HALIFAX, TUESDAY, APRIL 24, 2012

 

SUBCOMMITTEE OF THE WHOLE HOUSE ON SUPPLY

 

1:55 P.M.

 

CHAIRMAN

Mr. Clarrie MacKinnon

 

MR. CHAIRMAN: Minister, members, staff from the Department of Finance, we are ready to call the Subcommittee on Supply to order. We will begin today with the estimates of the Department of Finance.

 

Resolution E8 - Resolved, that a sum not exceeding $38,990,000 be granted to the Lieutenant Governor to defray expenses in respect of the Department of Finance, pursuant to the Estimate, and the business plan of the Nova Scotia Power Finance Corporation be approved.

 

MR. CHAIRMAN: The honourable Minister of Finance.

 

HON. GRAHAM STEELE: I do intend to make some opening remarks because I think I have more spending resolutions than any other minister. I think it's important to go over them because my recollection is last year and the year before, there was some difficulty in estimates with what exactly it is that the Minister of Finance is responsible for and so there were a number of questions that really were not within the scope of the budget estimates.

 

Before I get into that, I would like to introduce the staff that I have with me today. I have on my right the Associate Deputy Minister, Byron Rafuse and on my left, Joyce McDonald, director of the Finance Corporate Services Unit. Behind me I have Jean Myatt, a manager with the Finance Corporate Services Unit, and Naomi Shelton, communications officer. Joyce is becoming an increasingly familiar face here because the CSU of which she is the director is responsible for several departments. Members will recognize her from just having finished the estimates in the main Chamber with ERDT. She was with the Minister of Communities, Culture and Heritage and so she spends more time at this than anybody, except for some of the members.

 

 

501

 

I would like to thank the staff for being here today because there is a tremendous amount of work. I don't think people have any idea how much work goes into the preparation for estimates and I've always praised Joyce and Jean before for the depth and quality of the information that they prepare. We really are ready for just about anything and it's all done in meticulous detail, and as somewhat of a detail guy myself, I really appreciate a really fine piece of work. It's almost a piece of art.

 

I want to go over the resolutions because I want to try and show what it is that I'm willing, able and prepared to answer to, which will also lead to what it is that are not within the scope of my estimates. The first thing I guess I should say is that I'm not, as Minister of Finance, responsible for every spending line in the provincial budget. That's a mistake that people often make - they think that the minister controls all the purse strings, but I don't. Very broadly speaking, as the Minister of Finance, I am responsible for overseeing revenue. The revenue side I will take responsibility for - almost full responsibility. I say almost because that doesn't include the various user fees and other various small items of revenue collected by departments. Broadly speaking, things having to do with taxation and fiscal policy, I take full responsibility for, but on the spending side of the ledger, it really is completely different. The Minister of Finance and the Department of Finance are not responsible for every bit of spending on behalf of the government. That is overseen by the Treasury Board. I am a member of the Treasury Board, but I am only one of five members of the Treasury Board.

 

What I want to do is then go over the resolution so that we can be clear on what it is that I am willing, able and prepared to answer to in terms of spending, because obviously I am responsible for some things. The first resolution is $38,990,000 for the Department of Finance. That's pretty straightforward - everybody understands finance and what it is, although there has been some - I can only call it misinformed - discussion in the media about the Department of Finance budget and so I'm going to have to spend some time going over that a little bit later.

 

The second resolution is $881,701,000 for debt servicing costs, so as the Minister of Finance, I am responsible for the management of the provincial debt. That in and of itself is a topic on which we could spend hours and hours, days and days because it is a big, important, but technically difficult topic, so by far the largest resolution I have has to do with debt servicing costs. We can talk later maybe about things like - if interest rates go up, what impact is that going to have on our debt servicing costs, things like that.

 

The third resolution is $9,484,000 for government contributions to benefit plans, which come under the - I was going to say control but control is not the right word - the umbrella of the Department of Finance.

 

The fourth one is $426,000 for the Nova Scotia Police Complaints Commissioner and you may say to yourself, that's odd - why would the Minister of Finance be responsible for that? I just want to remind folks that when we first came into government, the Minister of Justice was involved as a witness in a matter before the Police Review Board and therefore we thought it was appropriate that that particular body - because the budget for the Police Complaints Commissioner pays for the Police Review Board - be assigned to a different minister and so it was assigned to me.

 

The matter concerned, which has received a fair bit of publicity - I certainly don't intend to go into it in detail - is almost concluded. I say "almost concluded" because there has been a disposition and right now we're in the appeal period. I really have no idea whether the person involved intends to appeal the disposition or not, or whether the municipality involved intends to because I believe they could as well. When the appeal period is finished, if there is no appeal, then I expect that matter will be assigned back to the Minister of Justice because the matter in which he was involved as a witness would be fully and completely concluded. That is why that particular resolution falls to me as the Minister of Finance.

 

The next one is $2,660,000 for the Nova Scotia Securities Commission. I am the Minister responsible for the Securities Act and within its domain that, too, is very important. When I say within its domain, people dealing in securities daily work under the regulation of the Securities Commission. There has been a lot going on in the securities field over the last little while. Members may be aware that the federal government proposed to have one single securities regulator and they drafted legislation, submitted it to the Supreme Court of Canada for an opinion and the Supreme Court of Canada came back earlier this year and said, no, sorry, that legislation as proposed is unconstitutional. So the federal government has gone back, approached the provinces to say essentially, okay, is there another way of doing this?

 

Every province, every territory has its own securities commission, which seems a bit odd because you consider little Nunavut or the Yukon with 33,000 people have their own securities commissions even though there is practically no trading in securities, but it is just one of those things a government needs to have if there is to be any trading in securities at all. There is some merit, I think, in some kind of national umbrella organization of some kind or another, but the most obvious direct route has been ruled unconstitutional by the Supreme Court of Canada. I'd be happy to talk about that further if any member is interested.

 

The next resolution is $2,038,000 for the Nova Scotia Utility and Review Board. Now, it's really important that I underline this distinction - I am the Minister responsible for the Utility and Review Board Act so I am the minister responsible for their budget, but they are an independent quasi-judicial body and I can no more tell them what to do than I could call the courts. In fact, it would be a scandal if I were to pick up the phone and call a judge and suggest how they might dispose of a case. It would equally be a scandal if I picked up the phone and tried to tell a quasi-judicial decision-maker how they should decide a matter before them. That means I am not the minister for the substance of the matters before them, but I am the minister for the administration of the Utility and Review Board Act; that's a really important distinction.

 

The next resolution - most ministers get one or two or, at most, three. I think I have something like 15 resolutions. The next one is $198,724,000 for Restructuring Costs. That's an interesting topic all by itself. I know that when I was sitting on the Opposition in this same forum, I would be curious about restructuring, what is there and what is in it. I'm certainly happy to discuss that with any member who might be interested later. It is the third-largest of the resolutions for which I am responsible.

 

The next one is $73,500,000 for Tax Credits and Rebates, which is a line item in the budget. Now you could just net it off against general tax revenue but the way we do our budgeting, it is a separate line item. Therefore, it needs a separate estimate so that falls under my responsibility, as a revenue item.

 

The next one is $71,485,000 for the Pension Valuation Adjustment, which is quite possibly the most difficult and hardest to explain line in the entire budget. I am warning members that if they ask me any questions about it - those of us in the biz call it the PVA - you are practically guaranteed an hour-long answer. I'm just warning you. There is no simple way to explain the Pension Valuation Adjustment.

 

The next item is the second-largest item for which I am responsible, $523,689,000 for Capital Purchase Requirements. Now again the Department of Finance is not the body that makes the capital purchases. I think all members know that by far the largest part of that is purchased by and through the Department of Transportation and Infrastructure Renewal but as a separate line item, as a financial line item, it falls under the Minister of Finance. I assure you that the Department of Finance is not spending $523 million on capital purchases, despite the ADM's best efforts.

 

The next item is $68,888,000 for Sinking Fund Instalments and Serial Retirements, which is, unlike PVA, not as complicated as it sounds, so I'd be happy to address that if any member is interested. That essentially has to do with - it's another aspect of debt management.

 

Then there is the Halifax-Dartmouth Bridge Commission. My second-last resolution asks that the business plan of the Halifax-Dartmouth Bridge Commission be approved, a fascinating body with a fascinating history, with some interesting work ahead of it; re-decking the two bridges over the next 15 years or so will be one of the biggest capital construction projects in HRM over that period of time.

 

Finally, the last resolution for which I am responsible is the Business Plan of the Nova Scotia Liquor Corporation be approved. I am the Minister for the Liquor Control Act.

 

So those are the resolutions for which I am responsible. I'm happy to answer questions about those. If there are any questions about any aspects of spending outside of those resolutions, then I'm afraid that I will have to decline to answer because those are the responsibilities of other ministers.

 

I'd like to continue my remarks by talking about the thing that I'm proudest of, as the Minister of Finance for nearly three years now, and that is the pre-budget consultation process. The overall plan of getting back to balance is referred to as Back to Balance, or B2B, but it's also the consultation process itself. This is something of which I am particularly proud because what we did, when we came into office we took a process that was really very limited, where essentially the minister every year would meet with a few interest groups in Halifax, would talk to three or four chambers of commerce around the province and that was it, that was the pre-budget consultation.

 

We have instituted a very extensive process, each year a very, very extensive process of getting out, getting around, talking to people, giving people an opportunity to be heard, to educate themselves and be heard about the budget-making process, so that anybody who wants to, can participate. This year we had open sessions in nine communities between January 13^th and March 20^th. We went to Yarmouth, Sydney, there was one in Dartmouth, Truro, the Annapolis Valley - specifically Wolfville although there was also another one in the Kentville area - Pictou, Port Hawkesbury, Kentville and then in Halifax. That's in addition to stakeholder meetings.

 

There are many province-wide organizations that are based here in Halifax. We had 15 separate stakeholder meetings, three meetings with other community groups. We opened the doors this year to other groups, saying if you are out there and you can pull a group of people together, let us know. We found out about some wonderful organizations that I had never heard of before, like the Athenaeum Club, which meets in the Aspotogan Peninsula. I'd never heard of it before and there's a whole lot of people. They are mostly retired people with a lot of different backgrounds and experience and educations. They get together once a month to talk about public policy issues. I'd never heard of them before and it was a fantastic, enjoyable experience, a great discussion with engaged citizens. That's the kind of thing that opening the doors to other groups led to because instead of just going back to the usual suspects, the groups that we always talk to, we said if there's any other group out there, let us know.

 

We did over 40 media interviews and the centrepiece for this year's budget consultation was something brand new, the backtobalance.ca Web site, which had an interactive, budget-making tool. When we did the big one, the big, extensive consultation process two years ago, we had 19 separate public meetings. It was big, it was huge. Nova Scotia had never seen anything like it, at least on financial issues.

 

I was always aware of the fact that no matter how many places I went to, no matter how many meetings we held, no matter what day of the week we picked or time of day, it was always wrong for more people then it was right for, whether because of school or work or family or distance, lack of transportation, weather, there's always more people who would like to go to meetings than can actually turn out.

