staff at the Department of Finance for the professional manner in which they fulfill their roles. The Department of Finance's greatest asset is the staff that
[Page 298]
works there and I'm certainly pleased to have the opportunity to work with them and to meet the challenges. Mr. Chairman, I'm happy to take any questions.
MR. CHAIRMAN: Let's start, if the government has no questions, with the NDP.
The honourable member for Halifax Fairview.
MR. GRAHAM STEELE: Mr. Minister, I wonder if you could start by introducing Finance staff that are elsewhere in the room, other than the ones you've already introduced. I know some of them, but not all of them.
MR. CHRISTIE: Okay. I think if you start over here is Kevin Malloy, Roy Spence, Bruce Hennebury, Doug Stewart is there and Marie Mullally from the Gaming Corporation, Linda Laffin and David MacDonald.
MR. STEELE: My colleague, the member for Dartmouth North has some questions on the Gaming Corporation, just so Ms. Mullally and you know, Mr. Minister, it's my intention to take the entire first hour on strictly Finance matters. In the course of our second hour this afternoon, the member for Dartmouth North will be asking some Gaming Corporation questions.
I do have a list of questions which may seem to jump all over the place, but there is some method to my madness. What I'm going to be doing is going through the Budget Speech booklet and then through the business plan and then through the estimates. This will enable you, minister and others, to follow along with where I'm going.
There are a couple of things arising from your opening remarks that I want to touch on first. You will recall - I think it was two years ago - an error was discovered in the budget documents and part of the minister's defence at the time was, what's the big deal, there's always errors in the budget documents. So my first question for you is, are there any errors in the budget documents of which you have not already informed the House?
[3:15 p.m.]
MR. CHRISTIE: I think there were three issues that were brought to our attention. One had to do with the business plan, one with the comparison of expenditures from this year to last year and the other one had to do with a note by the Auditor General. Those I tabled and circulated last week.
MR. STEELE: All three of those are the ones you tabled in the House last week, correct?
MR. CHRISTIE: That is correct.
[Page 299]
MR. STEELE: And, to your knowledge, there are no other errors in the budget documents?
MR. CHRISTIE: There is nothing that has been identified at this point.
MR. STEELE: One of the things that you said in your opening remarks I wanted to touch on just to make sure I understand, you were talking about the surplus that was achieved for the 2003-04 year. If I'm understanding it correctly, part of what I'll refer to as the cancelled income tax cut is actually being attributed to 2003-04. Is that correct?
MR. CHRISTIE: That's correct.
MR. STEELE: How much money is being attributed to 2003-04?
MR. CHRISTIE: The figure is $18.2 million.
MR. STEELE: That's $18.2 million, so, without that, there would not have been a surplus last year - correct?
MR. CHRISTIE: Without some changes in accounting policies, without the pluses and minuses in accounting policies, we wouldn't have arrived where we did. That's correct.
MR. STEELE: There's another thing. I'm not going to ask you a question about this, just make a comment. In your opening statement, you referred to how Nova Scotia's lowest income earners will continue to get the benefit of the tax cut. I think that's the second time I've heard you say that, minister, and I just want to remind you that Nova Scotia's lowest income earners don't pay any tax at all. So this income tax cut is irrelevant to them. The people who are keeping their cut are the people at the lowest bracket of provincial income tax, which is not at all the same thing as Nova Scotia's lowest income earners.
I want to move on then, I'm going to start by referring to the Budget Speech document - not the speech itself, but the supporting material that's in the back. I'm going to start at the bottom of Page A16. I'm going to read the sentence to you, minister, and ask you to comment on it. It says, "Nova Scotia uses federally determined taxable income as its base and has maintained the non-refundable tax credits in effect for the 2003 tax year." If I'm understanding that correctly - and correct me if I'm wrong - there has been no inflationary increase in the amounts of the Nova Scotia tax deductions.
MR. CHRISTIE: That is correct.
MR. STEELE: Am I right in saying that it was exactly the same last year? There was no inflationary increase over the 2002 tax year as well?
[Page 300]
MR. CHRISTIE: That's correct.
MR. STEELE: Am I right in thinking it was the same for the 2001 year as well?
MR. CHRISTIE: Yes.
MR. STEELE: So we've basically frozen the amounts of the non-refundable tax credits for three years?
MR. CHRISTIE: If your question is, have we provided for indexation, the answer is no, we have not.
MR. STEELE: Are the dollar amounts exactly the same as they were for the last three years?
MR. CHRISTIE: Yes, they are.
MR. STEELE: Has the department ever priced that? Obviously, that's a form of tax creep where people - you know what I mean by tax creep - has the department ever put a price on that? We're essentially saving money by not indexing these amounts. How much are we saving?
MR. CHRISTIE: I'm advised that the department has done some work, and there were some numbers provided to this committee last year. As you calculate those, the issues compound and the calculations become very difficult. I'm advised that last year there was some information provided to this committee.
MR. STEELE: What do you see happening in the future?
MR. CHRISTIE: I suspect we, as a province, along with other provinces are going to have to look at the tax structures and tax components in totality, and have a look at a variety of issues. The bottom line in all of this, of course, is that you have to provide the revenue for social programs, and if you make that decision, then you have to make some decisions along the way, such as indexing, such as tax credits, a variety of options that you can't do if you're going to provide those revenues that you deem necessary.
MR. STEELE: I want to move on to Page A17 in the Budget Speech. There's a reference to strong national growth in corporate taxable income. My question is very specific and actually came up last week on the Day of Mourning for workers who have been injured or killed on the job, and that's the question of the deductibility of fines from taxable corporate income. I believe that the federal Minister of Finance has said that his government is committed to making a change in that respect to make sure that those fines are not deductible. What I'm not sure of is what the provincial position is, and whether this is something on
[Page 301]
which we could move on our own, or whether we have to depend on them moving first. What's our position on that?
MR. CHRISTIE: The calculation of taxable income for us is defined by the federal Income Tax Act.
MR. STEELE: And that's true also for corporate income tax?
MR. CHRISTIE: Yes, that's true. So, consequently, if it's a calculation that's implemented by the federal government, unless we force a change, then the same provision will apply to the provinces. If we force a change, then we have to pay some fees to the federal government. In the normal course of events, when they introduce, because we're using taxable income as the base, their definition of taxable income becomes our definition.
MR. STEELE: Now, we have our own corporate income tax. Is it possible, even theoretically, for us to go it alone on this issue?
MR. CHRISTIE: It is possible, but we would have to either have the federal government change or go on our own. It's not practical. It's possible but not practical for a province this size.
MR. STEELE: Okay, you will have to explain that to me a bit further. Why is it not practical?
MR. CHRISTIE: If we are going to ask the federal government to make the changes, they're not going to make a change for Nova Scotia for something this size. We could then turn around and say, all right, we believe it's philosophically important enough that we'll set up our own collection system. We would do collection and we would then set up a system to run against the CCRA. That has always proven to be absolutely out of the question, which is why we accept the situation, that a definition of their net income will become our definition of a taxable income.
MR. STEELE: Has this issue ever come up with the federal-provincial Finance Minister's meetings?
MR. CHRISTIE: Well, we're in the process right now of signing the new tax agreement. Sure, all those issues are on the table, and, as you are aware, the tax agreement between the federal government and the provinces has been outstanding for a number of years now, and we're just trying to work our way through it. Have we taken the position in this that we want to not have CCRA do it? No. Have we taken the position we want to have some changes for this province? Yes, we have, and now the agreement that we're about to sign indicates the costs for us being unique and not following the federal government cookie-cutter.
[Page 302]
MR. STEELE: Does your government have a position on the specific issue of the deductibility of fines for violations of occupational health and safety laws, for example?
MR. CHRISTIE: Well obviously, since we know when the federal government introduced it, and we're not going to make any changes, then obviously the position we are in is that they shouldn't be deducted, because we're accepting the federal government model. It's more by default, as I indicated, rather than standing up and saying, we're going to make these changes. When they do implement it and it becomes part of the federal government net income, that's where our taxes are attached and it becomes part of our definition, too.
MR. STEELE: Moving on to Page A19 and the question of equalization, in the second last paragraph there's a reference to the 2004 federal budget having an additional $150 million for equalization distributed on a per capita basis. I'm assuming that means that we will get roughly $4 million to $5 million, but I was wondering if you could just confirm what exactly is the amount included in this year's budget?
MR. CHRISTIE: We got $8.7 million. You will see it's on a per capita basis as opposed to the calculation of the equalization program. We didn't fare very well in that at all.
MR. STEELE: I'm sorry, I was using the wrong figure. So of the $150 million, we get . . .
MR. CHRISTIE: We got $8.9 million.
MR. STEELE: I'm sorry, I was using the calculation for a different purpose. It's $8.9 million. I want to move over to Page A20, still on the subject of federal-provincial transfers. As noted in the Budget Speech document, the federal government has split the CHST into two amounts, effective the beginning of the fiscal year, the CHT and the CST. Why, Mr. Minister, would our budget documents not make the corresponding split? If the federal government is now calling it two separate funds, why aren't we doing that as well?
MR. CHRISTIE: I'm advised that that's still coming in one cheque to the province. They haven't differentiated in terms of the way it gets paid to us, so, consequently, we kept the one account option.
MR. STEELE: What are the two amounts? Even if they're writing one cheque, presumably they're saying this is on account of CHT and this is on account of CST. What are the two amounts?
MR. CHRISTIE: The amounts that will come in for the year - your question is, for the fiscal year 2004-05, what will be the amount for CHT and what would be the amount for CST?
[Page 303]
MR. STEELE: Correct.
MR. CHRISTIE: We will get those figures and get them to you.
MR. STEELE: Further down that same page, there's a reference to the new $2 billion, which was agreed at the First Ministers' Conference in February 2003. If you have the Budget Speech in front of you, it's right in the middle of Page A20. My question is, to give the accounting justification for that being allocated to the 2004-05 budget year, because right on the face of the document it says that the amount was confirmed on January 30, 2004, what's the reason why it's assigned to one particular year and not another?
MR. CHRISTIE: Part of the requirements from the Auditor General is not only that the federal government announce and approve it, but the other issue that's outstanding is when it becomes in control of the provinces. It became in our control in the year 2004-05, and that's why it was recorded in that year.
MR. STEELE: Tell me what that means, to be in our control?
MR. CHRISTIE: That means we get the money, and we are now able to draw it out of the fund. You'll recall part of the whole process was the federal government was going to put these in trust accounts for the provinces, and they designated how and when they could come out. In the case of provinces, in the case of Nova Scotia, our eligibility to draw that was in 2004-05, and that met one of the tests of the Auditor General.
MR. STEELE: Correct me if I'm wrong, but this $2 billion was a multi-year fund? Am I right in saying that? (Interruptions) I must be thinking of a different one then.
MR. CHRISTIE: You're thinking of what people hoped to get.
MR. STEELE: No, there was another fund sometime in the recent past that was over several years and the provinces had the right to choose whether to take it all at once or to spread it over several years, but this is a one-time only payment.
MR. CHRISTIE: That is correct.
MR. STEELE: In the next paragraph, under Other Federal Sources, there's also a reference to Nova Scotia receiving $44.1 million in this fiscal year from something called the Health Reform Fund. That's different from what's referred to in the previous paragraph, and I was wondering if you could tell the committee whether this, too, is a one-time only payment?
[Page 304]
MR. CHRISTIE: That's part of the Health Accord that was established last January. There's more than one-year funding involved in that. It's part of that Health Accord that was agreed on.
[3:30 p.m.]
MR. STEELE: What can we expect to see in future years?
MR. CHRISTIE: The outgoing years will be about $104 million.
MR. STEELE: So it's going to be $44 million in 2004-05, and $104 million - did you say? - in 2005-06.
MR. CHRISTIE: Yes. Remember this was part of the accord established to implement the changing definition of CHST and the HST. If you look at the graph - I believe it's in here, in this book - the federal transfers, you'll see that, those different lines, one line will stop on CHST and the other starts. So it's to do the balancing out of those different fund transfers.
MR. STEELE: What about after the 2005-06 year?
MR. CHRISTIE: We're just looking for that number. We're just seeking that number, and we'll have that ready for you.
MR. STEELE: That's fine. Let's continue on to the next paragraph then, at the bottom of A20, up to the top of A21, another special federal-provincial transfer. Is this money that is included in this year's budget?
MR. CHRISTIE: Yes. This is the trigger offset, yes it is.
MR. STEELE: And it's a one-time only payment, the $21 million plus 20 per cent, one-time only, then in the following year a payment equal to 10 per cent, but then that's it, then it's over, right?
MR. CHRISTIE: That's all that's been indicated to us at this time, yes.
MR. STEELE: Do you have a projection, Mr. Minister, for what that figure will be, even roughly, in 2005-06?
MR. CHRISTIE: Next year that should be about $3 million. Then, just to clarify that for you, the year after that we go back to the 70/30 split that was previous to this being reset.
MR. STEELE: This year is $21 million, plus 20 per cent of offshore revenue, so what figure is included in this year's budget? What does that add up to?
[Page 305]
MR. CHRISTIE: It's $29.5 million.
MR. STEELE: It's $29.5 million in 2004-05, and the figure for 2005-06 was $3 million even?
MR. CHRISTIE: Yes.
MR. STEELE: Okay, thank you. Now I want to move on to A23. This is one of my hobby horses, Mr. Minister, and, don't worry, it's not just you I bother about this, it's every Finance Minister. At the bottom of Page A23, it refers to certain things being netted out for purposes of the budget. "Recoveries of expenditures under various federal-provincial agreements or from other departments or entities, user fees, and income on sinking fund investments have been estimated and are netted against departmental expenditures . . ."
Every year I say to the Minister of Finance, well, if it's netted out, then there must be figure A, which is the gross; figure B, which is the deduction; and in the budget documents themselves, we have figure C, which is the net amount. Every year I ask for figures A and B, and every year I don't get them. I'm beginning to wonder whether, in fact, the Department of Finance even knows what those figures are, or whether, in the budget documents, are simply included figures delivered by other departments. Frankly, I don't understand why it's so gosh darn difficult to get the two figures that go into the reported net figure. I think it's important, because it's no secret that user fees are a contentious issue, they've gone up quite remarkably over the past number of years, and I think we, as members of the Legislature, deserve to know what the total revenue is, but right now the way the budget documents are set up, that's kind of hidden from us.
So, Mr. Minister, I will ask you the same question I've asked the Minister of Finance the last two years, can you provide to me, or to this committee, a list of the amounts that are netted out - I think you know what I'm trying to say - the gross amount minus the revenue that produces the net figure? Can you produce that for the committee? If not, why not?
MR. CHRISTIE: Do you have in front of you the Estimates Book?
MR. STEELE: I do.
MR. CHRISTIE: I'm looking at the different departments, which show the gross expenses less chargeable to other departments less fees and charges. Is your question, what are the fees and other charges for each department? If that's your question, I can go through and look at the different departments and get those in here. Or, are you looking for a whole variety of line items that make up those other fees and charges?
[Page 306]
MR. STEELE: I guess I'm looking for the variety of line items, because if you give me one figure for user fees, say in Service Nova Scotia and Municipal Relations, although I don't think it actually says user fees, there's one line, revenue.
MR. CHRISTIE: Yes, that's called the Fees and Other Charges.
MR. STEELE: I think I'm looking for something a little bit more than that. To me, in making up a budget that's composed of net figures, somebody, somewhere knows what the figures were that went into making up those net figures. To me, perhaps simplistically, it should be a very simple matter to report on what those figures were, but I just never seem to be able to obtain that. I don't understand why.
MR. CHRISTIE: Well, obviously a lot of the process, as the departments make up their budgets, they make up their budgets in terms of their recoveries and transfers to other departments, they make up their budgets based on their recoveries and indeed their fees that they netted out, and, essentially, as we get those numbers, the numbers are the ones with the netted out and after.
I don't know - I will have to look at the process of calculating. I suspect there's a great many line items that would go into those. As I understand your question, you would be looking for the calculation. I'll take one, for example, if I look at the Department of Service Nova Scotia and Municipal Relations or in the Department of Agriculture and Fisheries, the different line items on fees and recoveries and revenues, the number of line items that would be in there. Your question is, does each department have a list of those items that make up that number? I don't have that number now, but I guess we could see how we could generate that list.
MR. STEELE: Maybe what I need to do is I need to refine exactly what it is I'm asking for, before I cause anybody to do a great deal of work. There's something out there that I feel we should have that's not available. I take your point, I need to refine exactly what it is I'm asking for.
Let me move on to the subject of the Auditor General's special report of November 14th last year. As you know, Mr. Minister, a special report from the Auditor General is an unusual thing. He doesn't do it every day. In fact, I think it's seven years since he had issued another one, something like that, six or seven years. It came out, we had a session of the Public Accounts Committee that dealt largely with that topic, but that same afternoon what I felt was a very misleading news release came out from the Department of Finance about that, which I thought mischaracterized, one after the other, the Auditor General's criticisms and then sort of knocked down the Auditor General's criticisms as mischaracterized in the news release.
[Page 307]
At the end of the day, I was left not knowing whether the Department of Finance took that special report seriously or whether they felt that the Auditor General was out to lunch. I just didn't get the feeling that your department had taken to heart what the Auditor General was saying. But I don't want to rehash that today, we've already been over that. What I want to ask is what specific steps, Mr. Minister, is your department taking to address the four recommendations in the Auditor General's special report?
MR. CHRISTIE: Let's start with a couple of issues. As you know, there were about four different issues that were raised around that point in time. The issue of transparency was one of his major issues and I think we'll agree on that one. I think if you look at the Estimates Book on Pages 10 and 11, you'll see part of that issue was being described and addressed in terms of disclosure and in terms of putting the notes in here. We have upgraded those notes and we have put in a lot of issues surrounding that. That was obviously one step. You'll recall one of the things that we put out in the supplement to the note was to further include the Auditor General's notes in that.
The next one, you will recall, had to do with reporting from entities. The Auditor General was concerned that some of the entities weren't reporting to us by the end of June. We have not only taken it seriously, we have sent out letters to each one of the entities indicating that it is not acceptable to be carrying on after. Indeed, one of the issues around the Financial Measures (2004) Bill was to allow us to deal with that issue. People that, for whatever reason, aren't providing us with timely and accurate information, then there's recourse in terms of what can happen there. I think, in terms of your concern about not taking it seriously, I think we might suggest that we did take a number of those very seriously.
Another issue the Auditor General raised was around the SAP program.
MR. STEELE: No, that was his Annual Report. I'm talking about the four items that were in the special report.
MR. CHRISTIE: Okay. The other ones had to do with the Public Sector Standards and the reporting through that. The fourth one had to do with the schedules in terms of the reports and ensuring that the reports in the supplements and everything displayed and showed all of the pertinent information. So I think our controller's department has taken that very seriously and followed with it.
I suspect, and would suggest to you, one of the offshoots of that was the fact that when we started to do the budget for this year and we were looking at it, the question would be, why don't you just set the budget day? Of course, the answer was, we have the Auditor General looking at the revenue projections and also they're looking to see those consistencies of those issues that were raised were being followed also.
[Page 308]
MR. STEELE: Okay, can you give the committee some reasonable assurance at the same time next year - November, 2004 - that the Auditor General will not be in a position to repeat the same criticisms? That they've been dealt with?
MR. CHRISTIE: We can give this committee every assurance that our department is working diligently with the Auditor General on all of the issues. Not only on these issues, but many other issues that are going on. These issues have been worked out with the Auditor General, they're taken very seriously and I would suspect that the Auditor General has a report next year, I have every confidence that he'll be reporting progress.
MR. STEELE: Thank you, minister. I want to move on now through the Budget Speech document, Page B6, which is as good a place as any to talk about restructuring costs. One of the things that the Auditor General has commented on in the past in his annual report is the fact that this line item has been, shall I say, misused in the past to cover all manner of things that the government - this is not the Auditor General's characterization, this is mine - things that the government doesn't want to be closely examined but things that most certainly belong in departmental line items, not in some catch-all fund. The beauty of the restructuring fund, as I'm sure you well know, minister, is that the government doesn't have to account to the Legislature for it. If anybody asks any questions, you just say, well, this is wage settlements and you know we can't talk about them. It's clear in the past that after the dust settles, it has been used for a great deal more than wage settlements. It has been used as a bit of a political slush fund - to put things in that the government doesn't want to have to talk about or deal with in other ways.
[3:45 p.m.]
In that vein I note that the allocation or the proposed vote for restructuring costs this year has jumped very substantially. It was an actual of $15.5 million in 2002-03, a forecast actual of $17.3 million for 2003-04 and the proposed allocation is $56.5 million this year. Minister, why has the allocation for restructuring costs more than tripled this year?
MR. CHRISTIE: At risk of having you say, I don't believe you, I'm going to have to suggest to you that it's anticipated wage settlements that are coming up.
MR. STEELE: Okay, let me ask you this, minister, because I know that's all you can say and I didn't expect you to say anything different. We have, by any account, a big line item here - $56.5 million - and we in the Legislature apparently don't have the right to look into this and examine what it is to see if it's something we want to approve. Who does? Who outside the Minister of Finance and his staff, who is independent and able to review this figure to make sure it's being used for the purposes that it's meant for and not as just a general catch-all for things the government doesn't want to discuss?
[Page 309]
MR. CHRISTIE: Well, obviously, since it's a business area of the Department of Finance, the Auditor General would be looking at it.
MR. STEELE: He can look at it after the fact.
MR. CHRISTIE: Oh, clearly. The Auditor General . . .
MR. STEELE: What about before the fact?
MR. CHRISTIE: Before the fact, the Auditor General undertakes to do revenue projections and to look at our assumptions.
MR. STEELE: This is not a revenue item.
MR. CHRISTIE: This is not a revenue item, so this would be after the fact the Auditor General would look at this.
MR. STEELE: You know, the problem is that when the Auditor General looks at it after the fact, he says, gee, they've been misusing this.
Okay, you have a budget in front of the House, it's got a $56.5 million line item in it and you say - I didn't expect you to say anything different - you can't talk to us about it. The Auditor General only looks at it over a year from now when he's doing the Public Accounts for 2004-05. What assurance can the public have that this money is being used for proper purpose?
MR. CHRISTIE: Well, I guess there's two things. I think first, obviously, these are estimates. These are estimates, we're projecting certain things will happen and the process of wage settlements, this committee is certainly aware of how much wages make up of our total budgets and so on here. So this process is going to go through wage settlements.
There are two options - the converse of your argument is that perhaps we don't have enough there for wage settlements and so on. Consequently, maybe we should be having the debate that we're underfunded there as opposed to just having money for restructuring for wage settlements and other things.
MR. STEELE: The essential point is, we have no way of knowing. Why should we vote money for you that we have no way of knowing what you're going to use it for?
MR. CHRISTIE: I think, at the end of the day, the Auditor General is going to look at this fund and look at other funds. You've talked about the special report the Auditor General had out last Fall and I suspect if this fund and other funds were being used for a variety of things that didn't have the appropriation for, then the Auditor General would be
[Page 310]
speaking on those. I guess what I would say to you is that this particular line item is subject to the same scrutiny of every line item. It's open for the Auditor General to look at. At the end of the day when the wage settlements are done, we have to determine whether we were right, wrong or over funds or if we were short funds. We have to explain to the Auditor General as we go forward.
I suggest to you that you should have some confidence that the Auditor General will be reviewing.
MR. STEELE: I have all the confidence in the world in the Auditor General, it's because he flagged it that I'm flagging it now. Can you assure the committee that it's for wage settlements and nothing else?
MR. CHRISTIE: Let me read you the description of what the fund is for. This includes costs associating with contracts negotiation, business processing re-engineering, human resource strategies and recoveries that cannot readily be attributed to a specific department. Within that involvement there is some business process re-engineering and human resource strategy. If we take that all out and put it in other words, there could be some changes in business practices, which would affect people in human resources for say an earlier retirement or so on. I cannot say that is solely used for wage negotiations and differential because there could be - this particular budget as we indicated, doesn't indicate areas where there would be changes in personnel or people being laid up, but throughout the year there could be in various departments, there could be some process of change that would lead to some early retirements or so on.
MR. STEELE: Okay, I'm not going to beat a dead horse because I want to move onto other stuff, I'll just say this, that line item has the same description every year, and the problem is not the theoretical use of the restructuring fund, it's that the Auditor General has said in the past precisely that it has been used for purposes other than those that you've just listed, and he has said it's not appropriate to use the restructuring fund for other purposes and the reason why it does get used that way politically of course is because we simply don't have the means of going behind it to see what it is being used for.
Anyway, let me move on. I'd like to move on to the business plan documents. My next series of questions flows from the business plan and it will be much easier for you and your staff to follow if you have the business plan document in front of you. Do you have the business plan document, not the government business plan, the department's business plan? The one that's not published in the blue books this year, but it's available from the department's Web site.
MR. CHRISTIE: Okay.
[Page 311]
MR. STEELE: Okay, I'm going to be starting on Page 6 and moving over into Page 7, which is the list of departmental priorities for 2004-05.
MR. CHRISTIE: Yes.
MR. STEELE: I'm going to go down them one by one, but I'm going to skip a few. The first bullet under Financial Management. My question for you is this, this first priority implies that there are some units of government that are not currently GAAP compliant. I wonder if you could stipulate which units of government those are?
MR. CHRISTIE: I'm advised the smaller one is the Sherbrooke Village, but it's the school boards that are the larger ones.
MR. STEELE: It's my understanding, minister, that the Department of Education manual on financial accounting actually requires the school boards to be not in compliance with GAAP. That they can't be both GAAP compliant and in compliance with the manual. Is that correct?
MR. CHRISTIE: I'm advised, as you are aware, the Department of Education's legislation indicates that the school boards through that legislation process wouldn't be GAAP compliant, but we are in the process of moving in that direction of bringing them into GAAP compliance.
MR. STEELE: Okay, so do I take it that under the leadership of the Department of Finance, the Department of Education's financial accounting manual is being changed?
MR. CHRISTIE: Yes. That's the long-term vision, that it would be changed so that they would be changing their legislative requirements so that they would be complying with the GAAP process.
MR. STEELE: It's my understanding as well that the municipal accounting manual also, if it is followed by the municipalities would also cause them to be not GAAP compliant. Is that correct?
MR. CHRISTIE: You're correct. Since that's not consolidated in our statements, the municipalities, that's something for Service Nova Scotia and Municipal Relations. The bigger issue of course is the school boards.
MR. STEELE: When do you anticipate that the manual that the school boards are required to follow, if followed, will cause them to be GAAP compliant?
MR. CHRISTIE: I'm advised that the target that they've set for themselves is that in the 2004-05 financial statements they will be GAAP compliant.
[Page 312]
MR. STEELE: Okay, let me move onto the second bullet, which is the debt reduction plan. I'm going to put a proposition to you minister, I'm going to ask you that if the proposition is incorrect, to explain as clearly and simply as you can why it's not correct. The proposition is, that from a financial point of view, there is no difference between taking the money set aside for debt reduction and applying it immediately against the debt and taking that money and putting it into a fund and applying it against the debt in some future year. Is that correct and if it's not correct, why is it not correct?
MR. CHRISTIE: Are you talking about both aspects of the debt reduction or just one?
MR. STEELE: You can deal with it either way.
MR. CHRISTIE: Okay.
MR. STEELE: You talked in your opening remarks about $10 million being put aside to put against the debt. If we took the $10 million and put it against the debt immediately, is there a financial difference between doing that and putting it in a fund and applying it against the debt later?
MR. CHRISTIE: I think there are two different components, the $6 million part of the Debt Retirement Fund would fall within your definition. If you have it now as an appropriation whether it goes to debt retirement today or at the end of a period of time, it's the same thing. The other one, the debt retirement reserve would only be achieved if we had a surplus. We would need to have a surplus before that $4 million would be triggered into the debt. Obviously that's our plan. Our plan is for the surplus, however, there is a contingency on that and that's why the word is contingency.
MR. STEELE: Okay, but on the $6 million you agree that there's no difference between applying it directly and putting it in a fund and applying it later? Financially it's the same thing?
MR. CHRISTIE: Essentially, except there's interest involved in the sinking fund, in the interest funding, so you would be saying I'm going to give that up but your scenario would be absolutely right if your calculation of debt retired at this moment would be equivalent to the interest in the other fund and then retire it at some future date.
MR. STEELE: So why do it? Why not just say - because all you're doing is creating what you might call a restricted surplus, a surplus that can be only used for one purpose. Why don't we just pay it directly against the debt year by year and not go through the fiction of putting it in some kind of a side fund and applying it later?
[Page 313]
MR. CHRISTIE: Well, I suggest to you it's not fiction. I think that this is the plan that we laid for the bond holders and the rating agencies that we would be reserving this money and it's a similar concept of what we're doing with the sinking fund now. We're holding those monies to capture and to respond to the sinking funds. It's not as if this is unprecedented. We're sort of following that same process.
MR. STEELE: I'm going to skip over the next bullet. The first bullet under Investment and Treasury Management talks about an acceptable level of financial risk. Is there a written policy on what is or is not an acceptable level of risk?
MR. CHRISTIE: There is not a specific policy, however, there's a recommended asset mix from the committee that they work with and that is where they define the risk portion, through the asset mix that they have.
MR. STEELE: What guidelines are they working under? At what point would the department know that the limit of acceptable risk has been reached or not? How do they know?
[4:00 p.m.]
MR. CHRISTIE: Once they fall outside that asset mix. If they started to fall outside that asset mix . . .
MR. STEELE: Is the asset mix written down somewhere?
MR. CHRISTIE: Yes, it is.
MR. STEELE: Where?
MR. CHRISTIE: It's in the committee statement of investment policy and goals.
MR. STEELE: Is that a public document?
MR. CHRISTIE: By all means if you wish a copy we can get you a copy.
MR. STEELE: Yes, that would be helpful. Thank you. The next bullet says that one of the department's priorities for this year is to, "Strengthen investor relations by making strong presentations to rating agencies on the Province's financial position." The implication that I take from that is that there's going to be something different this year about our presentation to rating agencies than previously. What's going to be different?
[Page 314]
MR. CHRISTIE: I think first off, this will be the third year in a row that we're projecting to have a surplus. We are now achieving, as I indicated in my opening comments, the amount of foreign debt exposure is going down. We're ahead of the targets and we're continuing and going toward legislation for the debt reduction plan, which was the basis of what the bond rating agencies and the rating agencies indicated their support for last year. I think it's the same as you and I when we're looking to our bankers, we continue to try to meet our plan and by meeting that plan we're strengthening the relationship with our respective financiers, bankers or what have you.
MR. STEELE: Perhaps I'm just putting too much weight on the way the sentence is written but it makes it sound like past years we kind of acknowledged that the presentations were weak because this year we're going to make strong presentations.
MR. CHRISTIE: Well I don't suggest that the previous years - we're not trying to impugn anything in the previous years, we're simply suggesting that to continue to build strength with our rating agencies is a goal of ours and that's what we're attempting to do.
MR. STEELE: Now the next priority, I noticed that the department has 14 priority areas which seems like an awful lot of priorities to have all at the same time. It may be one of those cases where if everything is a priority nothing is a priority, nevertheless, let me move on to priority number six, which says, "Review and, if appropriate, modify the governance structures of the Teachers' Pension Plan and the Public Service Superannuation Plan to ensure efficient and effective administration." What's going on here? Are we reviewing these governance structures? Do we have concern about their effectiveness and efficiency?
MR. CHRISTIE: You'll recall from the 1993 pension governance structuring document that it was required that we keep looking at it. Your question is, are there things to be looked at, and certainly between the committee, the Department of Finance and those committees keep looking at different options and different governance. At this point in time there is nothing that we need to bring forward and we expect those committee discussions will keep on going. What that suggests to us is that they're going to keep reviewing and keep following up what the 1993 report indicated.
MR. STEELE: Do you have any concerns about the way those funds are being managed?
MR. CHRISTIE: No, at this point in time I have an opportunity to be updated every quarter and on the joint committees, the returns over the last year, you will perhaps recall this time last year talking about if some of the returns were down because of the market structure, they have indicated and they've rebounded and come back up, so it is coming.
[Page 315]
MR. STEELE: As you know minister, the provincial Pension Benefits Act doesn't apply to the Public Service Superannuation Plan nor to the Teachers' Pension Fund. Can you give me two good reasons why the provincial Act which imposes legal discipline in all other pension funds shouldn't apply to the public funds?
MR. CHRISTIE: I think in terms of how they've developed, obviously the government plans are ongoing and continuing where some of the other ones have finite definitions and purposes, and that would be the unique difference in the two of them.
MR. STEELE: I'm sorry, I don't follow you. Why would that justify not having the provincial fund subject to the same legal discipline of other funds?
MR. CHRISTIE: Well, as I indicated, some of those funds that we have here are continued and we see those going on for a long point in time, where the other funds that you're talking about have a definite and a finite term on them, so they're a little bit different.
MR. STEELE: It may be that some private funds have a finite term although it's hard for me to think of one, there has to be a better reason than that.
MR. CHRISTIE: Well, I suspect obviously as we look at some of the other finite funds, possibly company A, whatever company you're talking about, there's the possibility that company will cease, will go out of business whereas you're looking at the Teachers' Pension Fund and the Superannuation Fund, you don't ever envision that, it's carrying on well into the future.
MR. STEELE: It has been suggested to me by people who understand pensions much better than I do that if in fact the provincial funds were subject to the discipline of the Pension Benefits Act, that the recent increase in contribution by both employer and employee would have had to have taken place much sooner than it did. Do you have any views on that?
MR. CHRISTIE: Well, I guess if your question is, why did you wait for 20 years before you raised the contribution level . . .
MR. STEELE: No, that's not my question. My question is, that one of the benefits of the Pension Benefits Act is it imposes a certain discipline on financial management that the provincial funds currently don't have and I've just suggested one way in which it might have imposed that discipline. Is there a case to be made that the provincial funds should be under the Pension Benefits Act? Or is that something which is not at all in the department's radar?
MR. CHRISTIE: I guess there is really, if you're looking for a reason, there is no particular reason. I guess that's just been historically the way it has been so that carries on that way. Good reason or no-good reason. (Laughter)
[Page 316]
MR. STEELE: Okay, I'm glad you said that and not me. On Page 11 of the business plan still on the subject of pensions, at the bottom of the page, it talks about management of these two pensions and it says, target 2004-05 and the target for these two funds are, 100 per cent funded status. Surely you jest, Mr. Minister, that's not a serious target for 2004-05?
MR. CHRISTIE: What we're attempting to suggest there is an ideal situation.
MR. STEELE: Okay, but what's the real target? It doesn't do anybody any good to throw out a target that in some ideal world might exist some time. What's the target for this year?
MR. CHRISTIE: Well, if you tell me how the markets are going to react we can tell you the target. Obviously, what we're suggesting here is that we do see the fund reacting and we're looking at it generating a 4.25 per cent of a real rate of return, the question then is, what is that going to require for funding to fully fund it?
MR. STEELE: Okay, minister, this is your business plan, not my business plan. It has a figure in there that you'll acknowledge is completely unrealistic. Either you put in a realistic number or you say that it's not realistic to have a target. Which one is it?
MR. CHRISTIE: When in the business plan we put in the 100 per cent target, we are obviously looking at a series of different options and the options as to how the pension fund is going to perform, I guess in looking at the fully 100 per cent funded, we believe that the way the markets are performing, we'll be coming close to that, but, once again, I suggest to you that what you do is you set out goals and objectives and that's what we're doing here. Your question is, do you believe that we'll be fully funded? We certainly hope so, but it's based on how the market will perform.
MR. STEELE: So you think, at the end of 2004-05, there is a serious and justifiable possibility that those two funds will be fully funded?
MR. CHRISTIE: Right now with those two funds, we're about 80 and 82 per cent. Those funds have been moving up and we're heading toward that. We certainly anticipate that those funds will continue to grow and the percentage of funding will be certainly higher. We would love to move towards the 100 per cent, but it's going to depend on the market and, obviously, as we introduce the new employee deduction numbers, it was based on the possibility of working to achieve that level.
MR. STEELE: Mr. Chairman, I know my time is running down. By your clock, how much time do I have left?
MR. CHAIRMAN: You have five minutes left.