 

I remember in that process two years ago, for example, the very last one was in Sheet Harbour. It was an absolutely beautiful, sunny, Spring Saturday and I think people just found better things to do because it was the lowest attendance of the whole tour. I don't think it was me because the attendance at other places was very high, but it was a beautiful, warm, sunny Spring day and people's minds are elsewhere than on the provincial budget.

 

I was aware that we had to create, without leaving aside the tour, which I really enjoy and I get a lot out of and I see a lot and I hear a lot and have a chance to talk to a lot of people I don't normally get to talk to. I was also aware that we had to do that but also open up a vehicle for everybody, for anybody with an Internet connection. So that is why we set up this Web site. We were the first in Canada to do this, the first province in Canada to do it anyway, and then we were immediately followed by British Columbia just a few weeks later, although ours is better. I'm sure they looked at what we did and said, that looks like a good idea, we want to do it, too. There was another province that put one up but I can't remember which other province that was, but it was all after us, so we were - we had used as a model some sites we saw in the United States and there were some particularly excellent ones in the State of California - one run by the government, another one run by a news outlet. They were just really good and we said we want to do that.

 

What it means is that people don't have to wait for the Minister of Finance to come to their town, they can get the information they need and deliver their input back, at a time and place that is convenient for them. We were really pleased with the feedback. Of course you're always going to get some people who don't like it because there are some people who will complain about anything, particularly if it is new, but the number of complaints was really small and the positive reaction was really large. I'm pleased to say that from November 21, 2011, when we launched the site, until March 16^th, when we said we weren't receiving any more submissions - because at that point, frankly, it was too late, the budget was essentially being written at that point - we received 580 written submissions and 48,336 page views. I think that's really fantastic and I can imagine us doing the same sort of thing next year, now that we have a year's experience under our belt, we can make it even bigger, even better, even more accessible than ever before. So this is something that I think we're leading the country on and I am proud of that.

 

In terms of the actual financial condition of the province, I think most members will be aware that we issued a forecast update on March 20^th. The deficit forecast for the last fiscal year was $260.8 million, which is an improvement of $128.8 million from the 2011-12 budget estimates. We believe that was due, at least in part, to the fact that we have continued to exercise restraint and good fiscal management.

 

Total revenues are forecast for the last year to be $8.9 billion, up $7.1 million from budget. If I may say how remarkable that is - on an $8.9 billion budget to come in as close as $7.1 million is remarkable. I think that's within 0.01 per cent, on a $9 billion budget. Now that is truly remarkable. I'm not going to look at my ADM here to see if I did the math correctly on that one but it's pretty close - it might be 0.1 per cent. He says yes, that's right, 0.1 per cent, which is still remarkable because most people consider that if you get within 2 per cent or 3 percentage points, you are doing great and we are within 0.1 per cent.

 

Now that's not the final number, the final number will be released - the Public Accounts, which are the final audited financial statements for 2011-12 and right now, although this is not carved in stone, we expect to publish the Public Accounts for 2011-12 in early August. I say that it's not carved in stone because statutorily we have until September 30^th but for the last few years we have been delivering the Public Accounts earlier than that. I'm not saying that it's always going to be delivered in August, that's not always going to be possible, but right now, this year, we're aiming towards release in early August when we'll know what the final number is.

 

Total expenses for 2011-12 are forecast to be $9.2 billion, which is $121.7 million lower than budget. Gross debt servicing costs are expected to be down from budget by $47.4 million to $838.1 million, which is still higher than any of us would like. On a $9 billion budget to spend almost 10 per cent of that on interest still drives me crazy - always will, always has - but that's the legacy of the past hanging around our necks, the fact that we have a debt as high as we do, it carries with it interest as high as what I've just said.

 

Departmental spending is forecast to be $72.2 million under budget, so when we close the books, I expect departmental spending will come under budget for the third year in a row, which sounds like that's the way things should always be. Now I say the third year in a row because that's our three years in a row. But that's not normal, that has not been the history in Nova Scotia. I got my staff to look back, to say okay, when is the last time departments were underspent three years in a row, which you kind of expect is normal, the way it is supposed to be, a budget is a budget is a budget, where you set the budget and you say here's how much money you have, don't spend any more - kind of the way everybody runs their household expenses, yet it hasn't happened.

 

We stopped looking when we got to 1967, which seemed a nice cut-off date since it's Canada's centennial year. So I don't know, it could be a lot longer than 45 years, but we know that for at least 45 years there hasn't been three years in a row of departmental underspending since 1967. Lester Pearson was the Prime Minister, Lyndon Johnson was the U.S. President and the Maple Leafs won the Stanley Cup. That's a long time ago, I don't even remember - now I've never said this to anybody before but I'll confess today, I used to be a Maple Leafs fan, when I was a kid.

 

Now I was alive in 1967 but only barely and I don't actually remember them winning the Stanley Cup so when I was a kid the Maple Leafs had started a long period of futility. (Interruption) No, the Jets didn't - but they did win the AVCO Cup in the WHA several times. I'm sure the member remembers that.

 

Now we turn to 2012-13, the current fiscal year. We are on track; I'm happy to say that. The plan is working and our plan, of course, to remind folks, the plan that we devised in the wake of the very extensive consultation two years ago was to get back to balance in four years. That is 2013, so that now is just around the corner. We are on track to balance the budget in 2013 as planned. This budget projects a deficit of $211.2 million, which is slightly better than the $215.8 million deficit anticipated in our four-year plan. One of the things that reassures me about being on the right track is every year we have hit our targets, we have achieved what we said we needed to achieve to continue on the path forward.

 

The revenues for 2012-13 are estimated at $9.3 billion, which is an increase of $391.7 million over the 2011-12 budget estimates. Total expenses for 2012-13 are budgeted at $9.5 billion; departmental expenses are budgeted at $8.5 billion, which is up $189.9 million from 2011-12.

 

The Department of Finance is responsible for fiscal projections - the assumptions on which the budget is based, so I wanted to go over a few things about what is going on in the economy. Nova Scotia's real Gross Domestic Product is expected to grow by 1.7 per cent in 2012, followed by 1.9 per cent in 2013. Real economic growth for 2011 is currently estimated to be 1.2 per cent. Like most advanced economies, Nova Scotia's economic performance in 2011 was muted by uncertainty from the European sovereign debt crisis and slow recovery in the U.S. from the distressed housing sector. So at budget time last year, our forecast was higher than 1.2 per cent, but like every other advanced economy, we have had to pare that down a bit as the recovery nationally and internationally continues to be slower than previously anticipated.

 

In addition, we face restructuring in the paper sector - I think everybody knows that - just as new opportunities emerge for long-term growth from the federal shipbuilding contract for combat vessels. After fiscal consolidation is complete and the forestry sector has found sustainable production again, our economy is expected to have many years of stable growth, especially with the combat vessel construction centred in Halifax, but of course, in no way limited to Halifax. The benefits of that contract will be felt all around the province, all around Atlantic Canada, and, indeed, beyond.

 

After years of volatility around a stable average, employment is expected to grow in 2012 and in 2013. With a stable labour force, the unemployment rate is projected to decline and that is good news for everybody, but, of course, Nova Scotia's economic performance depends on global conditions. The performance of economies around the world affects our economic growth directly through trade, particularly with the rest of Canada and the U.S. One example that I always use, because I think it is the best example of a direct link is our gypsum quarries and the U.S. housing market. The reason that gypsum is mined is in order to produce goods used in the American housing market. If the American housing market is soft, then the market for gypsum is soft. If the American housing market is strong, the market for gypsum is strong. There is a direct link between the two. It has been that way ever since gypsum quarries have been in Nova Scotia, which is now getting on for, I believe, 100 years. The production of the gypsum quarries goes up and down with the U.S. housing sector.

 

Now let me talk a bit about the Department of Finance and what our role is in all of this. It is a group - as I knew before but certainly have learned in detail since becoming minister - it's a group of talented and professional public servants. Many of them are professionally qualified, particularly in the accounting professions, so they are also working under their professional standards. I've certainly learned a lot over my time as Opposition Finance Critic and as minister, about the professional standards of accountants and auditors because much of what is done in the Department of Finance is done according to those professional standards, so I've certainly had to learn a lot about what they are, how they work.

 

What is sometimes a little bit difficult for lay people to understand is, even with professional standards, how much leeway there is. It's a little bit like lawyers - you know what they say about lawyers, that if you have one starving lawyer in town the best thing you can do is for another one to move in because then there's enough work for both of them. That's what they say about lawyers, I don't know if that's true or not. I see the member for Antigonish doesn't find that funny at all. It's the same with accountants, sometimes with these professional standards there is still an enormous amount of leeway in terms of judgment, so we've had some very interesting discussions over the years, that's for sure.

 

Now the mandate of the Department of Finance flows primarily from the Finance Act. I just want to remind members that we completely revised and reformed the Finance Act a couple of years ago. We thank the Opposition who supported that and that has given us a modern framework because it was very outdated. It gives us a modern framework for the administration of the fiscal framework and financial controls of the province. It provides for meaningful, transparent reporting, including the provincial budget, forecasts and Public Accounts.

 

The department also assesses and delivers fiscal and economic policy advice on the strategic value of government initiatives, regulates select financial institutions such as insurance companies and insurance brokers and credit unions, a major feature of that part of the Department of Finance regulating the credit union sector, and the department provides policy oversight to the securities sector. It also supports the government through the delivery of statistics, centralized and corporate shared services which, as I mentioned before, Joyce McDonald is an excellent example, who works not only to help with the accounting and budgeting of the Department of Finance but with other departments as well.

 

So the 2011-12 Department of Finance budget was $36,007,000 and the forecast is $34,407,000. Now that's a difference of $1.6 million between budget and forecast but it's really important to explain why that is. Partly it is salary and operational savings - that's a good thing - but also it is due in part to reduced amortization due to delayed project completion.

 

Some members may say, well what's that all about? Well a major part of the Department of Finance budget is the fact that the big, central, financial control systems are housed within the Department of Finance, the system that is generally known as SAP. It represents a very significant investment by the government in computer hardware and software and that was a project undertaken by the previous government. So when we came into office, this is the system that existed.

 

It's not possible, in midstream, to change systems, even if we wanted to. It's not possible to go back, it is what it is but it's expensive. It's a very expensive system and there are units of government - one in particular that I won't mention - that said to me that if they had to do it all over again, they wouldn't have adopted SAP because it's too expensive. It's a big, expensive computer system and there are other options out there. Nevertheless, that is the system in which the previous government invested. What it means is there is a significant amount of operational cost and amortization in the Department of Finance budget. So last year some projects were delayed so the amortization essentially gets shifted from the previous year to the current year. Now that makes it look like the Department of Finance budget has gone up but it's just an accounting manoeuvre, essentially. It doesn't mean that the Department of Finance is spending more than it used to, it just means there has been a delay in a capital project, just like if you have a road project and the money is allocated in one fiscal year but it's not finished and then the work is actually done in the following fiscal year, you are under-budget in the first year and then you are over-budget in the second year, but it's the same project and the same amount of money, it's just that the money has been shifted from one to the other.