[Page 317]
MR. STEELE: Mr. Minister, continuing down the page of departmental priorities, I'm going to move to the second bullet under Fiscal Planning and Policy which in the document I have is the one at the top of Page 7. One of the department's priorities this year, as I hope it would be every year, is to "Effectively negotiate agreements with federal and other governments so that Nova Scotia's interests are well represented . . ." Does that just go without saying or is there something special on the horizon here? Is something new coming up, are we taking a new approach, or are we saying that it's always a priority to do this?
MR. CHRISTIE: Well, I think if we go back on a couple of issues, obviously it's in our best interest to do that on all occasions, but I think you'll recall last October/ November we took the initiative of having the Atlantic Provinces Finance Ministers' Conference, the purpose of which was to define if there are things within our region that are different than in the West or Ontario and so on and to speak to the government in terms of local areas. Perhaps you will recall, at the time there was the issue surrounding forgiveness on the whole issue of the census issue. There was discussion surrounding that. There was discussion surrounding the smoothing process of the federal government, some federal government changes. So what we're attempting to say in this one is to carry on those discussions, to continue to work with the other provinces, to continue to work with the Atlantic Regions to better define our region, to better define those situations that are unique to us so that we can make the best representation we can with the federal government.
MR. STEELE: Let me ask you this question, Mr. Minister, this will probably be my last question in this round and it has to do with the idea much talked about by your government that on the question of equalization, in particular, Nova Scotia has suffered a sharp and unexpected drop in equalization payments to which the federal government says, and as recently as last week the federal Finance Minister comes through town and says, don't be ridiculous, everybody knew what was coming, the agreement is negotiated years in advance, that if anything happened, it's your fault, not ours. So I'm going to give you an opportunity now, Mr. Minister, to explain to me and to the committee, as clearly and simply as you can, in what way did Nova Scotia suffer a sharp unexpected drop in equalization payments and why did we not see it coming and why is the federal government wrong when they say that you're wrong?
MR. CHRISTIE: I guess that's a many-faceted question, but let me share one piece of information with you. The federal minister is correct that those things are set out by formula and the calculations are known for a long period of time. I'm sure if you've had an opportunity to look at the federal government's Web site, you will know that the federal government in their first federal estimates for 2003-04 forecast for equalization $10.5 million. Now, many of those components were made up of things and you'll perhaps recall that when we were doing the forecast last year and they were basing them on the 2001 census, the federal government at the time was going back and readjusting their census numbers and you will recall at the time the federal government came back to the provinces and they said do not use the numbers that we sent you in February because they're inaccurate.
[Page 318]
So what are the provinces to do? Well, the provinces went out to look at the federal government's forecasts as they had them laid out and we took the federal government's numbers for what they believed would be the census transfer. Now, if you've also looked at the federal government Web site, you will see that their latest federal estimates for the fiscal year 2003-04 are down to $8.8 billion. That is the nasty shock that people are referring to. It was the shock that the federal government changed the numbers in terms of what they had suggested you not use in February. They were going to look and readjust them. Now, they were realigning those and they were making those adjustment changes.
Now, that's the reason the provinces were caught off guard. Had we had the data and had the federal government had the data last February and that census data and the other economic indicator data, they had locked those in and those were fine, then we wouldn't be having this debate. The fact of the matter is that the federal government numbers on their Web site, on their forecast and on their census numbers, which they told us not to use in February, that we then as provinces had to go find somewhere where we used for our projections and we used their federal projections and because of that, and simply looking at their Web site and their first estimate, it was $10.5 million and it's down to $8.8 million and that's the nasty shock everybody is talking about - whether it's the TD Bank, whether it's Ontario, whether it's Manitoba, all of those people, that's the shock we keep referring to.
So, in reality, Mr. Goodale is correct that those formulae are known. However, you need the components of those formulae. You need consistency. You need to have accurate components of those formulae before you would be able to do your forecasting and when one of those components change, then you're going to get a nasty shock.
MR. CHAIRMAN: The time has expired for the NDP caucus. We will move to the member for Halifax Clayton Park for the Liberal caucus.
MS. DIANA WHALEN: Hello, Mr. Minister, and thank you very much for being here today to go over this. I may not take my whole hour, we'll see how it goes. I think you know that I'm a newcomer to this process.
MR. CHRISTIE: Aren't we all.
[4:15 p.m.]
MS. WHALEN: Yes, it's nice of you to say. I've got quite a list of questions and I've been going through lots of things even while you were being questioned in the first hour. So I would ask you to bear with me if I ask something that you've already answered in some detail because I've been flitting from one item to another. I thought I would start with some questions related to the revenue side of the picture and there are quite a number of taxes and changes that have been made on the financial side on the revenue. So I thought perhaps we could explore some of those just to begin with. I'm not sure always where it's tabbed in the
[Page 319]
books so we will talk around some of the issues, but on the large corporation tax, I was wondering if you could tell us something about the decision to institute that or to extend it for a longer period of time. I understood it was to phase out two years ago and just sort of what process you used to determine that that was a good source of continuing revenue and to increase it?
MR. CHRISTIE: Yes, that's correct. That tax had been scheduled to be phased out but, as I indicated earlier, in the whole process, once you set your priorities and you determine the expenditures that you're going to have to try to meet, then you look at the revenue opportunities to meet that and that was one of the issues in looking at the large corporate tax. It was just a decision as a revenue opportunity to meet the expenditure requirements we had.
MS. WHALEN: Have you had meetings with, particularly, the Canadian manufacturers and exporters, because they've been fairly vocal?
MR. CHRISTIE: I've had a number of meetings with the manufacturers. I've had a meeting with the Federation of Independent Business. I've had a number of meetings with a number of those people and, you know, there are two or maybe three themes that constantly keep coming up and one is taxes on business. One is the issue of the debt. The one that keeps constantly coming up from all of those groups seems to be business occupancy tax and they have raised that over and over and over again.
MS. WHALEN: But the business occupancy tax isn't directly within your control, is it?
MR. CHRISTIE: Well, yes, it's something that for the municipalities to make a change, it requires legislation.
MS. WHALEN: Okay, through Service Nova Scotia and Municipal Relations?
MR. CHRISTIE: Yes, it does.
MS. WHALEN: Can you tell me the total amount of money we'll get from the large corporation tax at the rate that you've increased it?
MR. CHRISTIE: Yes. The figure is about $12.9 million and we're just looking to where that is on what schedule so you can reference it.
MS. WHALEN: Yes, that would be good. I would also like to know how much our corporate taxes have gone up since 1999 from corporations? I understand they've almost doubled and perhaps they have with this latest tax. Is it possible for you to tell me the total increase since 1999?
[Page 320]
MR. CHRISTIE: Are you looking on a percentage basis or total dollars?
MS. WHALEN: Percentage basis was how I was saying it almost doubled, but even on total dollars we can calculate it.
MR. CHRISTIE: I'm advised that our tax rates have not changed since 1999. Obviously, our total cash is gone because of growth, but the percentages have not increased.
MS. WHALEN: The rates haven't changed?
MR. CHRISTIE: The growth has gone. Obviously, the growth from 2000 is $169 million and it's $263 million, that's activity, but it's not a rate increase, it's because of activity.
MS. WHALEN: Could you just read those numbers out once more?
MR. CHRISTIE: I'm referring to Page B11 in the Budget Address book.
MS. WHALEN: We'll look at that.
MR. CHRISTIE: And I'm just taking those numbers off there. If you want me to read them again?
MS. WHALEN: No, that's fine, I can go there later, but I had something which had been prepared taken from budget 1999 which showed $127 million was the corporate tax for the estimate in 1999 and that the forecast for 2003 had gone up to $247 million. That's a 95 per cent increase. So if the rates haven't changed, you're telling us that it has come because of an improved corporate climate, is that right?
MR. CHRISTIE: That's correct, yes.
MS. WHALEN: Entirely, okay, I just wanted to be sure. Is this the first increase in any tax on the corporations then, this increase in the large corporations tax?
MR. CHRISTIE: Just for clarification, I'm advised that the manufacturers' tax credit was phased out some years back which would have some effect on this, but the answer to the question of the corporate percentage tax rate has not changed so that would have some impact on these numbers we're talking.
MS. WHALEN: But one tax credit phased out and that's it?
MR. CHRISTIE: Yes.
[Page 321]
MS. WHALEN: And you'll appreciate I'm trying to fill in the blanks too for the history of this.
MR. CHRISTIE: Sure, yes.
MS. WHALEN: It looks quite alarming in the sense of seeing it, either good or bad, it could be a good thing that corporate tax has gone up that much if really and truly the economy is so good and I think you've enjoyed four or five good years, all of us have, in terms of higher employment, higher activity in the business sector, and that's very positive and perhaps some of it from the energy sector as well. I'm not sure how much we could attribute to that, but perhaps your economists know better, but it is good to see that that has been self-generated. Now, personal income tax I have for the same period under my figures is up about 30 per cent. Would that again be no change in the rates and only a change in the activity level and employment?
MR. CHRISTIE: You're referring from 1999 until?
MS. WHALEN: 1999 to 2003.
MR. CHRISTIE: And the forecast you're using for 2003-04 is $1,355,000,000?
MS. WHALEN: Yes.
MR. CHRISTIE: The answer to your question, have there been tax rate increases, and the answer is no. I would suggest to you as you look at the forecast for 2003-04, that figure is somewhat reduced because of the tax reduction measure that was included in there.
MS. WHALEN: For one-quarter of that year?
MR. CHRISTIE: So if your figure showed a certain amount, it would be higher than that if we grossed it up after the tax reduction.
MS. WHALEN: This would already reflect the fact that a quarter of the year was a reduced tax rate?
MR. CHRISTIE: That's correct.
MS. WHALEN: That's good. So it's accurate then? (Interruption) In certain ways. Maybe we should go to the tax cut then. Would that reflect the amount you're going to recoup this year and credit against last year and I mean we could use the word clawback where you're going to increase the rates from July 1st onward in order to credit some of that tax back to the last part of the last fiscal year.
[Page 322]
MR. CHRISTIE: Yes, the $18 million is included in the figures at the end of March 2004.
MS. WHALEN: It's included in the $1.3 billion?
MR. CHRISTIE: Yes.
MS. WHALEN: Okay, so you've actually made that, or it has been corrected. Could we discuss a little bit about, I guess the process of clawing back and crediting it to a year before and, you know, again, I haven't checked with any lawyers and I don't know if my colleague across the way has, but it just seems that if we're moving towards a more businesslike way of accounting for things and we're adopting GAAP and everybody is very pleased that that's a proper way to account for things, I don't quite see how, if I was in a company and I increased my sales price, for example, of my commodity in the start of a new year because I lost money last year, I don't see, there's no way that I could put my higher profit from this year and spread it over two years and that's sort of what we're doing. We're taking money that we're going to collect this year and credit it back on that last year to make a more rosy picture and I just don't really believe that that sounds right. So can you give me the rationale, or perhaps one of your staff could speak to the rationale of that?
MR. CHRISTIE: I guess there are a number of issues around that question and let's start with the question of if you made the change, why did you go back into the 2003-04 fiscal year. When you start looking at those changes, the two opportunities you have to change are July and January through CCRA. So you make a decision as to one of those times. Once you've made that decision and you're going to go back for the year, it's GAAP that says that you have to go back for that year. It's the GAAP principles that say that if you're going to apply something for that period of time, you have to go back and account for it. Now, obviously, I suspect we could have said, well, no, we'll just start at July 1st but, as I indicated to you earlier, when you're looking at the issue of, you're setting your priorities for expenditures, then you have to look at the revenues and how those revenues are going to be achieved and this is clearly one of those decisions that you had to make.
MS. WHALEN: Well, could you speak to the fact that the budget process was well underway I'm sure by January 1st and it should have been clear at that point that you needed additional revenue. So the decision could have been made in November or December to do it.
MR. CHRISTIE: I wish I could say to you it was that simple. On the night of March 30th, we were having conference calls at home with the federal minister regarding a number of issues and you'll recall that the equalization program which had been going on for five years, that the minister indicated was well known and documented, the federal minister last week, that that program was up for renewal on April 1st of this year. At the time the provinces
[Page 323]
and the federal government had a number of meetings as to just where this was going to go and how it was going to be achieved.
I think what we had, as Atlantic Provinces, suggested to the minister is that we wanted to go into smoothing processes. We wanted to look at the fact that equalization would perhaps have census relief or a variety of things and sometime in February and March we were starting to get indications from the federal government that they weren't going to go that way. We also had anticipated that the federal government had the indication that they wanted to move with some additional health care funding. We knew about the $2 billion. We knew that our portion was going to be that, but the indications were that they wanted to make a move and start to move in that direction.
MS. WHALEN: Excuse me, above the $2 billion that was going to be spread across the country, in addition, plus the $60 million we would get?
MR. CHRISTIE: That's correct, that we had known about last summer. The Prime Minister of the day announced they wanted to move with that. The question was getting it logistically done so the provinces could know that it was going to come and, indeed, at some point the federal government was talking about some additional monies that were coming in there. So I guess that's a long way of saying to you that, no, all of these things weren't known in January. Had we known all of these things in January, we could have done our budgets in February and March, but since we knew the federal government had given us indications that they wanted to renew the equalization agreement, since we knew that the provinces had made submissions to them in terms of the 10-province standard, or including revenue streams in the formula. The anticipation by all provinces was that as we got into February and March the federal government would be renewing and making some amendments to the equalization program. That would at least, if nothing else, stabilize our revenues.
[4:30 p.m.]
At the end of the day, that didn't happen and the minister, because he wanted to get that program through and he was putting through a bill just to carry on the old formula, he did indicate he was putting in $158 million just to sort of stabilize things. Our portion was $8 million because the $158 million was not on equalization progress, it was just on a per capita, which sort of surprised us all, but at the end of the day, that's where we all stood.
MS. WHALEN: So this is the $8 million I think I've heard you refer to earlier.
MR. CHRISTIE: Yes.
MS. WHALEN: I wasn't sure where it came from. So this was an additional amount of money that you've heard about just recently - $158 million, is that right for the whole country?
[Page 324]
MR. CHRISTIE: I think it was in the federal budget.
MS. WHALEN: Okay. Our share is only $8 million of that.
MR. CHRISTIE: Yes. Again, I will say to you, that is based on a per capita deal as opposed to an equalization kind of a deal.
MS. WHALEN: Does that mean even provinces like Alberta received some?
MR. CHRISTIE: Yes. Oh, no, sorry. Not Alberta.
MS. WHALEN: So only the recipient provinces, but per capita?
MR. CHRISTIE: Yes.
MS. WHALEN: Can I ask you then to just go forward - this is very important to us. As you know, a large share of our revenue does come from the federal government, even though it's a declining share. I know that we're very dependent upon that in terms of the programs we offer, so I'd like to know a little bit about where we go from here and what will be done to reduce the volatility. I know that was mentioned in the federal minister's speech, that there were talks to do that and just overall where you expect us to go in terms of federal-provincial relations on this financial arrangement that we have. It's a big question.
MR. CHRISTIE: Sure, it's a big question. Where do we go? I guess we join all the other provinces in working on a number of fronts - the equalization formula front.
One of the interesting problems through all of this in terms of the equalization structure, you will recall back when we were talking with the federal government about doing some smoothing or perhaps forgiveness, the minister of the day said, what's your problem with forgiveness? Just pay us over the next five years. Of course, for B.C. and Nova Scotia on GAAP, nothing changes. You have to record it all in the year it happens.
Had we been in New Brunswick or Manitoba, we would just record them as you were paying them, however, because we are GAAP and because we've made that decision, you have to take the good with the bad and you have to record it all in the year that you know. We get in a unique situation when you go and say all provinces agree that you just pay us back over five years - well, there's B.C. and us offside on that one because it hasn't changed for us. It works for some and it doesn't work for others.
Where are we going to go? I presume that all the provinces and the federal government are working towards the long-term health care and moving towards that. The health care discussions this summer will start to put some framework around some of these topics. The whole issue surrounding the Conference Board report as to how health care is
[Page 325]
going to impact provinces and provincial deficits and federal surpluses has to come into play. It just simply has to.
You remember, it's not only this province, it's every province, it's the federal government. The whole reason for the constitution and the whole reason for Canada is, under the whole premise that people in different parts of the country will get different services at the same or approximately the same amount of tax rate. That whole issue has to be dealt with.
The other thing I think that you can take some confidence in is the whole secretariat of the fiscal imbalance the Premier of Quebec started back a year ago. The First Ministers, the Premiers met in B.C. back a few months ago to start looking at that because that's the question of the day for all the provinces as we all move forward.
MS. WHALEN: Well, it sounds as though there's some better things on the horizon anyway. Certainly by this Summer we should know more about the health care funding and that will improve it.
I do think it's important to say that in the equalization, knowing that there are so many factors at play and so much volatility from year to year, I still think it would have been wise for us to have a contingency. Particularly to do with - we didn't go into this - the population changes where we know we have a declining population. We had a number of questions like that, even in our briefing that you gave us at one point with your quarterly reports. But, I would like to ask whether that would be something you would suggest or consider in the future?
MR. CHRISTIE: If your question is building contingencies into . . .
MS. WHALEN: Well, similar to Prince Edward Island and Saskatchewan - one of them actually built a contingency fund, the other one noted it in their financial statements that the census had changed and that they expected to receive less in equalization as a result. It was at least footnoted or recognized by a contingency fund, shown on the books.
MR. CHRISTIE: There are two different ways to approach that. Certainly you're aware that some provinces have referred to it as the rainy-day fund. They have those funds which, if they don't achieve their revenue projections or expenditures go over, they can remove from those funds and put themselves in a balanced position. You know that there are discussions in Manitoba now about those, you also know the Finance Minister from New Brunswick indicated in his last budget, they had used the last of those funds, so they were flying on their own. In Nova Scotia, we don't have those funds because we've moved in the other direction and we've moved in terms of GAAP and then those funds we've never anticipated.
[Page 326]
I guess what that requires you to do within this area is to be as accurate as you can in forecasting because we don't have, as I say, rainy-day funds that we can top up or put in if we're coming in and so . . .
MS. WHALEN: Can I ask you a question? You sort of indicated that we moved to GAAP so we don't use the rainy-day funds. Would they be inconsistent to have both?
MR. CHRISTIE: Yes, that is correct. They would be inconsistent.
MS. WHALEN: I'm getting some nods behind you as well. Okay. That is important to know if we are in a unique situation because of the adoption of GAAP in that instance. It sounds like a prudent thing to do.
MR. CHRISTIE: Well, it has its good and bad points. Liz just mentioned to me, if we were going to look at doing a contingency fund, then we would have to go through the whole why and how we were going to do it and where the funds were, so we would have to go through the Auditor General on that.
I think the other fair thing to say is the Auditor General is equally as active in this province, if not more than a lot of provinces. It's not unknown, I think it's quite well known, that this province is one of the only ones where the Auditor General will have a look at your revenue projections in your budget.
MS. WHALEN: Yes, and I do think that's a certain comfort too. Certainly to members of the Opposition, it's another set of eyes, an independent view of what's going on. I would like to point out, this question of equalization, the Auditor General did question the fact that you hadn't flagged it as a footnote. I believe in the special report on November 14th, he did indicate in very professional language, he was a little bit miffed about the fact that he had not been told about that or didn't seem fully apprised. There's a comment that at least a footnote should be used in future.
MR. CHRISTIE: Well, as I say, the information that we gave to the Auditor General that surprised him, and you'll recall that we had briefings for the Opposition Parties in the latter part of September. It was September 25th Stats Can released their final corrected, updated numbers which led the federal government to doing their budget revision, which is, as I indicated, on their Web site. The Auditor General indicated that there might be more information and perhaps at the end of the day his statement would have said the information from the federal government indicated not to use their data. That's what we had at the time.
MS. WHALEN: All right. I'll leave that one alone. Sometimes you can't carry on with this. I think the member across the way used the term that we don't beat a dead horse here. We've been over that, we've talked about it so we'll move on to a couple of other things.
[Page 327]
I'm concerned about the competitiveness aspect of some of our taxes. I wanted to know if you could comment some on the personal income taxes and how they relate to New Brunswick. I've looked some at the corporate taxes, but if we could have a little bit of a sense of that and perhaps the corporate taxes too. When you determine to raise any one of these taxes, even if it's the large corporations tax for investment or personal tax rates, it's going to have an impact on our competitiveness. I know that has been a recurring theme when you looked at tax cuts. Could you give us some idea of how we compare now to New Brunswick? The one I'm most aware of is your new fourth bracket, which I don't believe is competitive with New Brunswick by any stretch of the imagination.
MR. CHRISTIE: Okay, so your question was relating to the different bracket rates, Nova Scotia compared to New Brunswick?
MS. WHALEN: Well, I'm thinking particularly of New Brunswick because I understand they've been very aggressive in improving their competitiveness. That may be more corporate than personal, but I think it's both.
MR. CHRISTIE: Okay. Let's take our high bracket, that's at 17.5 as we indicated. New Brunswick, their high rate number is 17.84 per cent.
MS. WHALEN: The amount at which it begins for the New Brunswick tax rate of 17.84, it begins at a much higher level?
MR. CHRISTIE: I'm advised that New Brunswick starts around $100,000, ours starts at $93,000.
MS. WHALEN: So, somewhere close to $10,000 difference?
MR. CHRISTIE: Approximately.
MS. WHALEN: Approximately, we won't go into it, because I think that there's an impact there. Now when you're looking at adjusting our tax rates, would you be considering the competitive aspect?
MR. CHRISTIE: In everything you do you have to be considering the competitive aspect, whether it's P.E.I., New Brunswick, you certainly have to look at those competitive aspects, yes, sure.
MS. WHALEN: Is there any way, I know you have people who are economists and so on, do you do any projections that would indicate sort of sensitivity analysis about which ones would create more harm and trying to balance out the negative part to the need for revenue?
[Page 328]
MR. CHRISTIE: Yes, sure, you look at those but obviously the discussions that you have with the different groups, that you look at the economy and there's a whole variety of factors. Certainly, the economists in the department look at being competitive, but you're also looking at areas that are relatively stable. I mean, nobody would want to move toward the fishing industry these days and start to do something negative because they're having such a negative impact anyway, so you have to look at a whole variety of things.
MS. WHALEN: So you look at basically industry or groups that are fairly stable? Okay.
MR. CHRISTIE: But your question was, is there a need to stay competitive and the answer certainly is, yes.
[4:45 p.m.]
MS. WHALEN: That is my concern and it's my concern with the large corporations tax as well, you know that puts an additional burden on our industry and actually that industry I read, at least through the CME, they said more than 50,000 people are employed and only about 140 companies in their membership in Nova Scotia, so it's a considerable job creator and if indeed those companies don't expand or continue to sustain their operations here we lose. That is my concern on that, but I realize you're balancing out a number of options and I'm sure you looked at many others as well, in order to come up with that I'll call the basket of choices that you had to choose from.
I'd like to look briefly, it's not a huge item, but the fee turned into a tax, the unlimited liability companies. I had asked your department to give me an idea what the impact would be of changing that. Those fees were doubled for that service, going from $2,000 to $4,000 and $1,000 to $2,000, for either the annual renewals or the incorporation fees. I was given a figure of $1.6 million as the additional, but I'm unable to put that together with the number of companies that I know exist in the province or that we would estimate, even roughly. What I'd looked at was over the last number of years, it began in 1994 with just a very few number of companies doing this, but in 1998, we jumped to almost 600. I had 598 were registered and it continues just over 600. It goes over 700 in 2000, kind of up and down around 650 a year in terms of the number of companies coming here for that service. So if we figured there were even 600 a year, their annual incorporation fees doubling means $1.3 million, the number over time, if you add them all up, there's over 4,500 companies that have done this and even if you say two-thirds of them are still active, that's worth at least $3 million in additional revenue. I'm wondering if you can give us a figure where the $1.6 million comes from? What I see is $4.3 million possibly in additional revenue by doubling that, and it's a bit rough but the number of companies is quite accurate.
MR. CHRISTIE: Okay, we'll have a look and see if we can . . .
[Page 329]
MS. WHALEN: In terms of the context of that, while they're looking it up, what strikes me as worrisome is that other provinces are looking at this now and that revenue will be threatened if they come in with much cheaper rates to do it, or even somewhat cheaper.
MR. CHRISTIE: I guess your question is, can we come up with the number of companies multiplied by the increased rate?
MS. WHALEN: I don't at all see where $1.6 million in additional revenue comes from. Actually we could go away and maybe somebody could look at that.
MR. CHRISTIE: Well, we could undertake to get those numbers for you, yes.
MS. WHALEN: Yes, if you don't have it handy. I know the question had been asked recently, we'd received the answer so I thought you might have it.
MR. CHRISTIE: We have the numbers and as I indicated earlier, a lot of the departments do the calculations and then we consolidate it and that happens to be one of those numbers.
MS. WHALEN: Well, certainly in that one, what I would suggest is that I think that there's a danger there because that has been a monopoly essentially for Nova Scotia and that we were the only province in Canada offering to let companies register in that manner, which gave them a big tax advantage. If, in fact, other provinces are beginning and Alberta did put it in their budget this year, I imagine it will take them some months, maybe a year to get everything in order and start to attract that business, but it means that we're going to now have competition for that activity and although it's not huge dollars, it does indicate that those could be threatened and actually if it is in fact as much as I said, $4 million or something a year, that means that's more than our projected surplus right there. We are in a province where every dollar counts and we live pretty near the edge. I would like to get that, I think it's important for the many companies that are engaged in business there as well as for the province's income, that we remain competitive on that front.
MR. CHRISTIE: So you want that calculation to arrive at the $1.6 million.
MS. WHALEN: Yes, it's not one of our most major. I'd like to talk a bit more, some of the other calculations that were there in terms of revenue generation, and again it relates to that razor thin budget surplus. I applaud the province, if we can have surpluses that's great, but they're very precarious and I think that we recognize that we are not a province with a lot of capacity. On the revenue generation, we're estimating the retail sales going from 1 per cent to 4 per cent and I did ask that question in the lockup about where that came from but I really would like to hear a stronger rationale for why we would think it would be more than three times higher and especially in light of the recent reports on how we have fared in terms
[Page 330]
of our counterparts across the country. Our growth has not been good, so why would we think we're going to do so well in retail sales?
MR. CHRISTIE: Okay, well I guess a couple of things, as we look at the economic outlook and let's deal with the first part of your question, you indicated that our GDP for 2003-04 wasn't as strong as perhaps we had projected it. In reality, in terms of the 1 per cent, in terms of the nominal GDP, we weren't too bad in terms of the other provinces. I guess the other part of that and I'm presuming you've seen the projections on the forecast from the banks and the other people?
MS. WHALEN: Some of them.
MR. CHRISTIE: For example, the private sector consensus on the national outlook for retail sales is 5.1, when you get down to looking at the provincial economic forecast for retail sales, they're looking at 5.8.
MS. WHALEN: For Nova Scotia?
MR. CHRISTIE: Yes, and what we have seen is strong economic performance in terms of personal incomes, in terms of personal spending and that's what they're basing it on. They're basing it on the fact that there is more employment, more personal income and that personal income remains strong and has remained strong on the retail side of it.
As I say, for us, the balance isn't just saying let's go to the TD Bank or the Royal, we have to try to bring that into terms of our own province. I guess it's no surprise that you look out now and you look at some of the dangers of the housing starts going down, some of those other dangers, so we have to temper some of those forecasts with our local reality. Clearly, one of the areas where most all of the economies are strong is in retail sales, not only here but across the country.
MS. WHALEN: It just seems a phenomenal jump in one year. I don't know if it's mirrored in the other provinces in Canada. It just seems very optimistic. Do you tie it into the American economy to some degree? You must be looking at the American economy and how that affects us.
MR. CHRISTIE: One of the reasons that the GDP, the 1 per cent that we were looking at, was down was because the American economy hadn't started as quickly as people had thought it would. But if you look in this last quarter, you start to look at some of the economic statistics coming out of the U.S., they're fairly strong, so obviously, whether it's personal incomes, export sales, those are the things that lead to retail sales to housing starts. The U.S. economy seems to be gathering some speed, so that's the basis that the private sector forecasters are looking for a strong sector.
[Page 331]
They put a caution in there - it depends on the dollar, the U.S. not closing its borders and a variety of other things, but taking those cautions away, they're optimistic in terms of the growth.
MS. WHALEN: I'd like to talk a bit about the debt reduction, or debt servicing plan as well. One thing I'd like to ask you about - this is more for discussion, this is more informal, when I was a councillor with HRM, they were bringing their debt down, they had come down from about $350 million - they've come below $300 million now. They did it without the kind of plan you have - separate funds and waiting to retire plan. What they did was they said that every year we retire debt, we'll only refinance 80 per cent of what we retire. In a few short years, they've begun to make real headway. Would that be a possible solution for what we're looking at here, on a province-wide basis? What it means is you'd have to fund more of the capital works internally through operating.
MR. CHRISTIE: Sure. That's a possibility. What you would have to do is not only fund more of the capital internally, but you would have to eliminate some of those capitals because in reality, the growth in our debt is the combination of borrowing and the net owed after we do the amortization on those. If we were to start to do that, then you would have to cut back on our capital expenditure program. So, HRM obviously had to make a decision not only to change the method, but also to slow down and cut back on some of their capital expenditure programs.
The other issue is, they can expense their debt retirement. Under GAAP principles we are not able to do that. We have a little bit of a wrinkle in there different from them, but philosophically, you could do that provided that you're prepared to eliminate some of those things on the capital expenditure list.
MS. WHALEN: I don't think they eliminated anything. I think they generated more internal revenue and used that annual revenue to offset what they weren't retiring. It sounds a lot more simple than creating several funds and waiting until 2007 and not seeing any benefit for a period of time. The current plan - and I think it has been criticized as being a bit of smoke and mirrors in the sense that you're creating funds and hoping that you'll gather this money over time. The real question is how realistic the current plan is. Maybe we can go to that and have a look at the current plan.
In the Supplementary Detail, I think that's where we see it. Page 11.4. I'm not sure which book I have out - they give you a lot of books for this finance stuff, the whole estimates package, I keep travelling without enough of them with me. That's it - Page 11.4, in the Estimates Book itself.
One of the things I guess I'd like to go into is the renaming of the fund that we had there before. We previously had a Debt Retirement Fund that was shown there before. That's been taken off completely and we've renamed it the debt management fund. I've noted here
[Page 332]
the new Debt Retirement Fund is set up and appears in a different part of the budget so the question is, what is new about the debt reduction plan? Is it not a case of moving one line item from one place to another?
MR. CHRISTIE: I just want to catch up with you.
MS. WHALEN: This is just for clarity.
MR. CHRISTIE: Perhaps, can I refer you to Page 11.1 and refer to the notes on that section. What it suggests is that in terms of the reporting, that was part of what the Auditor General was suggesting is that we do the short-term interest revenue which was formerly netted against the general interest account, is now included in the interest revenue.
"Also, Debt Retirement Fund Earnings, which were formerly included . . . are now included in Sinking Fund Earnings." That was a note working from the agreement between ourselves and the Auditor General. So your question is, did you just move it from one fund to another? The answer is yes, but we did that in compliance with discussions with the Auditor General.
MS. WHALEN: At the suggestion of the Auditor General.
MR. CHRISTIE: What he felt was clarification, yes.
MS. WHALEN: If you're saying it was formerly netted against general interest expenses, then in fact this would be more clear because you'd be showing it separated out, similar to the question that was asked earlier about how things are shown in net and we don't get the substance, the detail.
MR. CHRISTIE: And that's the point that the Auditor General is making, it's not netted out.
MS. WHALEN: Well, I can accept that.
MR. CHRISTIE: You'll have to write us a letter too.
MS. WHALEN: That seems reasonable. As I say, the enormity of the detail makes it important to be able to ask these questions.
Again, to get us to the point where we can actually retire some debt, we're looking at every year having to have greater and greater surpluses. So, I gather you need a surplus big enough to offset the net increase in book value of Tangible Capital Assets by 2007. I heard you mentioning some of this to the previous member who was questioning, but you'll have to get to over $86 million by 2007. Is that right?
[Page 333]
MR. CHRISTIE: I think the figure is $106 million.
MS. WHALEN: And that would be the net amount, that you'd have to have that much in surplus in order to take off what you're amortizing.
MR. CHRISTIE: It's surplus, sold assets, whatever might happen between now and then.
MS. WHALEN: And you'd get the $19 million at that point? I think it's $19 million that you had to put against debt, is that right? I might be wrong. Actually, I think it's in the very back of your Budget Address. I guess my question is, if you could provide for me some way to increase my confidence or the confidence of the House that we can reach those kinds of surpluses. Given the fact that we really live on the edge.
MR. CHRISTIE: I guess there's two things. First, I think we agree, before you start moving towards that, you have to stop the bleeding which is the surpluses in the operating account. So if we agree on that, what this is suggesting is, if you will, goal posts - these are targets to achieve. That's what we laid out as our vision and targets to achieve that.
There is a lot of work, a lot of decisions have to be made to get to that. In the Financial Measures (2004) Bill we've talked about legislating to get some money and we've talked about the issue of extraordinary items will go against that. So, I think in terms of you saying I needed a little more confidence, I think the confidence that you need is this province is growing, this province's economy is growing. You talk about some numbers from 1999 to 2004 for a corporate tax and personal income tax, this province is seeing some increases in that area. To get to that stage is like every homeowner - you have to manage the dollars to get to where you want to be. That's the goal we've laid out for ourselves.
MS. WHALEN: What strikes me particularly is the cost pressures we have in the health area. If we are able to enjoy these increases, we've said essentially $1 billion more in our own source revenue over a five-year period, perhaps even over four years. We've seen a huge increase and given that, that money seems to have been absorbed into the system. We don't seem to be ahead in terms of spending on roads or anything else. We've got a fixed amount we're putting onto that so again, it seems to me that without some other measures to control spending, we won't hit the $106 million.
MR. CHRISTIE: I think you're making the whole debate of the Conference Board of Canada issue in terms of the health care costs and then how they're escalating and the issue surrounding provincial revenues and whether the provinces can afford to have those revenues continue to grow at that rate while health care costs increase. That, of course, is the whole thrust of the Prime Minister and the Premiers sitting down . . .
[Page 334]
[5:00 p.m.]
MS. WHALEN: So, that's your challenge?
MR. CHRISTIE: It's the challenge across this country. There's no question about that.
MS. WHALEN: I think it's good. I think everybody's glad you have a plan. It's just that it's very difficult to see our way clear to getting $106 million in a short period of time, in three years time, essentially, as a surplus.
Speaking of sustainability, I'd mentioned in my reply to the financial measures about the highlights that you gave, the pocket budget, showing right off the bat that the ordinary revenues that we're expecting, the percentage change is up 4.2 per cent, the net program expenses is up 5.4 per cent. There's a differential there and I gather there was last year as well, although I don't have the figure in front of me. It means that there's a spread, that our expenses have risen more than our ordinary revenues we're looking at. So that's not sustainable in the long run.
MR. CHRISTIE: I think that's something that we all understand and we all know. That's why the whole issue of sustainability and health care and changing the need for health care is the topic of all the provinces these days. Across Canada we're all doing it.
Obviously, in Nova Scotia, our population is aging a little more than other provinces. We have to deal with that. There is a whole numbers issue, but your question is, can we sustain those growth and expenditures at the rate that our revenue is growing? No, the answer is no. We need to make changes out in the future. As we make those changes, it's only by those changes that we will be able to achieve the debt reduction plan. We have to work on a number of fronts.
MS. WHALEN: I'm going to switch over to the pension funds just for a few questions if we could. My time is beginning to run down - how much time do I have left?
MR. CHAIRMAN: You have 10 minutes left.
MS. WHALEN: Okay. That probably will just take us through some of this, but on the public sector superannuation, we see a large unfunded liability. The first question would be, could you indicate what the current status is, the funded status of that fund? Or, where I'd find it.
MR. CHRISTIE: The unfunded liability is around 86 per cent. It's $110 million improved over last year.
[Page 335]
MS. WHALEN: Improved?
MR. CHRISTIE: Yes.
MS. WHALEN: Over last year. Can you give me the figures for the Teachers' Pension Fund?
MR. CHRISTIE: Its funded level is 82 per cent and it's a little over $100 million improvement since last year.
MS. WHALEN: What was the basis for the improvement? What do you think led to that?
MR. CHRISTIE: Returns for the year for both funds were approximately 14.5 per cent.
MS. WHALEN: So it was good investments this time?
MR. CHRISTIE: A good mix of investments.