 

What is wrong and unfair is to look at the second year and say, oh my God, your budget has exploded. It's like no, no, that's not what's going on, although that's what some members of the Opposition have said about the Department of Finance budget. It represents the shifting of the amortization of the cost of a major computer system that we did not buy. When I say "we", I mean we, the NDP Government. It's the system that existed, it is what it is but it's really not fair to take that item and pretend or act as if the Department of Finance budget is out of control.

 

Let's turn then to the 2012-13 Finance budget. The estimate for last year, as I said, was $36,007,000 and for 2012-13 is $38,990,000. Now this is a difference of $2.9 million. Now as I said, a good chunk of that - and I can get into any amount of detail that members want on this, if they want to contest this or ask questions about it - a good chunk of this is amortization for SAP projects that will be amortized in 2012-13 even though they've been completed in 2011-12 or previous years. As long as we have capital assets we will always have amortization. The rest is due to a transfer of salary and operating costs for phase one of centralized payment transaction services from nine departments.

 

Now I want to talk about FTEs in some detail because when the Department of Finance budget came out, the only thing that anybody in the Opposition managed to say about it was that our FTEs were out of control. So if people are going to say that, then they're going to have to sit and listen to what is actually going on because it is utterly misleading what the Opposition is saying - I shouldn't even say the Opposition because the Liberals didn't say it, the Progressive Conservatives said it and it is utterly misleading.

 

So given that that is what the Progressive Conservatives have chosen to focus on, I'm going to devote most of the rest of my time to explaining what is really going on with FTEs. The first thing is the apples and oranges comparison, much-beloved of the Opposition Parties between budget and forecast, one is an apple, the other one is an orange and you can't compare the two of them directly because the first number is the number of positions that you are funding and the second one is a snapshot in time of the number of positions that are actually filled.

 

Now in any organization at all, you're going to have turnover; you're going to have retirements. People can be on leave or they can leave the job, they leave for a different job, they retire, all kinds of reasons. So it just so happens that at the time of the snapshot the Department of Finance had 22 vacancies. So the Progressive Conservatives alleged there had been an explosion in growth at the Department of Finance of 41 FTEs but, of course, there weren't.

 

So first of all there is the apple and orange comparison, if you're going to compare apples to apples or oranges to oranges, you've got to take the 41 and subtract the 22. Now those positions will be filled in due course and next year there will be a different snapshot at a different time and there will be a different set of vacancies. So the forecast is almost always lower than the budget. You just can't compare the two, it's apples and oranges.

 

The number of FTEs that did actually go up is 19 - 41 minus 22. And you say oh, my goodness, that's a big increase, that's a huge increase from 238 to 257. All right, so what is going on there? Well the biggest part of it is the one I just alluded to, which is that there is some centralizing going on. We did it last year with payroll, we're going to do it this year with accounts payable and we're going to do it next year with more accounts payable. So next year at this time it's going to look like the FTE complement at the Department of Finance has gone up because it will have gone up, but why did it go up? Because the jobs have been transferred in from other departments. That's what centralization is, you take people who are scattered out there among all the departments and you bring them in centrally, so there can be cross-training, so there can be some redundancy, so there can be cover-offs, so eventually there can be some consolidation and reduction with attrition.

 

You can't do that if everybody is in their own little silo so that when they're not at their desk, there's nobody else who can do their job. This is what centralization is. So of the 19 new FTEs, 16 are a transfer in of accounts payable clerks from other departments.

 

Here's the significant point, there is an exactly corresponding reduction of those 16 FTEs elsewhere in government. But they do come into the Department of Finance, yes, but they disappear from somewhere else so it is utterly misleading to pretend that there has been an explosion of growth in the Department of Finance because the bit that gets left out is the exactly corresponding reduction elsewhere.

 

Three FTEs were transferred in from Community Services, three FTEs were transferred in from Transportation and Infrastructure Renewal, three FTEs were transferred in from the Department of Natural Resources, two FTEs were transferred in from the Department of Education, two FTEs were transferred in from the Department of Justice, one FTE was transferred in from Service Nova Scotia and Municipal Relations, one FTE was transferred in from the Department of Health and Wellness and one FTE was a Financial Services Officer who was transferred to the Finance CSU from Economic and Rural Development and Tourism. Now that adds up to 16.0 FTEs out of the 19. As I said, there is an exactly corresponding reduction elsewhere in government.

 

So then we say okay, so now we're down to three FTEs. But here's the thing about those three FTEs; we started with 41, subtract 22 for the apples and oranges comparison, subtract 16 for the transfers in, you're left with three. But here's the thing, of those three, two represented a transfer of money from the Department of Health and Wellness because it used to be that they had a pot of money that they used to pay for internal audit within the Department of Health and Wellness. That got transferred over, the same money got transferred over to the Department of Finance. So yes, the Department of Finance budget went up because that's where the internal audit unit is housed, in the Department of Finance, so it's going to be better for those people to be with other internal auditors, and there has been an exactly corresponding reduction in the budget of the Department of Health and Wellness.

 

All right, so now we're down to one FTE. But wait, there's more. So of that one new FTE, one represents a savings to the government - I want to remind folks of something that was in the newspaper recently about Halifax Regional Municipality. Their Auditor General released a report very recently - within the last week or two - saying they were spending too much money on consultants and if you spend a certain amount of money on consultants to do the same thing over and over again, it really in the long run is cheaper if you have your own staff to do it. Larry Munroe, their Auditor General said it might actually be cheaper if some of this consulting work was done by staff, so we did the same thing with SAP. We said, look, we can save some money if we hire one new FTE and then we cut more than the cost of that person from the cost of hiring SAP consultants.

 

If the Opposition wants us to, we can keep spending that money, but we just thought it was better, more efficient, cheaper in the long run not to do that. Yes, we did hire one FTE, but that represents a net savings to government.

 

Now we're down to zero, but there's more because there is another one and a half FTEs that were added as tangible capital asset operating positions - and this is for SAP grants management, SAP archiving; it's part of the improvement to the SAP financial control system. I assume members are in favour of more, better, more rigorous financial controls; that's what this is all about. Then there were two position reductions - a one-position reduction of a pay consultant from Payroll Client Relations, and also the elimination of a position in Fiscal and Economic Policy. So when you take it all together and you add up the pluses and minuses, the Department of Finance has actually come out in the negative territory.

 

Now the story that was being spun was we were up by 41 - oh my God, can you believe they can't control their own budget. That's not what happened. It is utterly misleading to claim that is what happened. If anybody, after this explanation, still feels inclined to make that allegation, I just want somewhere in their head to say, this is not true. I can't stop people from repeating things that they want to repeat, even if it's not true, but if they're going to, I just want something somewhere in their brain to say, this is not true. I'm happy to go over that again if folks want to.

 

I'm so into this, Mr. Chairman, I've kind of lost track of time. How much time do I have?

 

MR. CHAIRMAN: You have been speaking for almost 50 minutes. You do, in fact, have a maximum of one hour so you have 11 minutes remaining, if you want to go the distance.

 

MR. STEELE: Oh dear, I'm not even a third of the way through my material here.

 

MR. CHAIRMAN: You can't take the full four hours.

 

MR. STEELE: No, I think that's enough for now. There is so much more that I could say. I just particularly wanted to spend time on the FTEs because I thought it was really unfair for people to pretend that something different was going on than what is actually going on. With that, I'm happy to take questions, to have a discussion.

 

MR. CHAIRMAN: We have three hours and 10 minutes remaining in the estimates for today. We will begin with the Liberal caucus questioning for one hour.

 

The honourable member for Halifax Clayton Park.

 

MS. DIANA WHALEN: Thank you very much for the information we were given in the opening statement. I certainly have taken some notes of that and I did occasionally think you were answering questions I had prepared. We may go back over that anyway just for clarity. I may be asking along the way perhaps that you might give us those breakdowns. If we're talking about staffing and that type of thing, perhaps you could provide them to us later when I get to those questions. Often listening to it and writing notes isn't as good as actually seeing your list of departments and where people have been moved from and to, because that's a difficulty and you know yourself, in Opposition, where you're shown the Public Accounts which for all of those funds that we're discussing, are very short in the book. Finance is not a big department, in terms of the number of pages it takes up in the estimates, and we're left, in every department, really, with numbers that are rolled up at quite a high level, so to get the breakdown is helpful.

 

The same thing goes with FTEs, really, if you see a number that would indicate an increase in staffing - and that's why we have estimates, to have that opportunity to speak to the ministers and try and find out, to drill down really, and try and find out where those numbers are coming from and if there is a good explanation and savings ultimately at the end of the day or a better way of managing government, then clearly we're happy with that.

 

There are quite a few things you've touched on, that's for sure. I wanted to start with some of the just basic things, the increases and decreases in the department and, as I say, some of them you have already touched on. You've indicated that the department overall is really well managed, that's what you're telling us, that you're controlling your budgets and so on, but there are some items that have gone up and some that have gone down. So just as a way of starting, I'd like to know if there were any staff reductions at all in your department. We've heard where certain areas have gone up, were there any sections or segments of your department that have perhaps gone down?

 

MR. STEELE: My answer to that one is what I referred to earlier, the two position reductions were one in Payroll Client Relations and another one in Fiscal and Economic Policy.

 

MS. WHALEN: So there are only two positions that went down in the whole scheme of things?

 

MR. STEELE: And 5.5 in the previous year; so in two years, a total of 7.5 positions.

 

MS. WHALEN: Were those reductions because there were just extra efficiencies? Somebody retired and you didn't need to replace them?

 

MR. STEELE: That was to meet the government's reduction targets. Like any budgeting process, you look at the whole scope of the department and you prioritize and those two positions were felt to be really the least necessary. There's no discussion of FTEs that is simple, so then you get into that other situation I talked about, where we did add an FTE in order to save consulting costs, so if one is fixated on FTEs, then it looks like all we did was add a position, but if you look at it overall from a budgetary point of view, it saves us money, so you really do have to look at the whole picture in any given case.

 

MS. WHALEN: I take your point about the difference between the FTEs being what is funded and then the number that are filled. One of the things that we have said, which you perhaps would take exception to, is that it seems like the budget is given more positions than needed or more expected expenditure than really needed, in order to come in $200 million below your budgeted amount, or to be able to say that three years in a row you are in under-budget. So if there's consistently more FTEs planned for than will actually materialize, then that looks good for the department because you're funding those and you are putting that money in your budget.

 

MR. STEELE: I don't think that's really what is going on, though. What I was talking about, the difference between the budget forecast, was the normal turnover. It doesn't matter what number you pick, there will be turnover within that number.

 

MS. WHALEN: It doesn't take all year to replace people, though, so if it's just the normal turnover, you would replace them.