MS. WHALEN: Nice to hear. On the Teachers' Pension Fund, I understand we're now going to pass some of those costs back to the municipalities through the mandatory contribution they have to make? Is that something that was in any way engineered through the Department of Finance or is it entirely a Department of Education question?
MR. CHRISTIE: No, that's Department of Education.
MS. WHALEN: Okay, I'll save that for them. My understanding was that just a few years ago, four years actually, the superannuation plan was over 100 per cent funded? So we've actually lost ground in that if we're now at 86 per cent, so I wonder if you could explain to me exactly what made the difference there - why we've lost ground?
MR. CHRISTIE: We indicated earlier the markets were good this year, but in 2001-02, they weren't. That saw some reduction in the funds.
MS. WHALEN: Is it possible for us to get any detail on what investments we held and how they performed? Is it possible to have that tabled?
MR. CHRISTIE: You're looking for the portfolio holdings of those funds?
MS. WHALEN: Yes. Are they public information?
[Page 336]
MR. CHRISTIE: What I'm told they would be happy to do is take out the top 20 or 25 fund performers and provide you with a list of those. They don't track them all the time, it's not something that's tracked every week and so on, but if the top 25 and their performance over a while would be helpful, I'm certainly prepared to provide those for you.
MS. WHALEN: I am curious if we were at a point where we were 100 per cent funded why we didn't switch the investments to things that were less volatile at that point.
MR. CHRISTIE: Well, I think most funds across Canada are asking themselves the same thing. Hindsight is a great thing and the committee that manages the funds looked at the opportunities and made those certain decisions. They're not in the market all the time, it's like the RRSP people tell you, you're there for the long haul not just to make changes in the short term.
MS. WHALEN: I was looking at, I don't know where we got it exactly, but March 31, 2003, the pension financial statements show that the fund lost $300 million perhaps in that year alone. Does that ring a bell? Anyway, I said what was shown was losses in Canadian, U.S. and foreign equities, but there was a gain on the fixed income that year. The question really is, why were we in the higher risk equities when we were doing all right on the fixed equity at that time? That would be 2002-03, you mentioned 2001-02, I think, was the bad year.
MR. CHRISTIE: There were some actuarial adjustments that you'd be looking at, but in terms of the mix, there were some losses in there - it was the coupon issues, our marketing coupons and so on. But, they were at about 35 per cent fixed and the equities were about 60 per cent. So at that point in time, there was still some suffering in the equity side of things.
MS. WHALEN: Can you just tell me briefly about the committee that makes these decisions, how it's managed? I understand there's an investment committee - I think that might almost take my time.
MR. CHRISTIE: Yes, the committee's made up of two people who are appointed by the Department of Finance, two from NSGEU and two by the Teachers' Union. They're charged with overseeing the funds and giving overall direction to their investment policies.
MS. WHALEN: The two people you appoint, I assume, are Finance officials? Is that right?
MR. CHRISTIE: The deputy is a standing member, but there are two outside members who are appointed by the Department of Finance, yes.
MS. WHALEN: Do you have staff that advise the committee then?
[Page 337]
MR. CHRISTIE: Absolutely, yes.
MS. WHALEN: Okay, that makes me feel better. You're not on the committee itself. It's just that those are tremendously important decisions and we can see the impact of them. I'm not saying the majority of the world didn't get caught in the downfall in the market, but it's a very dangerous thing when we see that happen.
MR. CHRISTIE: The other side of that is that I think you would agree that people whose funds they are from the NSGEU and the Teachers' Union should be involved in that too. So they have a sense of where that's going.
MS. WHALEN: On the spending side, we've got a flat line there for the number of years of $250 million for capital spending, for capital assets. In terms of the amount you borrow and what you spend on capital assets, I'd like to know if that's been balanced over the last few years and if it is entirely balanced this year? Is borrowing entirely for capital assets, that's really the question.
MR. CHRISTIE: Let's be clear here. The province borrows to retire debt, so obviously our bonds and our other funds are turning over so at specific periods of time, debentures or issues mature and we reborrow for that. I believe your question was, did you only borrow for Tangible Capital Assets. We borrow for the Municipal Finance Corporation. We borrow for other municipalities. If you look at Page 113, you will see there's the Fisheries Development Fund, the Industrial Development Fund, the Farm Loan Board, and a number of other things that the province borrows for. There are other issues surrounding that so I don't want to suggest to you that we only borrow for the Tangible Capital Assets because there are those other issues, too.
MS. WHALEN: I was actually looking for the figure for 2002-03 to see how much we borrowed and how much we spent on capital assets. Could we get just those two figures? That would give me a good sense.
MR. CHRISTIE: For 2002-03?
MS. WHALEN: Well, that's our final year.
MR. CHRISTIE: Okay, you're looking for the net between Tangible Capital Assets and depreciation or just the figure that was borrowed for tangible assets?
MS. WHALEN: I was just looking for how much we borrowed for capital assets and how much we spent on capital assets to see if they're balanced.
MR. CHRISTIE: I'm looking at Page B44 in the Budget Address and the figure for 2002-03, the actual, was $109.4 million which was the borrowing for capital assets.
[Page 338]
MS. WHALEN: And the spending would have been $250 million?
MR. CHRISTIE: Yes.
MS. WHALEN: So does the difference come from self-generated monies?
MR. CHRISTIE: It comes from amortization.
MS. WHALEN: Okay, because you're doing it that way, all right.
MR. CHRISTIE: Once again, that's a net increase in the fund.
MS. WHALEN: I think I have a little bit of time so maybe I will touch on amortization if we could. I'm interested to know the rationale for the change last year at year end when retroactively we changed the amortization schedule for certain assets and classes of assets and rates and so on. Why was that decided to be done? What was the rationale? Why change them?
MR. CHRISTIE: The process started some time before the end of the year, the process of the committee that the controller is working on, started doing a review of that some years before. As they started to bring those to a conclusion, obviously, the next part of the process was to review it with the Auditor General. The process, had we made the decision on September 30th, January 9th, or March 20th, or March 9th, the process still would have been the same because once the decision was taken, it was going to apply to the year in which the decision was made and the decision had been ongoing. The committee recommendations were late Summer. Then the Auditor General was checking it and it arrived at a conclusion in the early part of this year, but that date that had been arrived at, had it been four months earlier, it still would have had the same impact.
MS. WHALEN: That answers the question about the timing, but what about the rationale for doing it. Why was it necessary to change, for example, the estimate that your roads would last longer and we could amortize them over a longer period of time? What would change that? I mean a road is a road.
MR. CHRISTIE: Well, that sort of flows away from the fact that Nova Scotia, being one of the first provinces to have the TCA and the policy, obviously, as you introduced that back some years ago, it allowed you to get a little better experience in terms of roads and all of the depreciations. So the decision for that, the rationale, was flowing from the results that you were getting from what was actually on the ground in terms of having set the policy a few years ago and now you're looking at the useful life and, indeed, the whole process of the operation was to bring those two closer together.
[Page 339]
MS. WHALEN: I saw a list somewhere, I don't have it here with me, but the computer one was brought down because computers become outdated quicker and I appreciated that they weren't all in the government's favour in this case, but some of them seemed to be very self-serving in terms of, particularly hard assets, like roads. To suddenly say they're lasting longer and we don't need to advance them because the fact is that if you keep them on a tighter timeline in terms of amortizing them, that takes money off your debt as well, the longer period that you've left it on and you're amortizing less each year, you're just extending the debt on those items.
MR. CHAIRMAN: The time is up for the Liberal caucus, if you would like to respond to that.
[5:15 p.m.]
MR. CHRISTIE: I will say the answer to that is, yes, it does, but also the fact is that you're dealing with, for example, take ferries, and if you said ferries are 15 years and you're getting 20 years out of them, you're matching that to the time that you're going to have to spend on those ferries. So you're looking to find the match of the useful life and that's the challenge that the controller's office and the committee has and that's what they came up with effectively last summer. Obviously, they then worked its way through the Auditor General because their impacts are both in back years and the back year we were in and it's in the years going forward. So the Auditor General has to play a large part in it.
MR. CHAIRMAN: We can come back. Would you care for a five-minute break just for a stretch for your staff.
MR. CHRISTIE: Yes, fine.
MR. CHAIRMAN: Let's take a five-minute break, but no more than five minutes.
[5:16 p.m. The committee recessed.]
[5:24 p.m. The committee reconvened.]
MR. CHAIRMAN: I call the committee back to order, please. Does the government caucus have any questions? We will move to the Official Opposition, the NDP, and your time starts at 5:20 p.m.
The honourable member for Halifax Fairview.
MR. GRAHAM STEELE: Your watch and my watch must be very different, Mr. Chairman.
[Page 340]
MR. CHAIRMAN: What time do you have? I have 5:22 p.m. actually to be very exact.
MR. STEELE: My watch and the minister's watch are the same. It seems to be yours, okay, I think you're out of step.
MR. CHAIRMAN: Okay, 5:24 p.m., I was going to give you an extra four minutes.
MR. STEELE: The reason that it particularly matters is, as I mentioned before, I'm going to give at least half an hour of the time to my colleague, the member for Dartmouth North, who has some questions on the gaming side of your responsibilities, Mr. Minister. I want to pick up where I left off on this matter of equalization and before I leave it I just want to make sure that I understand your position, Mr. Minister, and the department's position on the unexpected shock which the federal government denies.
If I'm understanding you correctly, it's your position that the drop in equalization last year came as a shock because the government used different numbers and did not give adequate notice to the province about the change in numbers and the financial consequences. There was no change in the formula so in that respect the federal minister is right, that everybody has known all along what the formula was, but what changed was the numerical basis on which the equalization line item was calculated and that fair notice wasn't given of that change or its implications. Is that a fair summary, or have I missed the point entirely?
MR. CHRISTIE: No, that's a fair summary. As I've indicated, the three-mile goalposts, if you will, in the process were in February they said don't use our numbers. We then relied on getting numbers from the federal government. The federal government changed its forecast and issued the new numbers on September 25th. We then knew what the impact of the numbers were and the other piece of information I will say to you is that the federal government Web site will show that their first forecast was $10.8 million and it dropped to $8.6 million after they revised their numbers based on the census and so on.
MR. STEELE: So would it also be fair to say that when the federal minister blows into town and says you've only got yourself to blame, in speaking to the government, that he's being a bit disingenuous because he's focusing on the formula which didn't change and not the underlying numbers which did change? Is that fair?
MR. CHRISTIE: I think disingenuous is a very kind word. I think he's missing the point twice. First is the numbers, the second is the fact that we were there to change the equalization agreement with them. I was there since I've been appointed Finance Minister in October and then officials were there again in February. The object of the exercise was to try to get what the federal government has described as a working revised equalization agreement with the provinces. At the end of the day they decided not to do anything that the provinces suggested, be it 10 province standard revenue smoothing, they decided to do nothing.
[Page 341]
Not only that, when they brought the bill in, they brought the bill in saying those two provinces, be it Quebec and Manitoba, that will benefit from the number change, they weren't going to pay those out until a couple of years. In other words, they were going to stagger it. So to say the federal government let the provinces down is just describing it very, very mildly.
MR. STEELE: Thank you for clarifying that for me. I would like to move back then to where I was. What I was doing was going down the list of departmental priorities on the business plan and I had stopped at the eighth one which had to do with federal-provincial negotiations. I now want to move down to the second bullet under Central Agency Services and this involves something you referred to, Mr. Minister, in your opening remarks, namely the Nova Scotia community accounts for which there is a new allocation in this year's budget. I have to admit that it's not something I had heard of before I read the business plan. I wonder if you could describe briefly for the committee what it is and how we're all going to benefit from this new initiative?
MR. CHRISTIE: Let me just clarify one thing, you said new expenditures. Those have been shifts within departments and so it's people moving from one group to another.
MR. STEELE: Okay, I think I'm right in saying that this is the first time there has been a stand-alone allocation for community accounts?
MR. CHRISTIE: That is correct.
MR. STEELE: But you're saying it's not a new project?
MR. CHRISTIE: It's a new project, but I was just trying to clarify the fact that there is not a lot of additional resources going to it. What the Nova Scotia community accounts is, it's the statistical infrastructure system to provide a single point access to a comprehensive social economic data source. What we believe it will do is integrate broad-based statistical information with other available data from a variety of different departments and that will allow for evidence-based support for sustainable socio-economic development and primary health care renewal. So the goal and objective is to maximize data sharing opportunities with Nova Scotians and with departments and make it easy access.
MR. STEELE: Because when it says in the business plan that this will support evidence-based decision making and program planning, the implication for me is that we've been making these decisions before based on things other than evidence. Is that the case that it has been based, and I think in your opening remarks you said based on intuition, was one word you used?
MR. CHRISTIE: The other part of this is that different departments have been doing different information solving and different information calculating. This will enhance it by bringing information together from different departments. So, for example, if you were
[Page 342]
looking at the number of situations in Natural Resources, this will bring other information together, but the greatest advantage is having the single source information collection and allow a lot of information to be gathered that perhaps wasn't gathered before. So it's not a question of everything was done on intuition before. This is clearly an attempt to improve it, to put it in a single home, if you will, and to provide more and better.
[5:30 p.m.]
MR. STEELE: Let me move on to the next priority which has to do with value for money assessments. I think a common misconception that people have in the Legislature and elsewhere is that the Auditor General frequently does value for money assessments, which he doesn't. He does a different kind of audit and a value for money assessment is a very different kind of beast which is actually not done very often by his office because, you know, something can be entirely compliant with financial rules and regulations and still be terrible value for money. I guess my main question is, given that the Department of Finance wants to enhance the ability to plan and monitor value for money assessments, will value for money assessments being conducted internally be available to the public?
MR. CHRISTIE: I don't think that's something, I guess, obviously, an internal audit will continue to do some value for money assessments and so on. Were you thinking specifically of outside firms of information available or within government?
MR. STEELE: Well, heck, I'm thinking specifically of Opposition members, journalists and other interested members of the public. I mean when these value for money assessments are done, and they're very, very important in helping us know whether we're getting good government, will there be any way for the public to find out that these reports have been done and what they say?
MR. CHRISTIE: I'm just checking here, but those value for money audits, as they're different organizations or different areas, some of those would certainly be available. As you start getting into these other units and other things, they perhaps, under the terms of an agreement would not, but in terms of engagement, but I think, broadly based, a lot of the ones within departments and so on would be available to people.
MR. STEELE: I guess what I'm getting at is, do you think we might reach the stage in this fiscal year or in the future where the Opposition or journalists, or other interested members of the public, don't actually have to ferret the stuff out and sort of find out by accident that these assessments have been done and then apply under FOI for them and then fight the government to get them? Do you think we might get to a stage where they might be made available as a matter of course, as a matter of routine?
[Page 343]
MR. CHRISTIE: I think I'll ask my deputy to look at that in terms of the TPW policies and other things, but if you go back to some of the ones that were done with the health boards, the health boards were given those value for money audits. Now, if they choose to keep them confidential, that's something that they do. However, I think your broad-based question is, are there opportunities of looking at changing some of the way the reports flow out and, as I say, I'll ask the deputy to look at those areas to see if there are areas that we can do that.
MR. STEELE: Thank you, Mr. Minister. I would like to move on now to Page 11 of the business plan or at least Page 11 of the version that I have and this is a strictly factual question. This has to do with the net debt service costs expressed as a percentage of net debt outstanding and the figures given are for 2002-03, 7.2 per cent, and 2001-02, 8.1 per cent. Well, the natural question is, bearing in mind that the books aren't closed in 2004, what's the corresponding percentage for 2003-04 and what if the budget figures come out to be reality, what would be the projected percentage for 2004-05? If you don't have that handy, maybe I'll just ask your staff to calculate that.
MR. CHRISTIE: We'll put that on the list to get for you.
MR. STEELE: That should be just a straight mathematical calculation. The only reason I didn't do it myself is because I wanted to make sure it came from your department so that all four of the years were directly comparable to each other and I didn't make any errors in what was included or not included.
On Page 12 of the business plan under the heading of Positive Climate for Investment and Economic Growth, going over to the strategic actions item, it says "continue", I note that word, continue to participate in consumption tax discussions with other jurisdictions, which implies to me that there are consumption tax discussions ongoing. What is the nature of the discussions that are ongoing that are going to be continued by the department this year?
MR. CHRISTIE: I think what that refers to is the ongoing committee discussions that officials have between the federal government and the Atlantic Provinces, looking at the issue of the HST and those discussions. They have held some discussions this year and they've held them before. This envisages continuing to do that and to see essentially, one of the stances of some of the other provinces and other provinces can suggest that they want our support to do this or do that and various other things. So that provides the vehicle and the forum to do it.
MR. STEELE: What kind of things are under discussion?
MR. CHRISTIE: Essentially they've been talking, the biggest issue on there is the revenue allocation formula. You know the federal government and the formula that is with the provinces in that allocation formula. That's the item that's being most discussed recently.
[Page 344]
MR. STEELE: What else?
MR. CHRISTIE: The other issue they've talked about is the flexibility on the rate and indeed some of the things that are involved in the rate. So the allocation formula, the flexibility on the rate, have been the items that have been talked about most in the last period of time.
MR. STEELE: What does that mean, Mr. Minister, flexibility on the rate?
MR. CHRISTIE: Well, that means putting the rate down or putting the rate up, or changing the rate on certain things.
MR. STEELE: On certain things or overall?
MR. CHRISTIE: Well, the discussion they've been having is overall mostly at this point in time.
MR. STEELE: And is that something that Nova Scotia is supporting or opposing or is neutral on?
MR. CHRISTIE: Well, I think, as I started to look through them and as we were talking about the flexibility of the rate, a lot of the discussions have been through the governance process - can two or three of the provinces do it or do they need to have unanimity to move on it? So that has been the area that they've been focusing on the most and, as I indicated, the whole revenue sharing agreement is the other part of this.
MR. STEELE: I don't mean to, I think you're being, how shall I put this, you say that the questions are about whether two or three provinces can do "it" or whether "it" requires unanimity to do it. What is "it"?
MR. CHRISTIE: It is the rate; setting the rate.
MR. STEELE: Okay, so there are discussions ongoing now about lowering the 15 per cent HST?
MR. CHRISTIE: There have been discussions ongoing about that rate and how it applies to a variety of goods and services, and what that rate is and, indeed, the flow-out of that is the allocation formula.
MR. STEELE: Is there discussion right now about either excluding HST on items that are currently taxed or adding items that are not currently taxed? Is that part of the discussion?