 

MR. STEELE: That's right. Remember I said that at the snapshot in time there were 22 vacancies and I also said at this time next year there will be a different set of vacancies - it might be more, it might be less. The one thing you can be sure of is that it will be a different set because you just reminded me of something else I wanted to mention. The previous government and, for all I know, governments before that, had gotten into the habit of something called funded vacancies. I remember sitting in the Treasury Board meeting one day and I said, what's a funded vacancy? The term didn't make any sense to me. I had heard it a few times before and I said, well what is that, what is a funded vacancy? What it is, is a position that everybody knows will be vacant but still gets money anyway. It is a way of padding somebody's budget - it's not the best word to use. There are a few positions that are hard to fill, there are some that are genuinely hard to fill and you can actually go for quite a long time without filling them. They tend to be ones that need a specialized skill set, but generally speaking, you're right, you don't need a full year to fill a position. That's why the set of vacancies at snapshot time every year is different.

 

One of the things we have done is we have worked very hard to get rid of these so-called funded vacancies. It was part of the softness in the budget that was one of the legacies of the previous government. Once we discovered it was there, we set about dealing with it.

 

MS. WHALEN: I don't think they ever published in the accounts that it was a funded vacancy, so that's a term I hadn't heard before. I guess it's as much a misnomer as a forgivable loan, though, perhaps. It sort of reminds me of the same thing, you get the money anyway.

 

We'll go on and just have a look at this. I'd just like to ask you, in terms of the reduction in the two staff, which is very small, nevertheless I'd like to ask you if it has had any impact on the delivery? For example, during the fiscal and economic policy area, that's really important on your forecasting and you need good people in that area. Does that have any impact?

 

MR. STEELE: Yes, that is one of the vacancies. But no, I don't believe it had an impact. There's a story behind that that I am really not going to get into because once you get down to an individual position, you are essentially naming an individual. Let me just say that at the end of the day, one of the reasons why that one was eliminated was because the impact, we believe, was going to be minimal.

 

Now the other one, though, is a payroll clerk. Really what this was, was precisely the result of consolidation, centralization. What you do is you take a function that is spread out across government and what happens when it gets spread out, there are all different standards, all different practices and things get very messy. Different things are done different ways. You bring everybody together, you get everybody doing the same job, working together, following the same standards under the same management, that all by itself leads to more efficient government, we believe. That's why we're doing it.

 

The other thing is that once you get everybody cross-trained and everybody in a unit can fill in for everybody else, then you have more opportunity, for example, if somebody leaves the job that you don't necessarily have to fill in. Then there are further savings that way. So I can say that that particular position, the payroll services officer, was a result of the centralization that that position was felt to no longer be necessary because we had centralized the services and could deliver them more efficiently.

 

What we did was we took these payroll clerks and we put them all in one office together and, just for the member's information, they are now housed in the CIBC building here in downtown Halifax.

 

MS. WHALEN: That was one of my questions, had you physically brought them together so that there would be that sharing exchange and training improvement, really, by being centrally housed. So you've brought them in from disparate departments to work together in one area rather than being decentralized.

 

MR. STEELE: That's correct. In answer to a previous question, Joyce here has just told me that in her own area all by itself, three of the 22 vacancies were in her area. She had two vacant budget officer positions who started last week and an accounts receivable clerk started on Monday. The vacancy was because of a maternity leave.

 

See these are the reasons why the apple and the orange number aren't comparable because next year there will be somebody else on maternity leave, there will be other vacancies, but they get filled over the course of the year and that's just what happens in any organization. That's why it's not fair, it's not reasonable to take the orange and compare it to the apple and say oh my God, you are up by 22 FTEs. It's just not true, it's just not what happened.

 

MS. WHALEN: Thank you very much. I know a lot of these are smaller amounts but I wonder if you have a copy of all of the reductions that have been made in your department this year that would show just all the different breakdowns of areas where you have reduced the spending?

 

MR. STEELE: I don't know what you mean, a copy of all the reductions? What would that look like?

 

MS. WHALEN: Just to see if you have a list, I'm saying. Okay, what spending reductions have you made and then do you have a list of those, or are they available? I see some costs going up, maybe there aren't any big ones going down because you are consolidating and trying to have savings that way, but I'm asking you if you have any reductions.

 

MR. STEELE: Well yes, but I'm trying to think. Of course, I mean, we have a budget and we have line items in our budget but I don't think there's like - I'm not sure, I don't think there's a document that breaks out the reduction separately. I mean what a budget is is you compare last year's budget and this year's budget and anything that is lower this year is a reduction. I don't think I have a document or what you referred to as a copy that simply lists all the reductions.

 

We can see what we can produce but I'm not going to say that that's going to be available before we're finished today. I'll go back and see what we have but I don't think there's a document that exists that simply lists all the reductions.

 

MS. WHALEN: I mean in some ways Finance is quite different from all the other departments, where you don't have sort of separate programs. You've been very clear about what your functions are, they don't change from year to year very much, so maybe it's a little bit different but I simply wanted to know where reductions may have been made, where there has been belt-tightening. We've seen it a little bit with the staffing.

 

If, indeed, you've been able to cut consultancies because you now have a funded position, and I think that's a great idea, why wouldn't we have it in-house? I've heard for years, even with HRM when they were looking at SAP, that it's a tremendously expensive program. So is there a line item where see how much was spent on the consultancies, or different consultants that we bring in for SAP or any other thing, but specifically SAP because you brought that up in your introductory comments.

 

MR. STEELE: Most of our consultants are on the SAP side. Now here's the thing about consultants, we can't be too hard on consultants.

 

MS. WHALEN: I've been a consultant.

 

MR. STEELE: You've been a consultant, so you know. There is a time and a place for consultants, particularly if there's a skill set that is not obtainable otherwise and also if there's a time-limited project where you don't want to hire on permanent staff because as soon as you hire on staff, you've got pensions, you've got benefits, you've got all the things that go along with employing somebody. When it makes sense to replace consultants with a staffer is where the consultants are essentially doing the work of a full-time staffer but much more expensively.

 

Now much of what is done on SAP, particularly on the project side, is time-limited and therefore, it is probably more appropriate to bring on a consultant. There's enough going on on SAP that there are times and places where it makes more sense to have a staffer.

 

Just a second here, I think I may have something for you. All right, so on this specific one, on professional services and consulting - this is on the CIS, Corporate Information System side of the Department of Finance - the reduction in consulting services was $314,000 and then the net increase for TCA operating costs to offset that reduction is $129,000. So there's an actual number around a concept I was talking about earlier; we saved $314,000 in consulting fees and added costs of $129,000, for savings of just a little bit under $200,000, by replacing consultants with a staffer. So as I said, FTE goes up, the budget goes down.

 

MS. WHALEN: Thank you very much, that is helpful to see, definitely.

 

I asked you about any particular savings in the department as well. Again, are there any outstanding amounts that have gone up, other than - we've got FTEs going up but are there other significant increases? I know salaries probably make up the majority of your costs.

 

MR. STEELE: Absolutely the main item that went up is amortization. That went up by $1,160,000. Again, that's amortization of SAP projects. So there were operating reductions, I am told, across the department also of $137,000, in addition to the other things that I've talked about.

 

MS. WHALEN: Could you repeat that last one?

 

MR. STEELE: It's $137,000 of reductions in operating costs. As I was saying off the top, the main reason why it looks like the Department of Finance budget went up is the $1 million-plus increase in amortization of capital projects that are related to SAP, and also the transfer in of 16 FTEs from other departments, so we collected the people and the budget from the other departments and, of course, there was an exactly corresponding decrease in the budgets of those other departments.

 

MS. WHALEN: I do appreciate that. One of the things that the Opposition wanted to look at was all of the FTEs in government and how things are moving around and we're not able to get to the Minister responsible for the Public Service Commission, unfortunately, in the time that estimates is allowed.

 

If the minister is so clear about how we're mistaken in Opposition, I think it's important to note that we haven't had an opportunity to talk to the person responsible for the entire civil service to know how that effort is going to reduce the civil service by 1,000 positions and where the positions are being moved and juggled and whatnot. It's an important issue to all of us because although you say you're not responsible as Minister of Finance for the spending of all the other departments, and we have in the past asked questions in the House, which have been passed to the appropriate minister because the Minister of Finance is not going to take responsibility for spending in another department. I think it's important to know that Opposition members are trying to make sense of where all of the bodies and people that are employed are moved about. It's a small number here and you've been very clear in what's responsible under your own department, but there is a lot more in government that we would like to know about.

 

I want to ask about the amortization, if I could, because you pointed out that is the single largest item that is responsible for the budget going up and yet you said it's for projects that were completed in earlier years and yet they're being amortized now. Now amortization is supposed to be an even amount all the way through, right? If you start a project and you amortize it over 20 years, you'd do it equally for 20 years. Would you see a lot of ups and downs, is what I'm asking? Why would it be up $1.6 million - unless there were new projects added to that, because the amortization is a basket of all kinds of projects. Amortization is really just a form of depreciation, really. Are we talking about the same thing? We are?

 

MR. STEELE: If I could go back to a previous question - I will get to this question - there is another factor that makes it appear like the Department of Finance budget is up when it really isn't. I want to talk about that briefly. I would be happy to talk about it at considerable length if members are interested; although I may save that for later.

 

I'm the Minister responsible for the Insurance Act and within the Department of Finance is housed the Superintendent of Insurance. I think members are aware that one of the initiatives of the auto insurance reforms was a new levy on motor vehicle policies that is being collected on behalf of volunteer fire departments around the province. We have been working with the associations that the volunteer fire departments belong to on how that money can best be distributed. It's 50 cents per auto policy and we expect that in the current fiscal year, that will raise $320,000 that will go directly to support volunteer fire departments.

 

Now, here's the thing about the Department of Finance budget. Because the Superintendent of Insurance is the one who collects the money from the insurance companies and because he is housed within the Department of Finance, that is added to the Department of Finance budget as an expense, but it is also added as a revenue item, so money in/money out - no difference to the overall budget, but if one is inclined to look only at the spending side, it looks like spending of the Department of Finance has gone up by another $320,000, but it hasn't - or it has only in the most literal sense of the word because the revenue is coming in from somewhere and then we pay it out, $320,000. That's another reason why the department's budget looks like it has gone up but really hasn't. I can talk about that at any length that members want to, if they want to later.

 

Let me talk now, to go back to your question about amortization. Now, you asked, I hope you're ready for this. There are few things more dull than an extended discussion of amortization but you asked for it, so here we go. The total amortization budget in the Department of Finance is $7,190,986. That is comprised of 13 separate items, please don't ask me to explain what they are. I'm going to list them for you but the expert on SAP is sitting to my right and if you have any detailed questions about what any of these particular items are, I'm just going to turn to him.

 

So $3 million of that is SAP business enhancements, which includes $1.79 million for software put into use in 2012-13; SAP upgrades, $1,615,347, which includes $115,000 for software put into use in 2012-13; SAP school boards Phase II because we do support SAP for school boards, $811,741; EH&S Module, Employee Health and Safety Module, $211,686; SAP for housing authorities because we do their financial work as well, $210,722; SAP audit and controls, $86,722; payroll for relief workers, $47,583; the Grants Management Solution, $21,938, all of which is software put into use in 2012-13 and software licences for SAP, $19,657. That's on the software side.