[Page 345]
MR. CHRISTIE: At this point in time the discussion seems to be more on process and I suspect as we look at the other provinces and how they view their fiscal outlook, I suspect their outlook on looking at rate changes and various things, the will isn't very strong at this point in time.
MR. STEELE: Does Nova Scotia have a wish list of things on which it wishes to change the tax base, either adding things that are not currently taxed or subtracting things that are?
MR. CHRISTIE: No, at this point in time, I think in terms of the process and looking at the formula, we're basically focused on the process. At this point, Nova Scotia doesn't have a list to send to other provinces to say we would like this moved here and this moved here and this - no.
MR. STEELE: So, when we go to these consumption tax discussions, which are already underway and will continue this year, tell me the top three things that Nova Scotia is trying to achieve.
MR. CHRISTIE: Right at this point in time, Nova Scotia is attempting to look at the sharing agreement and the process in which a decision can be made. Our priorities are to get those things cleared away. Once those are cleared away, then other issues can come before it and be resumed.
MR. STEELE: Let me move on now to something different. I would like to now start going through the Estimates Book itself. The Department of Finance is in the fortunate position of having an increase in its overall budget this year, which is quite substantial, certainly compared to other departments, although, of course, it's a relatively small department and the increase is really, to put it in broad terms, basically going from $13 million to $14 million. That's like a 7 per cent or 8 per cent increase.
You said in your opening remarks, Mr. Minister, that most of the increase was due to a change in Tangible Capital Assets, but I look at the Estimates Book and I have trouble seeing that. What I see or what I appear to be seeing is that most of the change is happening in the controller's office. Am I mistaken about that? Let's look, for example, at Page 10.3 and/or Page 10.6. Let's look at Page 10.6. Do you have that, Mr. Minister?
MR. CHRISTIE: Yes.
MR. STEELE: Where the budget, going from estimate to estimate, is up $1.4 million in the controller's office, and, going up, forecast to estimate, is up pretty much exactly $1 million. Is it not the case that that's where most of your department's increase is, and it's not in Tangible Capital Assets, it's actually in the controller's office?
[Page 346]
MR. CHRISTIE: Yes, you are correct. I'm just looking for the number. A part of the operating costs are due to increase in amortization of $850,000, which is partly recovered through investment audit fees and recoveries from the water system. That's where the increase in amortization is housed, in the controller's office.
MR. STEELE: When I look on Page 10.6 and I see the item, Less: Chargeable to Tangible Capital Assets, there's not a huge difference, certainly not $1 million worth of difference between one year and the next.
MR. CHRISTIE: I'm just clarifying - the $850,000 has to do with the amortization. The other figures you're talking about are the chargeable, Tangible Capital Assets and has to do with the e-Merge program that we have running, which was being charged out to other departments, and those are included in those estimates also.
MR. STEELE: Looking strictly at Page 10.6, is the controller getting an extra $1 million in his budget or is he not?
MR. CHRISTIE: The controller's budget is moving up from $7.4 million forecast estimate to $9.1 million, so, yes, that is increasing.
MR. STEELE: And what is the controller going to be doing with all that extra money?
MR. CHRISTIE: One part of it, $850,000, will be for amortization; salaries, $505,000, due to transfers of positions to the capital markets; and there's $573,000, which is recovery of salaries chargeable to school boards and three newly-created computer service officers.
MR. STEELE: If a member of the public says to you, Mr. Minister, in tight times why should your department get a 7 per cent or 8 per cent increase, what would your answer be?
MR. CHRISTIE: What I would say to them is that we're doing two things. First, we're absorbing amortization, plus we're also strengthening the internal audit side of things to allow us to better carry out our mission of the Department of Finance, doing the internal audits.
MR. STEELE: Let me ask you to turn to Page 11.2. One of the things about the Department of Finance and the fact that it handles such large amounts of money and such large flows of money is that there are changes in line items here which dwarf departmental spending, positive or negative, and one of the items that's changing a significant degree this year is foreign exchange, which is the last line item on Page 11.2. Going from an estimate of $46.2 million to an estimate of $13.9 million or $14 million, if you want to round it up, large swings in the allocation for foreign exchange. I wonder if you could explain, as briefly as you
[Page 347]
can, to the committee, Mr. Minister, what are the forces at work here that are resulting in such a large change, year over year, in that particular line item?
MR. CHRISTIE: The explanation is in the interest on the Canadian dollar and on the first instance in 2003-04 it was at 140 and this year it's 131, the forecast, and that's what you're seeing as the significance of that impact.
MR. STEELE: Even though foreign exchange cost us last year or is forecast to cost us $41 million, you're confident that this year an estimate of $14 million is reasonable in the circumstances?
MR. CHRISTIE: Obviously the department is doing hedging to do that, but the interest rates that we have projected, along with the interest rates that the bond-rating agencies and the banks have projected, are consistent with that forecast.
MR. STEELE: Mr. Minister, I want to turn now to - I only have a few minutes left before I turn the time over to my colleague here - the medical expense tax credit. Earlier today - it's almost unbelievable, it was several hours ago now - I provided you and your staff with a document written by a Mr. Charles W. Sampson of Sydney Forks, Nova Scotia, raising an issue that Mr. Sampson has raised with me before. I don't know if he's raised it with your department before. Let me try to summarize for the record what Mr. Sampson's difficulty is, as I understand it, because the threshold is a flat percentage, it has the effect of unfairly penalizing people at the lower end of the income scale, and giving a corresponding benefit to people at the upper end of the scale.
So, my first question for you, Mr. Minister, is if you or your staff have had an opportunity to review Mr. Sampson's document, which is slightly longer than two pages, is it your view that Mr. Sampson's analysis of the financial effect of the benefit as it currently stands is correct, or is it incorrect and in what way is it incorrect?
MR. CHRISTIE: I'm advised that it is being reviewed, and as to correctness or incorrectness of it, they're not able to comment on it until they finish the review.
MR. STEELE: Let me just make sure that I'm clear on that, it's not the credit that's being reviewed, it's Mr. Sampson's analysis that's being reviewed.
MR. CHRISTIE: Yes, that's correct.
MR. STEELE: In that case, I think I best not take any more time talking about this today. It's something I would like to pursue with your staff at the appropriate time. Could you tell me who would be the most appropriate person for me to deal with on this?
MR. CHRISTIE: The best person would be Mr. Henneberry.
[Page 348]
MR. STEELE: Who I met before and I look forward to working with on this one. On that note, Mr. Minister, I would like to turn over my time to the member for Dartmouth North.
MR. CHAIRMAN: The honourable member for Dartmouth North.
MR. JERRY PYE: Mr. Chairman, I want to thank my colleague, the member for Halifax Fairview, for giving me the opportunity to pose some questions to you today. As my colleague had indicated, many of these questions will centre around the Gaming Corporation, as it relates to the Department of Finance. We all know that there's a huge chunk of revenue generated for the government through the process of gambling and that revenue ha consistently been coming forward, although if I turn to Page 83 of the Nova Scotia budget for the fiscal year 2004-05, I will see that the net income from the gambling in Nova Scotia is actually declining and I have some concern about that.
My first question is - a half hour goes relatively fast so I want to ask some questions as quickly as I possibly can, so if I go off on a tangent here or off in a different direction from time to time, you will note that it is all reflective within the Gaming Corporation's purview.
Lottery revenues, as we know, when I look at that page, has declined significantly. If we look at the estimates for 2004-05, and we look at the estimates of 2003-04 - but let's go to the actual because that's more reflective, I think - it shows a decline of almost $3 million in revenue that has come through the gate of gambling. I'm wondering where that lottery revenue comes from? Does it come from lottery tickets and what portion, and what portion of the revenue comes from VLTs? What portion comes from the two Nova Scotia- owned casinos? What portion comes from the bingos? I think that covers the entire gambling in the province.
MR. CHRISTIE: Does the honourable member have the business plan for the corporation? If you have the business plan, on Page 144 of the business plan, it has all that data there, so rather than reciting it . . .
MR. PYE: I do apologize. That's right. Okay, so all that data is there. Having said that, with respect to the decline in revenue, Mr. Minister, what is the reason for the decline in revenue? Have you we saturated the market with respect to revenues coming from gambling?
MR. CHRISTIE: Well, I think as the Gaming Corporation will say to us, and they've said on a number of occasions, they believe a lot of their products are maturing and that a number of the VLTs, a number of the lottery tickets have been around for a while, they're not getting new products and so they are maturing and indeed they'll point to the fact that there are other opportunities for people to gamble. That's the primary reason they've been pointing to some of the reductions that they're seeing.
[Page 349]
MR. PYE: Can you tell me what the other opportunities would be for people to gamble? Could you just give me some?
MR. CHRISTIE: I'm particularly thinking of other opportunities like the casinos for example, the casinos there, if you look at for example, ticket lotteries and you can see on the ticket lotteries that their revenues are going down. There's others such as the casino and some of those other situations that people can get involved in.
MR. PYE: The bingo lotteries are going down as well and I want to apologize for not having the business section of the statements before me. Most recently you made an announcement with respect to a cut of the receipts for the vendors, for VLTs particularly, from 25 per cent down to 20 per cent. I'm wondering if you have done any analysis with respect to what effect that might have on business? How much revenue is going to come in as a result of that reduction to the vendors? If, in fact, the $400,000 you are looking at with respect to capturing that revenue and those vendors who earn $400,000, is that gross, or is it net money that's coming from those vendors with respect to that?
MR. CHRISTIE: Let's deal with it in two structures. The $400,000 is a net after prizes. After pay-outs and prizes then it's the $400,000. So that establishes the floor level. Why was that $400,000 level chosen? You'll recall back some years ago, the Act was defined that it was going to be up to $400,000, with 25 per cent and then after $400,000 was 20 per cent. The change was on only those numbers that were over the $400,000. As you know, it didn't affect the non-profits such as the Legions and the variety of other places in there too. How much did it generate? It generated about $1.6 million. The other part of your question was, what do you believe the impact will be? Our expectation is it will be relatively minimal.
MR. PYE: You agree there will be an impact on the private sector. If that's $1.6 million pulled out of the private sector that may have very well been money for employment. It may have been money for upgrading establishments and so on to attract more business and so on. Have you had a response back from the business community with respect to those revenue extractions?
MR. CHRISTIE: I'm advised that the Gaming Corporation has not. I have a gentlemen from the lounge and beverage, his name is escapes me, called to meet sometime this week, but I haven't met with them as yet, but he did call me and I did indicate I would meet with him.
MR. PYE: That's to discuss the effects that this revenue will have on his business?
MR. CHRISTIE: He said he had two topics, this is one, the other he didn't indicate to me.
[Page 350]
MR. PYE: The $1.6 million is expected revenue that obviously came after the budget. It didn't come by way of a ministerial statement. It didn't come by way of additional revenues in the budget. It didn't come from an Act of government. It actually was something that came after the budget had been delivered. Was the $1.6 million considered a thought when you were crafting the budget as an addition to the revenue coming into operate government?
MR. CHRISTIE: As we talked to the Gaming Corporation, in terms of their forecast for the year, that was built into their business plan. That was built into their projection, so the number that you saw on the budget that we introduced anticipated that change.
MR. PYE: The $1.6 million that comes to the Gaming Corporation, how much of that will actually go to the provincial government?
MR. CHRISTIE: Well, essentially all of it will because after their expenses are covered, this is the $1.6 million on top of their revenues, their expenses are covered in terms of the other part of their budget, so that will be a fairly direct flow to the provincial government.
MR. PYE: So now that remains within the Gaming Corporation itself to administer and the $1.6 million comes directly to the provincial government?
MR. CHRISTIE: Yes. As you'll see from their estimates, and you indicated in your earlier remarks, the number of monies coming through to the provincial government have been going down over the last period of time, because as we talked about some of the years where revenues were softening for them, but the $169 million that is forecast to come to the provincial government this year, would include the $1.6 million, yes.
MR. PYE: Some people might say, why should I defend someone who makes $400,000 and they're having a reduction of 25 per cent, but I think it's important to myself as an MLA, to make sure that all people in the province are treated fairly and that when government creates an action, that the action is seen to be fair and that it's an action that, in fact, the community sees as being fair, particularly if it affects businesses or operation, it ought to be seen as fair. The $1.6 million that comes in, it's going directly to the government. Has the government decided how it's going to spend that $1.6 million, rather than just simply put it into the revenue bucket, and put it out as general revenues or have you actually designed where those dollars are going to be spent?
MR. CHRISTIE: I think if I wasn't clear the first time, what I've tried to indicate is the $1.6 million is part of the $169 million that the Gaming Corporation will be giving to the government. Once the $169 million is in our budget and where we would spend the money is in our budget, so if I suggested that there's another $1.6 million coming from somewhere else, I shouldn't have because the money is included in that coming from the Gaming Corporation, which is all included in our budget.
[Page 351]
[6:00 p.m.]
MR. PYE: So I take it the $169 million already has the $1.6 million in it, obviously that's what you're telling me. Yet, we didn't know or hear anything about it as legislators until I posed the question to you asking if there was an increase. Yet, I don't believe the business community had known prior to the budget going out that they were expected to get 5 per cent reduction in the revenues they were taking.
MR. CHRISTIE: Under the retail agreement we're required to give the retailers two months' notice and since we were targeting July 1st, we sent the letters out to retailers the latter part of April - the 22nd or the 23rd - so that they would have the full two months' notice. We did do that. All of the 100 retailers that are affected would know of the change that we're making. We complied with the terms of the contract of giving them the two months' notice.
MR. PYE: Yes, but I still maintain, although you're giving them the two months' notice under the retail agreement, this money, as you had said, has already been allocated in the budget and was expected to come, yet they had not known. Is that fair?
MR. CHRISTIE: That's fair. Yes. They knew within two months. We had set the budget and it was the change to the Gaming Corporation's business plan and as part of that business plan, said they were going to give them the two months' notice. But, clearly, that calculation and those changes were envisaged in the $169 million that the budget indicated we would get from the Gaming Corporation.
MR. PYE: So, actually, there would have been an additional decline. Actually there would have been a $1.6 million decline had you not budgeted for that additional money.
MR. CHRISTIE: That's a possibility. There were other opportunities to look at, but had nothing else changed, then that's correct.
MR. PYE: That would have been a significant drop, not only of $3 million, but almost $5 million drop in revenue from gambling - all phases of gambling in the province.
MR. CHRISTIE: Yes, the money transferred from the Gaming Corporation, that would have been, yes.
MR. PYE: My next question is something that I should know, but I'm going to ask it just to be brushed up on. There's still a moratorium, I believe, in effect on the number of VLTs in the province. If there is a moratorium, are all the VLTs to reach the maximum of the moratorium - are they in use or in operation in facilities now?
MR. CHRISTIE: Yes.
[Page 352]
MR. PYE: There is still the moratorium as well?
MR. CHRISTIE: We'll clarify that now. There have been some changes on the Membertou Reserve so the moratorium of the 3,234 has been adhered to, yes, that's correct. I don't want you to misunderstand and say I heard that there were some of the First Nations that changed, but those are under the First Nations agreement. In terms of our units that we control, the 3,200, there has been no change in that.
MR. PYE: Having said that and you said there were some changes with respect to VLTs on reserves. Now, are you telling me that there's additional VLTs now on the reserves in Nova Scotia?
MR. CHRISTIE: Yes.
MR. PYE: How many?
MR. CHRISTIE: The new band agreements authorize an additional 80, I'm advised.
MR. PYE: Eighty, that's on all reserves throughout the province?
MR. CHRISTIE: Ten of the 13 reserves, yes.
MR. PYE: Okay. Mr. Minister, there has been a request by a government backbencher to study the impact that gambling has on the lives of Nova Scotians, to study a way the government can wean itself from the revenues of gambling. I do know that the honourable member was quite concerned and heard from his constituents much the same as I hear from mine and probably the same that you hear from yours. Can I ask you where that study is, because it would be your government and your Cabinet that would author the study - can you tell me?
MR. CHRISTIE: I guess we can report slow progress on that. The Gaming Corporation, you will know has done two things and they've had pilot projects on some responsible gaming initiatives around various areas of the province. The introduction of some of the new feature machines, but I think more importantly, over the next number of months, the Gaming Corporation will be having public discussion on a number of those areas which will tie in to the initiatives that you mentioned the MLA had raised with us.
MR. PYE: But that doesn't tell me that you're going to commission a study. That says that you're going to look at certain aspects of gaming, but it doesn't tell me that you're going to commission a study. My question is, are you going to commission a study?
[Page 353]
MR. CHRISTIE: We're looking at a couple of areas. In terms of the actual study, the chances as you move in that direction you will look at a study of the impacts and how those are doing. There's the other areas that need to be discussed and I know you will have heard discussions from the Lottery Corporation in terms of Internet gambling and there's a number of issues. There's a variety of issues that the Gaming Corporation believes have to come to public debate. So it's not only a question of studying, it's a question of direction and new types of initiatives too. We view it as more expansive than just a study on problem gambling.
MR. PYE: Yes, that's the appropriate term to use - more expansive. You'll be going into a wide range of it rather than looking at the narrow aspects of the effects of gambling in the Province of Nova Scotia. You're looking at the overall picture.
MR. CHRISTIE: No, I think the overall picture has got two facets to it. I think the Gaming Corporation takes that part of their mandate is to promote responsible gambling very seriously. When they're talking about having public debate, there are two parts to their mandate and one part of their mandate is to look at gambling and licensing gambling in the province. The other part of it is to look at methods and opportunities for responsible gambling. I believe debate will centre around those two initiatives, not just one.
MR. PYE: Would you also consider looking at the effects that gambling has on the ability of charitable organizations to fundraise in the province?
MR. CHRISTIE: Absolutely. I think you're thinking in terms of bingos and various other ones.
MR. PYE: Absolutely.
MR. CHRISTIE: It's not surprising to you to know that in P.E.I. they want to have VLTs at race tracks because I don't know if you consider a race track as a charitable organization, but in some instances they see that as an option. That's the whole myriad of issues around new products and new direction that I was referring to.
MR. PYE: In my opinion - it's just my opinion, not the Party's or anyone else - that would be rather stretching it to think that race tracks are charitable organizations. First, I don't know where the revenue goes, if it goes anywhere other than the upkeep and the management of that particular interest.
The money that's coming from the Gaming Corporation now will not be going directly to the Department of Health, it'll be going to a new body called Health Promotions, I believe. I don't know, I can stand to be corrected and I'm just wondering how much money is going to be directed to the Ministry of Health Promotion with respect to education, responsible gambling and for addiction treatment?
[Page 354]
MR. CHRISTIE: Okay. The $1 million is to the Office of Health Promotion, $850,000 to the Nova Scotia Gambling Foundation and $1.3 million to the Nova Scotia Gaming Corporation in their initiative on responsible gambling.
MR. PYE: What was the one for addiction treatment again, $1.8 million, did you say?
MR. CHRISTIE: It was $1 million to the Office of Health Promotion.
MR. PYE: And that's for addiction treatment?
MR. CHRISTIE: Yes.
MR. PYE: Are you telling me that just $1 million is going there? I thought there was approximately 1 per cent of the total revenue that was supposed to be set aside for addiction treatment?
MR. CHRISTIE: That's the indication of the Nova Scotia Gaming Corporation. I indicated a direct transfer from the Gaming Corporation, but then there are certainly portions of the Health Promotion budget that go towards addiction services and addiction assistance.
MR. PYE: So just because there's the $1 million, it's not for me to assume that that's all the money that comes from the Gaming Corporation?
MR. CHRISTIE: No, no.
MR. PYE: There are other channelled dollars?
MR. CHRISTIE: Oh, absolutely. I understood your question to be what is going from the Gaming Corporation to these various things and so I responded in that manner.
MR. PYE: Okay, yes, you're right and what I did was I defined it down a bit further to addiction treatment. Mr. Minister, you're responsible for the Gaming Corporation so I'm wondering if you've compiled, or the Gaming Corporation has compiled, any statistical information with respect to the number of deaths that may have occurred because of people gambling, suicides that may have occurred in this province as a result of individuals gambling, or the number of individuals whom, in fact, have called for crisis treatment, if I can put it in those terms, and the number of individuals who have approached the Gaming Corporation with respect of their lack of responsibility in educating them, or restricting them from using casinos or gambling in the province? So there are three questions there.
[Page 355]
MR. CHRISTIE: Your first question was the number of deaths that might have occurred through this, all we can say to you is that the Medical Examiner's Office is looking at opportunities and ways to make this determination so they can accumulate those statistics, but it's in the development stage.
MR. PYE: So at present you have none?
MR. CHRISTIE: At present, no. There's no hard data that we have if your question was, do you have hard data on this.
MR. PYE: That was one of the questions, yes.
MR. CHRISTIE: The answer is, no, that's in the development stage.
MR. PYE: So when you talk about it being in the development stage, it can be there forever and a day. It's a long, drawn-out process. Is there a time frame in which, in fact, you're going to try to compile and have this data and information and it's going to be a part of the Gaming Corporation's financial statement and package to Nova Scotians?
MR. CHRISTIE: Well, let me just clarify a couple of things. I indicated what the medical examiner is doing. Now, this is not just Nova Scotia, this is across the country obviously in looking at trying to develop those. Will it be done in the next six months? Probably not. Will it be done over a period of a year or so? I would think the answer to that would be yes. You indicated will there be a point in time when the Gaming Corporation has it in its statistics that as part of its business plan there were a number of calls and a number of deaths, that would be some years off, but in terms of development of the process, that's certainly ongoing and, you know, they're not just having this discussion in Nova Scotia, there are discussions across the country. So there is some will to move in that direction.
MR. PYE: So do you know the number of calls that you have received now with people in crisis situation with respect to gambling addictions?
MR. CHRISTIE: Presently the Office of Health Promotion has a gambling help line and that data, I could get that for you, I don't have that data, but it is under the Office of Health Promotion.
MR. PYE: That's fine. If you can provide that information to me, I think it's important to know. The Gaming Corporation, I do believe, receives calls when there are problem gamblers and they call the Gaming Corporation for some help and so on. When individuals gamble their life's savings away, for example, well, I didn't want to bring up an individual case, but I do know of an individual case, or I've received some information with respect to an individual case that occurred in the casino in Sydney where the individual does not believe that the government has adequately prevented him from gambling his life's savings
[Page 356]
away and losing everything. I don't know if, in fact, the representative from the Gaming Corporation, Ms. Mullally would know of that particular case or not, or if it's still ongoing and what you do in that kind of a process.
MR. CHRISTIE: My indication is that, yes, she does know, but it's private information and, obviously, we're not going to share that.
MR. PYE: That's right.
MR. CHRISTIE: The person chose to share with you and that's fine, but the other part of your question is where is it going, well, there have been discussions with some individuals, but to this point in time it remains that - in the discussion stage.
MR. PYE: My time is winding down relatively fast and I've got a number of questions here and I'm going to go through them rather quickly if I can. Has the minister considered allotting revenues from gambling to Sport and Recreation activities?
MR. CHRISTIE: Was your question, have you considered allocating?
MR. PYE: Considered, yes.
MR. CHRISTIE: Well, I think in terms of the budget we came out with, the allocation to Sport and Recreation is there. Your question is, are we looking at designated funds and moving that?
MR. PYE: Yes.
MR. CHRISTIE: No, we're looking at universal budgets and funding universal budgets with revenues. That's how we've been approaching it.
MR. PYE: I guess that's right. Are you looking at designating funds in particular percentages, by 10 per cent, or whatever, to Sport and Recreation facilities, but I guess the answer is, no, you haven't and you will continue to fund those ventures in the way you're doing it now?
MR. CHRISTIE: That's the way we did it this year and next year we'll have to wait to see, but clearly this year that's how it happened.
MR. PYE: The other question is that I just heard this recently on the news and it just happened on Friday and, as the Party's Gaming Critic, it sort of set me back and that was that I think that you can be quoted as saying that, yes, your government is considering taxing lottery winnings. I guess my question would be to you, now that you're taking money from
[Page 357]
the vendors today, is tomorrow the fact that you're going to be taking money from the players?
MR. CHRISTIE: If I can clarify the discussion I was involved with on the weekend, the question that was posed to me, it's understood Ontario is moving in that direction of going to recover a percentage of fees from lotto winnings and the question was are you considering it? The answer was, no, we aren't considering it. Our budget is on the table, that's not something we're considering. Then the question was would it be something that you might consider in the future and I said it's possible we would consider it in the future, but that's as definite as I was. What reports you heard, I don't know, but clearly it was only something that I was advised another province was undertaking and the question was would you consider it. I indicated that we might consider it in the future, but it's not something we had on the drawing board right now.
MR. PYE: I guess when comments are made like that, my fear is that, in fact, if revenues continue to decline from a source, someone pays and it's obviously not government. In this particular case, today, it was the vendors. Tomorrow it might be the lottery players who are winners. You know and I know that we haven't determined whether that's going to be from lottery winners of the Lotto 6/49, or if that's from lottery ticket winners, or if it's from VLT winners as well whom, in fact, will be required to pay 5 per cent, 10 per cent, 2 per cent, or whatever percentage of their winnings back to government.
Now, I want to say to you as well, you know and I do know this - and I didn't bring one for a prop, but I do believe it's on the back of the lottery scratch tickets - it says that 55 per cent of the revenue coming in goes out to the prize payers, 45 per cent of that revenue goes to the operations and promotions of Lotto 6/49, and I guess a portion of that to government. So, you know, where is the reality of it? If already 45 per cent of the total revenue coming in is going out of the gambler's pocket, where do you draw the line? Is this consistent with U.S. State lotteries that, in fact, tax the lotteries, as we know, or any other international lottery corporation whereby you not only take a portion of their money, but you then tax them on their winnings?
MR. CHRISTIE: You're raising all the questions that would have to be discussed if you were going to move in that direction. As I indicated, I'm not aware that the Gaming Corporation has moved in that direction to look at gathering that information, or moved in terms of taxing winnings. So if it was ever considered in the future, all those questions that you're raising would have to be answered.
MR. PYE: But I think, Mr. Minister, in fairness, particularly on the Lotto 6/49, this is a national lottery and if one provincial or territorial government decides that it's going to tax the winnings from the lottery players, then it's not long before others follow suit and you can be assured that you will be in step. Is there an inter-provincial agreement with respect to
[Page 358]
how the lottery winnings are meted out and how they're going to be taxed and so on, or would this be something that, in fact, you would have to look at at the national level?
MR. CHRISTIE: Yes, there is a national agreement as to allocation on how things will be run, but I'm advised at the Gaming Corporation level and on the representation from those boards that issue hasn't been discussed. So it's obviously just germinating in one province at this point in time.
MR. PYE: Finally I want to go back to gambling addiction and I don't have much time left so I guess if, in fact, we don't keep statistics and we don't have the numbers of individuals who are affected by this terrible disease of gambling addiction and that we as a government are responsible - and we're responsible believe it or not, for a good chunk of that addiction because we encourage people by way of promotion to be engaged in these kind of activities - how do we define the dollars that we're going to put into addiction and where do we draw the line with respect to this kind of a revenue source being eliminated or taken away to find an alternative source of revenue?
MR. CHRISTIE: Well, I think there are a couple of challenges in what you said and, obviously, the first challenge is in terms of the addiction and helping people. I suggest whether it's an alcohol problem, a gambling problem, those challenges need to be met and that's obviously one of the determinants of the Office of Health Promotion is to try to strengthen that and to make more opportunities for people, whether it's chronic or whether it's these types of things. So that's one side of things and moving in that direction.
The other part of your question is, are we moving to a situation where we will see VLTs, if you will, not in this province or not in this country at some point in time in the future, I guess I would have to say to you to sustain the health care and the education priorities that we have, I don't see what the opportunities are at this point in time.
MR. CHAIRMAN: The time for questions from the NDP caucus is over. We'll move to the Liberal caucus. Your time is 6:23 p.m. You have until 7:03 p.m.
The honourable member for Halifax Clayton Park.
MS. DIANA WHALEN: I think I'll be joined in a little while by Russell MacKinnon who had some questions on the gaming side as well, but I thought I would pick up where we left off and go through some of these questions on Finance if I could. So I'm just moving closer because then I can see you better.
MR. CHRISTIE: Fine, by all means.
MS. WHALEN: The Chairman was worried that I was leaving. It's just easier to hear you. You're all very soft spoken. So that's good.
[Page 359]
There's quite a number of questions, but a lot of them are kind of the tail end of things that we had started perhaps in the last go-around. I would like to go back, we were just finishing off I think with amortization and talking about the working group that you had formed to come up with the new schedule that was brought in at the end of last year. I wanted to know if this is a working group that was in place for a couple of years, if there is a report that we could see, not just their outcome, their final schedule of amortization, but is there a working report that's available for us to look at?
MR. CHRISTIE: Do you just want the last report or would you like the report on their first venture which had to do back some years ago? They have made a number of reports. So are you asking for just their last report?
MS. WHALEN: Well, I didn't know if there were any reports, but if there's a series of reports, I would like to see the whole series, I think it's an important issue.
MR. CHRISTIE: The answer is, yes, there are some reports and we will have those sent over to you.
MS. WHALEN: Thank you. I haven't asked for it previously so I appreciate you saying yes and that's good. On the question of the budget and the thin $2.1 million surplus that we're looking at, it has been raised and I have a concern as well about the district health authorities' budgets not being finalized and the fact that they were so late last year. Can you tell me of mitigating factors or what you're doing to ensure that that doesn't happen this year?
MR. CHRISTIE: In terms of the reports coming in or in terms of their expenditures?
MS. WHALEN: Well, really finalizing their budget so that we know for sure what exactly the budget is that they are going to live by because I guess it's their business plans that have been constantly updated?
MR. CHRISTIE: Yes.
MS. WHALEN: So the business plan should set the framework for the budget.
MR. CHRISTIE: Sure. Well, I think last year you'll recall there were a number of instances. In September we put some additional dollars in for some identified items and as the business plans were being developed, there were a number of items that the DHAs knew they had to deal with and one of them had to do with the cost of drugs and one had to do with some overtime issues. So we had to address those and we addressed those in September. Also, the other part of last year's plan was that there were some value for money audits done through the Department of Health with two of the DHAs and then, obviously, as you know, the Capital Health District had undertaken a corporate census report for the QE II Complex.
[Page 360]
So those were both areas of looking at where things were going and how things were happening and that was what the framework was sort of leading up to the budget.
MS. WHALEN: I'm sorry, are you suggesting that delayed the approval of their business plans though?
MR. CHRISTIE: For last year?
MS. WHALEN: Yes.
MR. CHRISTIE: I suspect that part of their business plan was resolving some of those issues that we dealt with in September and those issues had to be dealt with and, obviously, until we had made the final determination, they weren't able to complete their business plan. Now, having done that and having looked at those, looking at the development of the value for money audit and looking at the corporate census report, we believe that the DHAs will be in a better position to complete their business plans and to finalize those things.
The other component as part of this that is a major player in the whole business plan development this year as opposed to previous years is that they now know the funding they're going to get in terms of the wages and the wage settlement. We talked earlier about the restructuring fund and we talked about that fund for settling wages, but that's a large portion for the DHAs to deal with and once we've been able to deal with it, then they can complete their plans.
MS. WHALEN: So you don't anticipate a delay like we saw last year at all?
MR. CHRISTIE: I think a number of those areas that we've looked at have been dealt with and that should help them considerably.
MS. WHALEN: It's just that leaving it open does leave uncertainty in the budget, that's the thing. So the sooner it's finalized, the better.
MR. CHRISTIE: Absolutely.
[6:30 p.m.]
MS. WHALEN: For everybody. On the net debt servicing that we talked about, in your opening remarks you gave some figures and said that it had gone down to $877.8 million and it was a slight decrease, I think about $15 million down if I'm not mistaken.
MR. CHRISTIE: I believe that's right. I'll just . . .
[Page 361]
MS. WHALEN: That was in your opening remarks. It's in here as well, I just don't know which schedule. What I'd like to know is what you attributed the decrease to.
MR. CHRISTIE: The net debt servicing reduction dropped from $892 million to $877 million. The question is, what was the drop in that?
MS. WHALEN: That's right, what do we attribute the drop to?
MR. CHRISTIE: Let's see, I think the Canadian dollar is a major factor involved in that and as we've indicated before, the drop in the rate from the previous years over this year down to the 1.3 is the overriding factor.
MS. WHALEN: So it's interest rates and the Canadian dollar primarily?
MR. CHRISTIE: Yes.
MS. WHALEN: I guess my question then on the interest rates is about our exposure because we have rates right now that have been at historical lows almost and not apt to stay at that level indefinitely. So, what steps, if any, are we taking to try to mitigate and look to our exposure on interest rates?
MR. CHRISTIE: Obviously, as I indicated earlier the department does hedging on that and hedges on terms, for example, of the spike in the Canadian rate back last week. The department has hedged and they have hedging out for four or five months so those spikes they won't have to absorb. They're more concerned with the long-term effects of the dollar.
MS. WHALEN: That's looking at the Canadian dollar.
MR. CHRISTIE: Yes.
MR. WHALEN: And the interest rates, we're just crossing our fingers and hoping this remains favourable?
MR. CHRISTIE: No. That goes through quite a long process and if you look at the statistics in our Budget Address, that's the part of the discussion we had with the private forecasters, where the dollar is going to go. I indicated to you earlier they have some cautions but they see that not fluctuating wildly.
The other part of it is in terms of doing some of the borrowing, the department has already started to do some of the borrowing for next year. They go through quite a process to hedge and to watch the dollar and not be in a situation where the impacts are going to be too great.
[Page 362]
MS. WHALEN: They're watching then.
MR. CHRISTIE: Yes.
MS. WHALEN: I'd like to move to another area and that is the programs that we cost share with the federal government or sometimes all three levels of government. It is my understanding that you are in a position where you had to send a letter recently to the federal government saying we won't be sharing on any new programs. Is that true, that we're now officially sort of saying we can't afford to cost share with you?
MR. CHRISTIE: Yes, the letter you're referring to was after the cost-sharing structure on the hurricanes and the storms. You will recall that what the federal government came back to in terms to the flooding back in the Spring was considerably less than anticipated. So, yes, we had indicated to them apart from the programs that are up and running now which are under Community Services, Health and Education and some under Natural Resources, that we would not be in a position to go into new programs if we were required to fund them 50/50.
We didn't indicate that on the federal-provincial-municipal infrastructure programs but we indicated if there were new programs that were coming along, we were not forecasting for those this year.
MS. WHALEN: Would that include as well things like the infrastructure funds then that we're talking about, like the municipalities with green projects and recreation?
MR. CHRISTIE: No. We're talking about new programs that would be introduced in whatever way, shape or form it might be.
MS. WHALEN: I think, as you know, so many communities are looking for - particularly I'm thinking recreation but in your own area, there are sewer and water projects and so on. If that program, when it does wind down and another one would take its place, we would be willing partners then to come back in?
MR. CHRISTIE: We have anticipated that happening. Service Nova Scotia and Municipal Relations is anticipating being a player, one of the tri-partite agreement.
MS. WHALEN: I'm glad to hear that because I would worry if we were looking at all programs.
MR. CHRISTIE: No, we specifically indicated to them this would be programs that were new. You certainly are aware that the municipalities said to the government in the last two years that they want it structured as a three party agreement as opposed to just between them and the federal government, they want all three levels of government.
[Page 363]
MS. WHALEN: Okay. That sounds good. On the foreign currency exposure, if we could go to that in the budget highlights, it indicates 16. 9 per cent was the amount that we have that's - I guess that's our lending amount that's exposed, is that right, where held in foreign currency?
MR. CHRISTIE: That's correct.
MS. WHALEN: Okay. That, you indicated, is below target. I have a couple of specific questions about that. Could you explain how we reduced our foreign currency debt? I guess it's a long process, so I'd say, briefly.
MR. CHRISTIE: We did that through the province's hedging on the Canadian dollar, through the hedging process and reducing the percentage that way.
MS. WHALEN: Okay. It's my understanding and somewhere in here it talks about currency swaps. That's your hedging, I guess, some currency swapping. So what is the cost associated with these currency swaps?
MR. CHRISTIE: For a particular one or for the whole year?
MS. WHALEN: I'm looking more at the American dollar one. I'll go to No. 5, that might help. I've got a few questions in a row, but I have No. 5 here from the Public Accounts Volume I, Page 40. It indicates under Swaps that we will owe on February 27, 2012, $500 million. Those U.S. dollars will cost $795 million. Does this sound correct to you?