 

On the hardware side; SAP upgrades, $775,779, which includes $370,000 or roughly half, for hardware put into use in 2012-13; SAP business enhancements, $259,481; HASP - I can never remember what HASP stands for - the Health Authorities Support Program because, of course, we do the SAP work for the health authorities, $66,315; printers, $29,961 - remember, this is amortization, this is not buying printers. It is stuff that has been purchased in the past and that all adds up to a total amortization of $7,190,986. That's the amortization budget.

 

By the way, the accountant to my right here just feels it's important to point out that it's not straight-line depreciation, it's declining balance.

 

MS. WHALEN: Thank you. The minister had begun, Mr. Chairman, by saying that it was up significantly this year. There would have been all of these services in place previously, would there not? I mean we have been using SAP for many years so maybe we could just quickly sum up where we're at with SAP. Is this something we're still investing in each and every year in a big way? It has been our system for payroll and for other things for a long time. I know we brought the health authorities on board and a few other school boards, maybe. Perhaps there has been a huge cost to that but I would have thought that a lot of that, especially the hardware, would have been up front. There are items in that list that I'm surprised would even be included. I wonder if you could give me a copy of that list. So two things - may I have a copy of that list that you read, just so that at my leisure I can look at it another time? I don't think it's a secret because you read it all into the record.

 

MR. CHAIRMAN: Sorry, Ms. Whalen, could you be more specific about what list? As I understand it, the minister was talking about amortization.

 

MS. WHALEN: The list of the $7,190,000 broken down by different items, different hardware, software, new enhancements, SAP payroll, all kinds of different things. I just wonder if it's possible. I don't need it this minute. I just want to ask for it for the future. If I could have it tomorrow would be fine.

 

MR. STEELE: Yes, I just looked it over and I don't see any problem giving it to you. There is nothing on it that's a state secret. Perhaps during the break we can get you a copy of that.

 

MS. WHALEN: As I say, it's not a real rush, but I would like to be able to go over it rather than just have my scrawled notes on what's included in that. Obviously this is an important line; it explains a lot of the differences this year in the budget for the Department of Finance. It's of interest, I think, to everybody to understand where it's coming from. The minister mentioned that it's related to earlier purchases. I didn't know if you were trying to say that it was purchases that weren't your responsibility or perhaps things that were done by previous governments. I'm not sure. Is that the case or are these things that were required anyway?

 

MR. STEELE: Broadly speaking, these are things that have been done previously or committed to previously, although some of them, of course, have come in while we've been in government. It's kind of like - once you have the vehicle and you're in it and you're most of the way down the road, you don't stop and say, hey, maybe it would have been better or more fuel efficient if we had started with a different vehicle. It's just a little late for that. For example, the school board's SAP Phase 2 was completed last year, so now what's in the budget for this year is just amortization. The SAP grants management module - if I can call it that - is scheduled to be completed by March 2013, so that's something that is still underway. The data archiving project is to be completed in March 2013. Those are the two big ones that are still underway.

 

Previously completed projects include payroll for relief workers, which was completed in 2010-11 - it just needs to be amortized out now - and payroll for housing authorities, which was completed in 2010-11 as well so that all that is left is amortization.

 

MS. WHALEN: I'll be happy to get that. As I say, tomorrow is fine as well, when your budget estimates are finished.

I'd like to go to the restructuring, if we could, to have a look at that. That was one of the estimate numbers that you gave us in the very beginning, one of the ones that you have to read. It's $198 million now. It is interesting that it's higher than it was last year. I haven't gone back further, but I think that's a significantly higher amount than we've seen in previous years. Last year was $111 million and actually, in fact, $98 million is what was forecast - the most recent forecast. It's up to $198 million and I would like to know what is included in that or what provisions are being made. I understand it's kind of a catch-all. I would take it to be an area where you put in things for contingencies and maybe things that you can anticipate and are likely to happen, but they don't fit in other budget lines. In a way, it's a little bit like the IEF - or the new name of the IEF, whatever it may be - because it varies and what is used in it may vary significantly as well. I wonder if you could address the restructuring costs and what it is made up of.

 

MR. STEELE: Sure, I don't recall - I haven't checked to see if it's the highest ever; I don't think so. I have this recollection of it being over $200 million one year. In any case, we can check on that, it's not important. It is a relatively large number this year. What I'm going to do is describe for you the categories of things that it covers. I think we all know that there is a reason why it is where it is and some of it has to do with wage settlements and you don't start negotiations by telling people on the other side of the table how much money you've set aside for them.

 

There's still some outstanding work to be done on the mills, particularly NewPage in Point Tupper. Again, this is something that is still underway. The discussions are difficult, they're complex, they're sensitive and we're not prepared at this point to say precisely how much may or may not have been set aside to deal with any particular aspect of that particular negotiation. I'm sure you can understand that there is a limit to what I can say. That's why I'm not going to talk about specifics except for maybe one thing and the rest will be general categories.

 

The one thing that I don't mind mentioning - I'm not sure if it's public or not - I don't think it really matters whether it has been publicly announced before or not, but one of the things in this year's restructuring has to do with the merger of the Nova Scotia Agricultural College with Dalhousie University. Part of that deal - deal is the wrong kind of word - part of that agreement is that there will be a transfer of property and, from an accounting point of view, the book value of that property has to be accounted as a loss on the province's books, even though my own personal view is that this is a fantastic opportunity for the Agricultural College to move to a whole different level of excellence and service to the agricultural community in Nova Scotia and beyond. I'm really quite excited about this merger with Dalhousie University, but from an accounting point of view, we have to account it as a loss. One of the items that is in the restructuring budget this year is a provision of $26.6 million, which is the accounting loss on the transfer of the Agricultural College land. That's the only one I'm going to be specific on.

Broadly speaking, there are seven items, broad areas in restructuring. The first one is Workforce Adjustment Initiatives, which may be applicable to all departments, units, business enterprises and other entities. Examples include severance payments and related settlement costs such as legal, training and benefit costs.

 

I should say that it all comes clear in the long run. In the long run, all of this has to be accounted for, but some of it is accounted for after the fact, rather than being revealed before the fact, so nobody has to worry about anything not being properly accounted for. Of course, all of this is fully subject to audit and reported to the Auditor General and all that kind of stuff.

 

So that is the first category. The second category is Provision for Contract Negotiations. It is used for costs associated with employment contracts that are still in the negotiation process, as well as the actual costs related to the negotiation. It is important that these costs be budgeted centrally and not in departments for negotiation purposes.

The third broad category is Business Process Re-engineering, which is costs incurred in conjunction with the restructuring of government, such as the merging of business areas, where the major reorganization of the department and costs associated with corporate initiatives cannot be attributed to a specific department. For example, in the Speech from the Throne, there was allusion to the possibility of some decentralization of government offices. If there were costs associated with that - and I'm not saying there are or there aren't - but if there were it would be in the restructuring line item.

 

Another item that is in restructuring is Fees for Freedom of Information and Protection of Privacy for all Nova Scotia Government Departments; Ordinary Recoveries, which are any recoveries that cannot be allocated to a particular department, as well as recoveries from prior fiscal years. There are also - as I alluded to earlier - some items related to what we refer to as mills administration. I won't say any more than I've already said about that.

 

The final one is Loss and Disposal of Crown Assets, and I've given you the specific dollar figure on that particular item. All of those items can be found in restructuring.

 

MS. WHALEN: That's very good. I believe I mentioned the NSAC. In my reply to the budget I was talking about the - I know I spoke about it in the House so I think it was in my reply - wondering about the assets and how that would be accounted for because, in fact, I'm surprised it's only as much as you said, $26.6 million . . .

 

MR. STEELE: That's not the full cost, that's just that particular item associated with the disposal of land.

 

MS. WHALEN: But if it's a write-off, the government owned all of that facility before, we owned all the land, the labs, the animals, the equipment, the buildings and residences, it was all owned by the government.

 

MR. STEELE: It was just that the land was on our books and it will now be on Dalhousie's books, so when you do that you just have to write down the value. It is the book value of the land. So it was our asset, now it is not, we have to write it down.

 

MS. WHALEN: So just for clarity only, was it only the land we are concerned about, not the other assets of the university?

 

MR. STEELE: Oh, I don't think I'm going to get into that here today. I'm just telling you what specific item is in restructuring but I don't want to get into the details, all the ins and outs of the whole agreement, the three-way agreement between the province, the NSAC and Dalhousie. That's a whole different kettle of fish for another day, I think.

 

MR. CHAIRMAN: Minister, I believe there's a bill coming forward on that, is there not?

 

MR. STEELE: Yes, I think there'll be plenty of opportunity to discuss all the details about that. I'm just mentioning the accounting item for the write-down of the book value of the land, which happens to be this year in the line item for restructuring.

 

MS. WHALEN: Would there be another department involved in this, in terms of accounting for the assets of the college?

 

MR. STEELE: I think the department that has been most intimately involved has been the Department of Agriculture.

 

MS. WHALEN: All right, we'll go there another time. That would be just fine.

 

The other interesting item I want to look at is the pension valuation adjustment.

 

MR. STEELE: I warned you.

 

MS. WHALEN: I know you did but I didn't want the hour-long answer on that one. What I'd like to ask is, I think it's a pretty specific question relating to the change in the way we're going to be managing pensions. The FMA has the two portions in it for the new corporation - I've got the press release here - the Public Service Superannuation Act will be one and the Nova Scotia Pension Service Corporation Act will be the other and it is going to be handled in a different way.

 

I was wondering if that means that in future there will be less volatility or uncertainty in that pension valuation adjustment. I'm just looking more to where it will go in the future this year. It is up considerably but I know that one bounces, it just goes up and down quite tremendously.

 

MR. STEELE: I'm going to have to think about this because I'm really uncomfortable talking about future events. We have in this year's budget a particular estimate for the PVA and yes, it is a substantial amount of money and it is more variable than I would like it to be. It's almost entirely out of the government's control. Essentially I get presented with a number and say well this is what it's going to be.

 

I've tried to drill down into it and get more about it but essentially it's just a calculation, but an exceedingly complex one. The changes that were implemented two years ago mean that this number is considerably less than it would have been otherwise. I am hesitant here today, right now, to purport to project what this number might be in the future. I think I had better leave it at just what the number is here today, in front of us, for the 2012-13 budget.

 

MS. WHALEN: Thank you. If I could just clarify, when you refer to it as being considerably less than it would have been otherwise, is that because of the joint trusteeship of the pension plan, or the move towards having joint trusteeship?

 

MR. STEELE: No, the changes we made a couple of years ago have to do with the reform to the benefits that are paid out. That's what I am referring to. The joint trusteeship, of course, is in the future and you might even say well into the future. I'm not anticipating that the plan will come under joint trusteeship in the 2012-13 fiscal year so we're talking about a future event. I think we better save future events for a future day.

 

MS. WHALEN: So it goes back to the indexing of the current people who are pensioners already and the reduction based on how well-funded the plan is - is it as simple as that?

 

MR. STEELE: No, nothing is simple when it comes to PVA. That would be an element of it, but it's only one element of it. There's more to it than that. One of the things that I might mention, I don't think I'm wrong in saying this about PVA - there was a decision - let me step back a bit. In our system of government, judges are supposed to be independent of government. That is a very important constitutional principle in order to ensure that they are completely independent of the executive and legislative branches of government. What that means is that their salaries and pensions are not directly under the control of the government. As a result of some court decisions, we have an independent body that is set up to decide on judges' wages and other benefits, including pensions. We had anticipated that that panel would adopt the same indexing regime for judges as was adopted for everybody else. That seemed to us reasonable because, after all, the point of the constitutional principle is to ensure that judges are not singled out for special adverse treatment, but I don't think it was meant to make sure that judges were meant to be singled out for special positive treatment where they just get more than everybody else gets.

 

The panel concluded on a formula for setting indexing different than was available for other members of the plan. As a result of that, it was a reasonably significant upward adjustment in the PVA this year, which is attributable entirely to judges' pensions.

 

MS. WHALEN: That's good to get a little bit of background on that as well. I didn't want the hour-long discussion, so I guess I'd better just leave that line item alone for the time being. I know it is something that we see quite volatile during the year. As we go through the year, it often is an item that is changing in your quarterly report.

 

MR. STEELE: Byron is very disappointed. He lives for this stuff.

 

MS. WHALEN: We'll have to have another session somewhere else, I guess, like Public Accounts Committee or something like that. I wanted to look at the royalties on petroleum because that's a real reduction this year. I know that we've had some better news coming recently in that sector so I'm wondering if, indeed, this estimate for this year is going to be as bleak as it looks.

 

MR. STEELE: The short answer is, yes. I mean, if we didn't believe this was the right number, it wouldn't be in the budget. It's worth reminding members that the part of the budget that is reviewed by the Auditor General is the revenue side, so despite what Opposition members say from time to time, we can't just make up revenue numbers. We can't make up any numbers, but we certainly have another set of eyes on the revenue estimates. He doesn't certify that they're right because nobody can do that - it's a forward looking number, but what he does do is he looks at the assumptions on which the revenue estimate is based, he verifies that the assumption is reasonable and that the forecast is, indeed, based on those assumptions. We do have some assurance that this is a reasonably defensible number.

 

The reason why it is as low as it is, is, first of all, Deep Panuke is not on-stream yet and I'm not sure whether there's any money for Deep Panuke in this year's budget. I don't believe that there is, but even if there was - I think it's important to tell members that Deep Panuke is a much smaller field than Sable, so even when it's in full production, it is not expected to generate a great deal of revenue for the province. When I say "not a great deal of revenue", I'm talking about less than $20 million per year.

 

The other reason why the royalties are so low is that Sable is on the downward slope. It is getting closer to the point where it's at the end of its useful life. I suppose you could say that about anybody or anything, but at any rate, there comes a point towards the end of the useful life of the field when the operators start incurring shutdown costs and costs preparatory to shutting down and they are able to deduct those from the royalties. That is the way the royalty regime works. That is why our offshore royalties have dropped to, what in my terms anyway, are practically nothing - $27.7 million this year, a decrease of $82.7 million or 74.9 per cent, from last year's budget estimate.

 

So world market prices for natural gas remain at historically low levels, production volume is projected to decline. That's why the offshore royalties were low anyway. Then the other sentence, this is on Page 3.6 of the Budget Assumptions and Schedules, this is a more articulate way of expressing what I was just trying to say, "The accrual of abandonment costs estimated by Sable Offshore Energy Project interest holders is a major factor contributing to the decline in revenues." So low prices, low production, accumulation, accrual of abandonment costs and Deep Panuke not being on-line, all that add up to really low royalties.

 

MS. WHALEN: Thank you. I'm just wanting to check, initially wasn't that, under Sable, supposed to be about 10 years that we would be getting it or more? It doesn't seem to me that we had very many high years in there.

 

MR. STEELE: We did have some really high years but the Progressive Conservatives spent it all.

 

MS. WHALEN: I know it was under the previous government and I know you and I were both Finance Critics but it didn't seem to me to be a long run that we had, we had a few good years.

 

MR. STEELE: Yes, we had a few good years and I think in my mind it got as high as like $500 million was the peak. But yes, we hit the peak a number of years ago.

 

MS. WHALEN: It wasn't sustained very long at all.

 

MR. STEELE: It was good, it was good for the bottom line. The difficulty is, and I'm being mostly serious about this, is that the money was spent. It really went to program spending and now that the money is gone, the programs remain behind and that's certainly one of the reasons why we have some of the financial difficulties that we do.

 

MS. WHALEN: Thank you very much, and through you to the minister, I think to be fair, some of those program spendings were very much encouraged by the Official Opposition at the time, whether it be the health care costs in nursing homes, which I did support, or the 7 per cent off the HST . . .

 

MR. STEELE: I don't remember being at the Cabinet Table . . .

 

MR. CHAIRMAN: Order. I don't want to interrupt the flow of the debate but I would like to make sure that we don't talk over each other. Ms. Whalen.

 

MS. WHALEN: Yes, thank you. It was just in order to maybe clarify because there were some significant demands on that government and perhaps they did do some of the things that the NDP take credit for to this day, but now you have to also pay for it to this day, so that's a little bit different. I realize my position might be different, having been in Opposition since I was elected.

 

I wanted to look as well at the idea of the motive fuel tax. Actually, before I go there, I'd like to look at some of the other, the costs around alcohol and cigarettes, if we could, to see if there have been any changes at all this year, in terms of the taxes that you want to put on that. I think there was some talk about higher liquor prices, am I right? That's the question, is there any change in those?

 

MR. STEELE: Let me make sure that we're using the same terminology. There is no liquor tax in Nova Scotia so let's be clear on that. The way the government gets its money is that we scoop up the profits of the Liquor Corporation. Now functionally, it's the same thing, you could say.

 

MS. WHALEN: Well if you increase the price of the alcohol . . .

 

MR. CHAIRMAN: The minister has the floor.

 

MR. STEELE: Well you don't necessarily because you can increase the price of alcohol but if the costs of running the Liquor Corporation go up, the net revenue to the government doesn't go up. As the Minister responsible for the Liquor Corporation, I have never, ever, not once, ordered the Liquor Corporation to raise its prices, it's just not the way it works.

 

Twice a year the Liquor Corporation reviews its pricing structure. It has been that way for a very long time and we certainly haven't changed that. They make the decisions about what it is that they are going to charge; the price of some items goes up, the price of other items goes down but the day-to-day decisions about how much to charge for what is in their stores belongs to the Liquor Corporation. I have never, ever, not once, talked to them about liquor pricing.

 

Now you say, does that mean the government has nothing to do with it? Well no, the Legislature has something to do it because part of the Liquor Corporation's business plan is a target for revenue, so the revenue target is approved, first of all, by me as the Minister responsible for the Nova Scotia Liquor Corporation; second of all, by the House. When we approve the budget, we are approving their business plan and so it follows that the Liquor Corporation makes their pricing decisions based on what they need to charge in order to hit their targets.

 

Having said that, they don't always hit their target; they try very hard, but they don't always hit their target. Last year, for example, 2011-12, they didn't. There was a nation-wide drop in beer sales. There are complicated reasons for that and beer sales are coming back. It had partly to do with a cold, wet summer, but there's more to it than that. So they didn't recover the loss of projected sales and so they didn't hit their target last year and they didn't raise their prices to try and make up the difference, so that's the model; that's the structure.

 

If there are going to be liquor price increases this year, it's not because the government's ordered to; it may be necessary in order to hit their target. I think it's best to avoid discussion of liquor tax because some people do raise that. The concept is just not helpful, I think, in understanding how the Liquor Corporation works and how prices are actually set.

 

MR. CHAIRMAN: Ms. Whalen, before you speak, it's the custom here to give you a ten-minute warning. Your time is about eight minutes.

 

MS. WHALEN: Not very much time left in this hour. I think it's just because we've been brought up with the idea of sin taxes. The government reaps a profit from gambling, cigarettes, from alcohol. I appreciate your terminology. We do reap the benefit of the operation of the Liquor Corporation in terms of its profits.

 

I guess a short follow-up to your discussion would be - is there any time when you would suggest to the Liquor Corporation what you want to see as their target? You approve their business plan, but do you guide them to say - it went down last year, I want it up, or do you simply sit back and allow them to say, this is what the market is doing right now?

 

MR. STEELE: It's an interesting question because you'd think that we would have that conversation with them, but I never have. Not to say I never would, but they come forward with a plan and I have a discussion with them. I do read a draft, I do debate with them their draft. At the end of the day, I do sign it, but, as a matter of fact, in the three years that I've been the minister, I've never questioned or asked them to change their proposed budget for net income.

 

On Page 234 of the Crown Corporation Business Plan is an interesting chart that shows the growth in net income. Net income, that's what is paid over to the province. In 2007-08, it was $198.7 million; the following year, $212 million - so big increase there. That's a 6 or 7 per cent increase in a single year. Then the year after that it went from $212 million to $219 million - not such a big increase. The year after that it went from $219 million to $223 million. This is, of course recession territory from 2009-10 to 2010-11 - an increase of only $4 million; that's a 2 per cent increase. The year after that, which is the year just finished, there was a drop down to $220.5 million so three years again - $219.4 million, $223.2 million, $220.5 million - so about the same. That's the forecast for 2011-12 and then the budget for 2012-13 is $224.5 million, so really very similar, not much more than the actuals for 2010-11.

 

What they do is they propose a plan to me and, as minister, I approve the plan. I've never asked them to change that number, although I could. I could say that's not enough, I want you to raise more and that would lead indirectly to - well, it's like any business, there are only so many ways to improve your bottom line, you can cut costs or you can raise your revenue. They would probably do a little bit of both, I imagine.

 

MS. WHALEN: I think there are only a couple of minutes left and I'm glad to hear that we're not directing that budget, particularly because I think two years ago, it might have been the year that you became minister, in the business plan there was a suggestion that we should sell more liquor to women.

 

I remember questioning the Health Minister at the time in estimates because I was the Health and Health Promotions Critic. The report said, probably quite rightly, that they were already selling a lot to men and maybe that market had been satiated and therefore, they should do more direct marketing to women. I do see that when I'm in the liquor stores - not that I go in often - but I saw a great big sign for Skinny Vodka or something, it showed a very nice-looking woman who is very thin and saying you can drink vodka and be thin. It was clearly directed at women and there are products in the store that are directed at women.

 

I hope that's one of the aims of the Liquor Corporation this year. I think that it was probably taken out of the business plan because it wasn't very politically correct. I would hope that's not how we want to grow the market.

 

I wonder if we could just talk briefly about tobacco tax and whether there has been a negative impact - I think we have time for only a quick answer here - any negative impact or increase in the contraband tobacco?