MR. CHRISTIE: Your question is, what is that cost made up of?
MS. WHALEN: If I've got that right, that indicates an exchange rate of 1.59 for the Canadian dollar exchange.
MR. CHRISTIE: Okay, so the question is, what did you borrow it at, the $1.35 and the $750 million in the proceeds.
MS. WHALEN: That's right. I guess I want to understand it better but in a nutshell it would appear to me that if we were looking for $500 million today at today's rates, we'd pay $686 million in Canadian. Actually what this shows, although it's another eight years out, is that we would be paying $795 million. So it doesn't sound as though we've received a benefit here in converting to American dollars. Or hedging for it, buying in the future, whatever we're doing.
MR. CHRISTIE: I'm being told that we received $750 million and when you sell them off then you want to receive as much as you can in Canadian dollars. You're hedging it for that time frame.
[Page 364]
MS. WHALEN: So I'm not reading this correctly? You know where I'm coming from, I've converted it and it doesn't look like we've got as good a conversion as we should or could.
MR. CHRISTIE: Is there is a particular one that you just want converted to get how much we're going to recover on that one?
MS. WHALEN: It indicates the current principal was $795 million for $500 million that we will retire I guess - our original principal of $500 million.
MR. CHRISTIE: Right.
MS. WHALEN: So I'm just saying is this an agreement essentially where we've agreed to pay that amount in the future?
MR. CHRISTIE: Yes.
MS. WHALEN: And so we're guessing that the dollar will become weakened again in the next few years?
MR. CHRISTIE: Yes, we've received the $500 million and we're going to . . .
MS. WHALEN: We've already got that.
MR. CHRISTIE: Yes. The $795 million is what we're going to pay that off with.
MS. WHALEN: Would that rate have been good at the time we made that arrangement?
MR. CHRISTIE: Yes.
MS. WHALEN: So it was below the current rate, would you say? If you're hedging into the future like that, you would be looking for a more beneficial rate.
MR. CHRISTIE: It's a declining interest rate but you're also hedging against the dollar . . .
MS. WHALEN: I'm looking more at the currency rate.
MR. CHRISTIE: Yes, the currency rate.
MS. WHALEN: That's what I'm referring to.
[Page 365]
MR. CHRISTIE: That would be at a favourable currency rate.
MS. WHALEN: So my point is just that today's rate would have been $686 million, today. There is a differential?
MR. CHRISTIE: Yes.
MS. WHALEN: As I say, it's a $110 million difference. Is that anywhere reflected in the statements, or we wouldn't show that as things fluctuate from year to year, that volatility?
MR. CHRISTIE: What we're doing is receiving it and paying it back, the hedging part. It's not something that's going to flow into the statement, because we're kind of operating out of the cash account, if you will. It's hedging out of that cash account.
MS. WHALEN: What it would show from year to year would be volatility, I realize that . . .
MR. CHRISTIE: There's no question.
MS. WHALEN: I just wanted to know if it was shown, because it is a significant amount of money. I can see that. Can we go quickly to the Liquor Corporation, the estimated 9 per cent increase in revenue from the Liquor Corporation? Can you give us an assurance that there's no increased taxes planned on that? The sin tax category.
MR. CHRISTIE: Are you asking, does this budget contain a tax on liquor?
MS. WHALEN: Is there any thought to do that during the year? I just don't see where the 9 per cent increase is coming from.
MR. CHRISTIE: We reflected the Liquor Corporation's business plan in our estimates. There are no taxes on liquor that this budget announced. So what we're reflecting is their business plan. I don't have a copy of their business plan here, but we certainly can get you one.
MS. WHALEN: Would the Auditor General have looked at that increase as well? Does he look at everything?
MR. CHRISTIE: Yes, the Auditor General looks at all the revenue numbers, that's correct, he would.
MS. WHALEN: Do you have an explanation? Do you know what the general explanation was for a 9 per cent increase?
[Page 366]
MR. CHRISTIE: I know they're looking at new marketing strategies, I know they're talking about new locations, and I believe, if I'm not mistaken, they've been to all the caucuses with part of their business plan and some of their new locations. I know they're talking about kiosks and a variety of other things. So, that's what's included in their business plan, and that's the target they have suggested to us.
MS. WHALEN: It's an optimistic target. I'm going to turn it over now to my colleague, the member for Cape Breton West, so that we can have some time to talk about the gaming issue.
MR. CHAIRMAN: The honourable member for Cape Breton West.
MR. RUSSELL MACKINNON: Mr. Chairman, my first question to the minister is, through you, how many VLTs are on Native reserves in the Province of Nova Scotia?
MR. CHRISTIE: I'm told approximately 600.
MR. MACKINNON: Can you indicate what the total revenues are?
MR. CHRISTIE: I'm advised it's about $30 million.
MR. MACKINNON: What percentage of the $30 million does the province receive in revenue?
MR. CHRISTIE: We get about 6 per cent, because under the arrangements a lot of it stays for the administration on the reserves, and infrastructure.
MR. MACKINNON: So you get $1.8 million?
MR. CHRISTIE: We get 6 per cent of $30 million.
MR. MACKINNON: First of all, is that an increase or a decrease from the previous year?
MR. CHRISTIE: There was an additional 80 machines to 10 of the 13 Bands in the last year under the First Nations agreements. In answer to the earlier question, the question was have you increased the machines in the province, off-reserve the answer is no, but we want to be clear that people knew there was an additional 80 machines on 10 of the 13 reserves.
MR. MACKINNON: What you're saying then, through you, Mr. Chairman, is that you removed them from private outlets and you put them on Native . . .
[Page 367]
MR. CHRISTIE: No, what we're saying is that the number has stayed the same in the private outlets across the province, and that the only place where the numbers have increased is on the reserves.
MR. MACKINNON: So there's been an overall increase in VLTs in the province.
MR. CHRISTIE: Yes, that's correct, on the reserves, yes.
MR. MACKINNON: But isn't it government policy to reduce the number of VLTs?
MR. CHRISTIE: What we have done on non-reserve is stayed the same, we haven't reduced them. On the reserves, under the agreements, that was something envisaged through the First Nations agreement, that they wanted to have those machines and they were eligible to do that. Your question is, did we reduce machines? No, but as far as the number in Nova Scotia, off-reserve they have not increased.
MR. MACKINNON: But that appears to be a total contradiction of what the Progressive Conservative caucus, when we were in minority government, introduced in their Private Member's Bill, which was approved, which was actually a move towards reducing the number of VLTs in the province, and now you're saying that it's the same number as last year, it's going to be the same this year, presumably, if everything is status quo, but then you're increasing them on reserves. Why? I know you've negotiated an increase, but why? It's a total contradiction. All you're doing is moving - in my view - the addiction from one location to the other.
MR. CHRISTIE: Well, I guess you'll recall, and you indicated, that a bill had been introduced back some years ago, which the operative clause of the bill was to hold the number of machines, to freeze them at a particular level. Your other question is, why did you increase them in the reserves of the First Nations group. Part of the agreement and part of the whole issue around First Nations and developing those with Aboriginal Affairs had to do with the fact that they sought certain autonomies and they sought certain things that were their right, and that was one of them. I don't have all the details of the discussion, but I know that in signing some of the agreements between Aboriginal Affairs and the First Nations, they viewed that as something that was their traditional right, to be allowed to have additional machines.
MR. MACKINNON: If that's the case, then why should they even bother with the province at all? Why not just go and set them up and go ahead? If that's their right and that's the argument . . .
MR. CHRISTIE: And that's why they signed Band agreements, so that we can have some. If you didn't have the agreements, they would view that as their right to do it. That's one of the reasons that the Aboriginal Affairs people developed those agreements, so they could define conditions such as that.
[Page 368]
MR. MACKINNON: Does your department or the provincial government have auditors or - I don't know if monitor is the proper word - monitors, officials on staff with the Gaming Corporation or somewhere in government who would conduct audits as to whether all appropriate revenue is being collected through this VLT operation and is, in fact, duly noted? In short, does anyone from the provincial government go on the reserves and do audits?
MR. CHRISTIE: Yes. The answer is yes.
MR. MACKINNON: How often?
MR. CHRISTIE: Sometimes annually, but they try for bi-annually, but mostly annually.
MR. MACKINNON: How often do they do it with non-Native communities?
MR. CHRISTIE: How often do they do it on the First Nations?
MR. MACKINNON: No, non-Native.
MR. CHRISTIE: The difference in the two is the ones on non-Native are audited by the Atlantic Lottery Corporation, and they would be coming from the corporation itself and they would be doing a more extensive audit. Making the distinction, those on the First Nations, the machines - I was making the distinction.
MR. MACKINNON: Nova Scotia is a partner to Atlantic Loto. Obviously the province would have some idea of how often those audits take place, the non-Natives.
MR. CHRISTIE: Your question is, the audit, not of the ALC but of the individual retailers.
MR. MACKINNON: I understand that, but you're saying the ALC has that responsibility.
MR. CHRISTIE: That's correct.
MR. MACKINNON: But the Province of Nova Scotia is a partner to ALC.
MR. CHRISTIE: Yes.
MR. MACKINNON: So, there must be, as a member of that partnership, some knowledge as to how often those audits take place.
[Page 369]
MR. CHRISTIE: In terms of the retailers that fall within their jurisdiction?
MR. MACKINNON: Yes.
MR. CHRISTIE: Once again, that falls on an annual basis. In terms of the ALC . . .
MR. MACKINNON: So, it's annual.
MR. CHRISTIE: Yes, that's right, but they know the comings and goings because they know what's going through the equipment.
MR. MACKINNON: I understand that Nova Scotia has gaming as part of its budget. It's a higher percentage than any other province in Canada. Is that correct? The revenues from gambling as a percentage of the total provincial budget vis-a-vis other provincial budgets, it's the highest percentage, around 5.8 per cent.
MR. CHRISTIE: Now, the figure I'm being told is 3.5 per cent.
MR. MACKINNON: So that's a shrinkage.
MR. CHRISTIE: Well, I guess the question is . . .
MR. MACKINNON: This was in the latest report, the report that was put out last year, it was 5.8 per cent.
MR. CHRISTIE: Your question is, the total revenue received by the Gaming Corporation in relation to the total provincial . . .
MR. MACKINNON: Provincial budget - as a percentage.
MR. CHRISTIE: Okay.
MR. MACKINNON: It's a higher percent than any other provincial jurisdiction in Canada.
MR. CHRISTIE: Well, the figure that we have for this year is about 3.5 per cent, and that's in line with other jurisdictions. If it was higher last year, we'll certainly check that, but I don't have that number here. I don't dispute you, but I would just say that this figure is 3.5 per cent, and that's in line with other jurisdictions.
[Page 370]
MR. MACKINNON: How much money will be spent this year to develop new ways to gamble, either directly through the Atlantic Loto Corporation or through the Nova Scotia Gaming Corporation? How much money will be spent to develop innovative, new ways to gamble?
MR. CHRISTIE: The business plan indicates that they're going to look at some other opportunities, but in terms of the Atlantic Loto, the number that they're going to spend on developing new products, we'll have to look that up because we don't have it with us.
MR. MACKINNON: My understanding is the unclaimed prize money is what they use to develop new techniques for gambling, correct?
MR. CHRISTIE: That's part of the way they fund it, that's right.
MR. MACKINNON: Well, let's look specifically at the Nova Scotia Gaming Corp. How much money will the Nova Scotia Gaming Corp. spend on efforts to develop new ways to gamble?
MR. CHRISTIE: There is no specific number in the Gaming Corp. to develop and that would be in conjunction with the Atlantic Loto. Your question is, what amount of money is set aside for product development, and the answer is none.
MR. MACKINNON: In your business plan there's absolutely no dollars set aside for new product development?
MR. CHRISTIE: No, there's nothing allocated for new product development.
MR. MACKINNON: Is that correct?
MR. CHRISTIE: No, there's none in the Nova Scotia Gaming Corp.
MR. MACKINNON: How many inspectors do we have in the province?
MR. CHRISTIE: Liquor license inspectors who would go or just . . .
MR. MACKINNON: Gaming Corp.
MR. CHRISTIE: . . . Gaming Corp. inspectors, because they don't have any.
MR. MACKINNON: None?
MR. CHRISTIE: No.
[Page 371]
MR. MACKINNON: Well, who goes into these private outlets and onto the reserves to do inspections if you don't have any inspectors? It's kind of a contradiction.
MR. CHRISTIE: The Gaming Corp. isn't the regulator of the province. Alcohol and Gaming is doing control of that. Your question was specifically who do they have on staff.
MR. MACKINNON: Well, let's branch out a bit. Let's look to the regulatory side.
MR. CHRISTIE: Okay, I'm just trying to ask the questions . . .
MR. MACKINNON: It would be better if I asked the questions and you give the answers. (Laughter)
MR. CHRISTIE: We'll try.
MR. MACKINNON: That way we can get more detail. On the regulatory side, Section 2 of the Act, if you want to be point specific. How many inspectors are there?
MR. CHRISTIE: I don't have that information. Environment and Labour would have to give you that number. I can seek to get them, but that's not under our mandate so I don't have those numbers with me.
MR. MACKINNON: How much money has your department been able to identify as lost revenue through questionable activities in the province?
MR. CHRISTIE: I think, specifically the Internet gambling issue that was around with the Gaming Corporation some months back was estimated at around $20 million. Specifically, let's take that incident, and what's been identified is approximately $20 million.
MR. MACKINNON: That's lost revenue to the province?
MR. CHRISTIE: That was lost revenue, and then those opportunities were determined and those were closed down.
MR. MACKINNON: Any other loopholes?
MR. CHRISTIE: That was the one in terms of what has been identified, that's what has been identified. There's always a lot - on the Gaming Corporation incident report, there's a lot of incidents where people tried to manufacture tickets to cash in, a variety of things like that. But specifically, to put a dollar amount on an issue, it was that $20 million on the offshore lottery ticket issue.
[Page 372]
MR. MACKINNON: I'm going to switch the focus just slightly. I noticed in your Supplement to the Public Accounts for this fiscal year you've spent a considerable amount of money on financial planners and agents in managing money for the province. How much money was spent in commission last year?
MR. CHRISTIE: For money managers or people in debenture holders and that . . .
MR. MACKINNON: Yes, money managers.
MR. CHRISTIE: I'm advised around $13 million.
MR. MACKINNON: That's how much was spent out to these private firms. Now, are they all based in Nova Scotia? Are they all Nova Scotia firms?
MR. CHRISTIE: No, they are not.
MR. MACKINNON: Are any of them from Nova Scotia?
MR. CHRISTIE: Yes, there's a number of firms from Nova Scotia.
MR. MACKINNON: Could you identify them, please, or perhaps identify the ones that are not from Nova Scotia?
MR. CHRISTIE: Well, Seamark is one that's from this area, that I've identified. Your other question is, getting a list of those that are not from Nova Scotia?
MR. MACKINNON: In short, where did the lion's share go, was it the Nova Scotia firms or non-Nova Scotia firms?
MR. CHRISTIE: There are firms from Toronto and New York and Seattle. The question is, where did the lion's share go. The lion's share, where it would have gone would be Ontario.
MR. MACKINNON: Top firms like C.A. Delaney Capital Management?
MR. CHRISTIE: That would be one, but they are no longer with the province.
MR. MACKINNON: They're no longer where?
MR. CHRISTIE: They're no longer engaged by the province, but, yes, they were . . .
MR. MACKINNON: Why?
[Page 373]
MR. CHRISTIE: We decided to try another firm.
MR. MACKINNON: Was that because they weren't getting good value for their dollar? Were there losses in some of these investment portfolios?
MR. CHRISTIE: No, it was just that they didn't hit their investment target. So they were looking for somebody that could.
MR. MACKINNON: So they didn't do as well as the province thought they should have?
MR. CHRISTIE: That's correct.
MR. MACKINNON: How many firms were dropped, like that?
MR. CHRISTIE: I think that was the only one.
[7:00 p.m.]
MR. MACKINNON: Let's face it, this year past was supposed to be a good year for investments.
MR. CHRISTIE: Yes, it was.
MR. MACKINNON: To drop firms because they weren't doing as well as the province expected them to do, sounds to me like a similar situation to what happened to the Workers' Compensation Board several years back where companies were awarded contracts to manage significant amounts of funds, not based on their talents, but based on their political connections. Now I'm not suggesting this is the case, but, given the fact that these firms are not from Nova Scotia and they didn't do very well with our tax dollars, in a very positive market environment, despite all anomalies that happened down in the United States, with Nortel, and so on and so forth, and Enron, something seems to be amiss here.
MR. CHRISTIE: Well, I'll try to allay your fears. As you indicated in the last couple of years the return on investments have been picking up and that particular one didn't meet the investment target and as trustee for the fund, it's our job to ensure that the best job is being done with the funds and we felt the opportunities would be better with another firm.
MR. MACKINNON: How much money did, let's say, C.A. Delaney Capital Management. How much money did they manage, did they invest?
MR. CHRISTIE: We don't have that number but we can get you that number. We don't have it right now.
[Page 374]
MR. MACKINNON: what would their commission be? Was it 5 per cent, 2 per cent?
MR. CHRISTIE: It's probably lower than 5 per cent. Somewhere in the 2.5 per cent range.
MR. MACKINNON: So they could have had upwards of $100 million. Would that be right? Or $50 million?
MR. CHRISTIE: Yes.
MR. MACKINNON: Any of these portfolios, or any of these monies invested because I know that you can go the long-term, short-term and so on and so forth, with all the different packages. Any of this money ever invested in Nortel?
MR. CHRISTIE: Some would be invested in Nortel, yes.
MR. MACKINNON: How much did the Province of Nova Scotia lose by investing in Nortel?
MR. CHRISTIE: Over the last period of time or just recently?
MR. MACKINNON: In the last year.
MR. CHRISTIE: I think last year the value of Nortel went up so the province would have made some money, because it started at a lower rate and the share value was going up last year.
MR. MACKINNON: We'll come back to this.
MR. CHAIRMAN: Thank you, very much. The four hours has been reached for today. We will adjourn to reconvene following Question Period tomorrow and the Liberal caucus has 20 minutes if they care to use it. We're coming back with Finance I assume, so they have 20 more minutes Tuesday, following Question Period.
We stand adjourned.
[7:03 p.m. The subcommittee rose.]