 

MR. STEELE: That reminds me of the Guinness Book of World Records entry for the 10 top art forgeries of all time -number one was the one we haven't found yet because if it was really good, you wouldn't know it's there. It's impossible to say how much contraband there is. If we could identify it precisely, we'd stop it.

 

We have indirect ways of trying to figure out how much contraband there is. It's not direct, we don't know for sure. I've had some really interesting discussions with the tobacco enforcement people about this stuff, about what they do, how they do it, what they know, what they don't know.

 

Broadly speaking, the folks in the tobacco enforcement business say there is less contraband than there has been in the past but the main reason for that is not any aspect of government policy, it has to do with that fact that the American market near the places where illegal tobacco is mostly manufactured has opened up so there's more of a market closer to where the contraband is manufactured. Therefore, there's less call to send the contraband to a more expensive place, like Nova Scotia.

 

Obviously we're hanging out here on the edge of the continent, there's only so many ways you can get tobacco here, including essentially a single road across the border. Of course there's more than one but you've got one highway, which is not something that the criminals like. Of course you can bring some by boat but cigarettes tend not to come by boat in Nova Scotia, it's the other stuff that comes by boat, it tends not to be cigarettes. Anyway, it seems like contraband is down mainly because other, bigger markets are closer to the point of manufacture, not because of any particular aspect of government taxation policy in particular.

 

MR. CHAIRMAN: Ms. Whalen, I believe you have one minute.

 

MS. WHALEN: I don't think that's enough time for a real question so I'm just wondering where we'd want to go with one minute left.

 

MR. CHAIRMAN: Well you don't have to go anywhere with it.

 

MS. WHALEN: I think perhaps we'll just leave it on the table and carry on because I do get another hour at the end.

 

MR. STEELE: I wonder if I could trouble the member for Inverness to see if we could take a five-minute break? Would that be okay?

 

MR. CHAIRMAN: Yes, we will recess for five minutes.

 

[3:50 p.m. The subcommittee recessed.]

 

[3:55 p.m. The subcommittee reconvened.]

 

MR. CHAIRMAN: Seeing a quorum, I'm going to call this meeting back to order. It is now 3:55 p.m. The next hour belongs to the Progressive Conservative caucus.

 

The honourable member for Inverness.

 

MR. ALLAN MACMASTER: Thank you, Mr. Chairman and thank you, minister, for your opening remarks today. I actually put most of my questions together based on your opening remarks to provide a focus for the items in the Budget Estimates for the Department of Finance.

 

My first question has to do with the income side because you mentioned that you take some responsibility at least for the income side for the provincial budget. There was an investment in offshore research. It's funny, this afternoon when I was getting on the elevator to leave the building to come over here, I met a person who worked in the office that did the research on the offshore, which resulted in bringing new activity. You may recall hearing about Shell, their plans to initiate about a $1 billion worth of economic activity for the province by way of the offshore. In putting together the budget for the department and recognizing the offshore royalties as a significant resource to the province and source of income, have you looked at doing further research in the offshore?

 

MR. STEELE: It wouldn't be the Department of Finance that would be doing the research, sponsoring the research, overseeing the research. Within the four corners of the Department of Finance, what I can say is that we never include forecast revenue unless a project is actually underway. If there are new projects, it's what the economists like to call an upside risk, which I always thought was a funny expression. It's an upside risk to the forecast. Of course, Shell, for example, if they find anything, it's years and years out, so we would be many years from including anything in our forecast on account of, for example, what Shell is up to. I've been asked each year that I've been minister, is there anything in for Deep Panuke or how much? The answer is no - Deep Panuke is not up and running yet, therefore it is not in the forecast.

 

I'm trying to remember whether we included some this year. It keeps getting delayed just a little bit and I believe, at the end of the day, we didn't include anything for Deep Panuke, but when it is up and running and producing you'll see an estimate for royalties. Like I say, I want to caution people - even when Deep Panuke is at full production, the amount is going to be very small.

 

Okay, here it is. Page 3.6 of the Budget Assumptions and Schedules document: "Production of Deep Panuke is expected to commence in July 2012." That's why this year's budget includes $2.5 million in petroleum royalties from Deep Panuke. So this will be the first year there is actually money in the budget from Deep Panuke.

MR. MACMASTER: I know that the decision to invest that money in research, I know that while it may not bring royalties for many years to come, the offshore activity and the exploration for the resource has benefit, but I certainly respect your answer and know what you're getting at there. I think that must have been a good investment because that's a billion dollars of economic activity that we didn't have before it was made.

 

I also know this year - I believe the budget was to the better about $186 million by way of an agreement made in 2007. Can you comment on that? I believe that was brokered between the federal and provincial governments at the time that led to an increase of about $186 million?

 

MR. STEELE: I'm not sure which agreement you're referring to.

 

MR. MACMASTER: It's a significant item in this year's budget, I know that.

 

MR. STEELE: You must be referring to something in the neighbourhood of the offshore accord and the Crown share, but I'm not sure exactly which number you're referring to. Can you point to a line item in the budget?

 

MR. MACMASTER: I actually have it, but it's over in the other room, so perhaps we'll just let that one go. I guess I just wanted to make note of that. I'm actually surprised - I thought it was a significant part of - on Budget Day there was recognition . . .

 

MR. STEELE: There is a thing that is a significant part but I'm not sure if it is the same that you are referring to. That's why, before I answer, I don't want to assume that we're talking about the same thing, I want to make sure that I understand what you're talking about before I answer.

 

MR. MACMASTER: Maybe I'll revisit that before the end of my hour of questioning.

 

My next question is around corporate tax rates. I guess this would fall under the taxation policy of the department, which would be relevant to our discussion today. I know that there has been a goal of the federal government to try to create a corporate tax rate of 25 per cent and it would require provinces to have a corporate rate of 10 per cent. Ours is presently at 16 per cent. Can you comment on what the plans are over the course of the next year? Is there any plan to reduce corporate tax or to partner with the federal government?

 

I presume their goal is to be able to market the country as a place where there's sort of a consistent low corporate tax rate.

 

MR. STEELE: You know we'll reduce our corporate tax as soon as the federal government makes up the loss of revenue. If they want to market the country internationally as there being a uniform rate, that represents a loss of revenue to Nova Scotia so we'd be looking for compensation for that loss of revenue. If what they want to do is market a particular rate without actually compensating us for the loss, it's hard for me to see how we would do that.

 

To answer the question directly, there is nothing in the budget about reducing what I would call the headline corporate tax rate, but of course I would point out that for the third year in a row, we are reducing the small business corporate tax rate, which is a piece of the corporate tax rate, so we are reducing corporate taxes to that extent. For anybody that qualifies for the small business tax rate, we are following through on the elimination of the large corporation capital tax as well. That represents a reduction in corporate tax.

 

The thing about what I call the headline rate is it is actually fairly misleading and gets far more attention than it probably deserves. What really matters is the effective corporate tax rate, the rate that people actually pay, as opposed to the headline. I've seen at least one analysis that says for new investment in Nova Scotia, Nova Scotia has among the lowest corporate tax rates in the country because of investment tax credits, federal and provincial, that are available.

 

Other than the things I have mentioned, there's nothing else in the budget other than what I have mentioned, on corporate taxation.

 

MR. MACMASTER: Thank you, minister. I think that recognizing that there would be a reduction in the tax and possibly a reduction in the revenue, I guess the logic would be that if taxes are lower, it might increase more activity in the country here, which would make up for that loss and maybe even result in increased corporate tax revenues from new economic activity.

 

The other item that was spoken about a bit today was the Nova Scotia Securities Commission. I know that's one of the items in the budget. Just a question for confirmation, is it the case that some of the legislation that is before the Legislature right now is designed to try to harmonize our Securities Commission with the other securities commissions across the country, to allow for more uniform - I guess to essentially allow for, in essence, one national securities commission, by way of having the same rules in every province?

 

MR. STEELE: If I could just start by answering your first comment; this idea that you increase your revenue by cutting your tax rate is one of those myths of the right wing. It just doesn't happen, there just isn't evidence to support it. For example, we don't have to look far, you just have to look at New Brunswick which cut their corporate tax rate on the premise that people would flood into New Brunswick and it didn't happen.

 

What happened was they blew a hole in their provincial revenue and, as a result, have added $3.3 billion to their debt in only four years. One of the reasons is because the previous government - it wasn't even a Progressive Conservative Government, it was a Liberal Government - bought into this myth that if you want to increase your corporate tax revenue, you decrease the rate. It just doesn't happen. Now, as the Minister of Finance, I do not have the luxury of making moves like that and then crossing my fingers and hoping that it works. If it doesn't work - as it didn't work in New Brunswick - then all we've done is added to our debt. That money that we've lost then gets added directly to the debt. So New Brunswick is now matching us and will soon surpass us in debt-to-GDP ratio partly because of the choices that their previous government made - one of which was to cut the corporate tax rates on the premise that it would attract business into New Brunswick. It just didn't happen and we have no particular reason to believe that it would happen here.

 

Securities - a very interesting topic for people who are into the securities business. The current federal Conservative Government - and particularly the Minister of Finance - has had a dream of a national securities regulator. He believes - and I'm not going to disagree with him - that it is a disadvantage for Canada among nations to have our securities regulated by 10 provinces and three territories rather than one national regulator. For example, securities in the United States are regulated by states, but also by the national Securities and Exchange Commission, so when people think of securities in the U.S., they think of the SEC and that's the model that the current federal government has in mind.

 

So Mr. Flaherty, in particular, has moved along this path and a great deal of work has been done over the past number of years - certainly well before we came into office - to try and see what could be done. So what the provinces have done was to try and harmonize their systems. Quebec wasn't interested - and for their own political, constitutional reasons they were not interested in joining any kind of national body, so they were out from the beginning. Sorry, they're out from any discussion of a national regulator, but what they were into was a system of - harmonization is not the word that is used. The system is referred to as the passport system where once you qualify in one jurisdiction, it essentially gives you a passport to other jurisdictions. The one province that wouldn't participate in that system was Ontario, which is by far the biggest, and for their own political and other reasons, they said, no, we're not going to participate in passports.

 

The other nine provinces have done a great deal of work over the past six, seven, eight years on the passport system, which requires a high degree of harmonization. That's why over the last three, four, five years, every year there have been one or two bills in front of the Legislature designed to keep Nova Scotia up to date with the rest of the country on the passport system, so that work is continuing.

 

The passport system actually works remarkably well, considering that Ontario is not part of it and right now, after the decision of the Supreme Court of Canada, the whole thing is kind of in a state of flux. The most direct route to a national securities regulator has been rejected as unconstitutional and the federal government now is exploring with the provinces - including Nova Scotia - about what comes next. In the meantime, the passport system continues to function reasonably well.

 

MR. MACMASTER: Thank you for the clarification. I think that's something that is important for the province. When I say that, what I mean is just that for our whole country, no matter what province you're in that there is some consistency around the regulations.

The next question I have is about sinking funds and this is just for clarification as well. I thought last year it was expressed that there is no longer going to be a requirement to have sinking funds because lenders are recognizing the province as having a very good credit rating and that it was kind of defeating the purpose for somebody with a good credit rating to be borrowing money, but also to also be putting money aside to pay the cost to borrow that money. I see it's still in the Budget Estimates. There is probably a good reason for that. I guess I'm just asking for clarification.

 

MR. STEELE: I never would have said anything like that last year because I've never heard before just now the idea that there is any linkage between having a good credit rating and sinking funds. There really is no linkage. It really depends on the terms on which bondholders are willing to lend you money. Some require sinking funds, most don't.

 

The sinking funds that we have, as long as I've been minister, there hasn't been a new debt issue with a sinking fund associated with it, I believe I'm right in saying. The sinking funds that we still pay into, in order to help retire the debt when it becomes due, are from past transactions. Having sinking funds doesn't really tell you anything one way or another about the credit worthiness of the entity concerned. So no, it's no particular concern to me.

 

I haven't looked at the number but I don't believe it's much different from what it normally is. It's a little bit larger but I wouldn't say in any way significant. Really it's just a function of debt management, that's really all it is. It doesn't tell you anything, there's nothing that we can read into that particular line item.

 

MR. MACMASTER: Mr. Chairman, just another question; is the sinking fund a feature that is added to the bond issue to make it more attractive in the marketplace? Is that why we're offering it? I know it sounds like it is offered by most large issuers of debt.

 

MR. STEELE: It is something that bond issuers have required in the past. It isn't anything that the province would offer to do as a way of making a bond issue more attractive.

 

Going back to the original premise of your question, I actually agree with it to this extent, that Nova Scotia is a relatively good credit risk, particularly on the international scene. Canada, in general, is well-regarded and Canada's subnational borrowers, namely the provinces, are well regarded. I don't know whether it's the case that lenders have simply gotten out of the habit of asking for these sinking funds but it wouldn't surprise me in the future if a sinking fund were set up. Right now the ones that we're paying have all been set up in the past.

 

MR. MACMASTER: I know this year that user fees are not being raised and I know that has been touted as a good thing, but how can we say it's a good thing if we don't even know if the cost to deliver those services has gone up or down?

 

MR. STEELE: Well the cost, I think you can say, it kind of goes without saying, has gone up, for all of the things in two ways; the first one is that by far the largest component of government services is wages and civil service wages are not going down, so if that's the largest component, and almost by definition they're going up every year. Now there may be some debate about how much they go up every year but the biggest cost contributor goes up every year, so the cost of delivering the service, by definition, goes up.

 

The other thing, of course, is inflation. If we look at the cost of items in real dollars, as long as there is inflation and the dollar amount is the same, in real terms it is actually dropping. So by and large, you generally want to keep the cost of your services in line with real dollars. So that would be another factor that would be driving up the cost of services, in real terms anyway.

 

MR. MACMASTER: I guess my concern is if we don't - wouldn't it make sense for us to try to determine the cost to deliver services, so that we could look at things like efficiencies that might be gained. If we don't understand the cost structures of the services being delivered beyond the broad scope of, say, inflation and wages, where can we in the future maybe improve with efficiencies and maybe even reduce user fee costs?

 

MR. STEELE: Government is so broad and into so many things, I don't think it's possible to say that never happens because of course it does happen and can happen. It doesn't happen with every service. There are some services that are inherently difficult to put a price to. I'll give you an example; what I'm going to do is I'm just going to find the user fees in a particular unit of the department that I am responsible for. Then, by showing you the kind of fees that we have, just going to try and demonstrate it is really essentially impossible to say what the cost is of that particular fee.

 

I'm only going to go over a couple of these. These are for the financial institutions part of the Department of Finance. The amendment of articles correcting a clerical error, the current fee is $22.87. Now if there are no clerical errors, the cost of government is exactly the same. So in some narrow sense of the term, the cost of doing that is zero, right? Because if you have no clerical errors and therefore no corrections, you're not going to lay off staff because the volume of these things is so low that it is an infinitely minor part of their work.

 

In the broader sense of the term, you know how much it costs to deliver - particularly in government - we can look at the line item for financial institutions and say here's what all the salaries add up to. I can tell you the user fees don't come anywhere close to covering the cost of that. So in that broader sense, no matter what we charge, it's not enough. So it's really difficult in any kind of scientific way to go user fee by user fee and say here's how much this one costs, here's how much this one costs, here's how much this one costs.

 

It's too simple a way to look at how government actually operates, which is not to say that there aren't some things in government where you can do precisely that, but there's many, many of these fees. In the Department of Finance there are dozens and dozens of fees which don't amount to a hill of beans in the $9 billion budget and yet they get included when people say oh, you raised 1,400 user fees. It's like 100 of them are in my own department but they are really small and I am at a bit of a loss to see why the taxpayers should pick up the cost, for example, of requests to reserve a corporate name. I mean why should the taxpayers pick up the costs of that?

 

My point being just generally that it is not scientifically possible to get a precise cost for every single user fee so we don't try but it is surely possible in some cases.

 

MR. MACMASTER: Minister, why is it so difficult for government but not so for the private sector? Somebody is delivering a service in the private sector, they determine the cost, they try to find the best way to deliver the best service for the best price and if they don't do that, of course they go out of business. Why can't we apply the same simple logic to government?

 

MR. STEELE: Well, you look at something like a bank machine - and I still don't understand the basis on which my bank charges me certain fees for certain things. They are making billions of dollars, every one of the big banks, and yet they still charge me a transaction fee of $1, $1.50 and it's just a pure money maker, so you can't tell me that's scientifically derived either. It's just not that simple.

 

If you want to have an exact analogy, it wouldn't be on fees, it would be on costs. You stay in business if you bring in more money than you spend. It's the same in government except our main revenue items are taxation and we try and bring in enough in taxation and other revenue to cover the cost of delivering government, just like a private entity, we know what the overall costs are but once you start slicing it down and down, it gets harder and harder to be scientifically precise.

 

I guess just like a Walmart, they know what their overall cost per store is, probably with some precision, but what is the cost to them of selling a specific item? Could they sell it for less or more? Well, they probably could. It's really the same with user fees. Could we do less, could we do more? Yes, we probably could but it's hard to - I don't think there's any system that you could suggest that would be better or different than the one we have.

 

My last thought on this is simply this; we didn't invent the system of user fees, we inherited it. The only thing we've done with user fees is increase them all once. The base amount, which I think is the amount you are talking about, is the same base amount that we inherited from the Progressive Conservatives, and the Progressive Conservatives were in power for 10 years and used exactly the same system. So maybe I could say to you, why did your Party leave the system of user fees to us?

 

MR. MACMASTER: Mr. Chairman, there's a simple answer to that, I wasn't elected at that time. That's why I'm asking the question today, because I think there's room for government to make improvements and if you look at the bank machine analogy, I'm sure that the banks know exactly what the cost is to operate those machines and I'm sure they know the profits because you rightly say they do make a lot of profit and I'm sure they could probably nail it right down to the cent how much they're making off each transaction at the bank machine.

 

I guess I just think it rings a bit hollow for me when the government says it is saving Nova Scotians the user fee increase in costs this year when it has increased the HST, taking another $400 million. I just wanted to put that on the record and if we're serious about reducing the cost of government and making life affordable for Nova Scotians, we need to look at the costs and understand what they are. I think it can be done.

 

My next question is around FTEs. I know we've talked about this today and I've listened to the discussion on it. I guess for two years in a row we've seen a massive discrepancy between the estimated and actual FTE numbers. I know I've heard you say we need to compare apples to apples but it seems to me if government was able to run on X number of FTEs last year, why wouldn't it be able to run on the same number of FTEs this year?

 

That being the case, why aren't the forecast numbers for FTEs - now I know your own department, that's fine, and I know one could say this is more of a question for the Public Service Commission but we know the Public Service Commission is not going to get to come up in the Chamber and we won't get to ask the question so I just want to give the government, by way of yourself, an opportunity to explain why the number of FTEs is going up by over 550 this year?

 

MR. STEELE: But it's not, that's just a wildly exaggerated number. Look, I'm here to talk about the estimates for the Department of Finance and I think I've shown pretty clearly how the 41 so-called increase in FTEs actually, in reality, represents a budget reduction for the Department of Finance. You could go department by department and show the same thing.

 

You know what? At this point I'm not sure that the Progressive Conservatives care about the facts. It's like you've got your story you want to tell and you're determined to stick to it. If you want me to, I can go over again with you how the 41 is derived and why it is not in the least what the Progressive Conservatives claim it is. I can do that, if you want, but I'm certainly not going to sit here and talk about other departments.

 

I think the Opposition members have had plenty of opportunity to question other ministers about their departments and I'm not here to answer for other ministers and other departments. If you want me to, I can go over the 41 again. You know that's all wrapped up in this made-up 550 number. You just assume that the 41 is real and I've tried to show you that it's not but you still use it. It's like, okay, if that's what you want to do, go ahead. I just want some little part of your brain to say this is not true, somewhere.

 

MR. MACMASTER: Thank you, minister. I know this is frustrating because there are actually a number of points I'm going to outline here. I can understand the change in your department, I don't have a problem with that. I can see if they're going up and they're being transferred in from somewhere else but this is why I'm asking about the bigger picture and why we would have liked to have asked the Public Service Commission this because it would make logical sense in my little brain that if FTEs were coming over from somewhere else in government to your department, they would be cancelling themselves out somewhere else and we'd be ending up with a number that was about the same as the actual number of FTEs last year. Instead, we're ending up with a number that is 550 more. So how do you explain that?

 

MR. CHAIRMAN: Before the minister answers the question, I believe the answer was you are answering for the Department of Finance.

 

MR. STEELE: Right, if that's what you want, I'm happy to - let's go over this again, Let's start with the 41 and I'll show you why it's not true and the same thing could be repeated. I'm not here to answer for other departments, I'm here to answer for the Department of Finance . . .

 

MR. MACMASTER: I guess you're afraid of the question.

 

MR. STEELE: The premise of the question . . .

 

MR. MACMASTER: You don't want to explain the other side of the answer.

 

MR. CHAIRMAN: I'm sorry, the minister has the floor now.

 

MR. MACMASTER: We can shut it down.

 

MR. CHAIRMAN: The minister has the floor.

 

MR. STEELE: All right, let me go over this again because the premise of the member's question assumes that he hasn't heard or understood anything that I've said before. So let me go over this again; so we start with an estimate of 257 for this year and 238 for last year. Now the member started his original question by saying - I can't remember what adjective he used but there's a large difference between the budget and forecast but there isn't a large difference, it's a normal difference. This is the turnover you get in the civil service.

 

Now the turnover, 22 FTEs represents a turnover of roughly 10 per cent. That is not unusual, it's not high, it's no different than it ever was under the Progressive Conservatives, it just is what it is. So right away you are comparing apples and oranges and the 22 is not a reasonable or fair comparison. Okay, so then you're down to 19. Of those 19 positions, 16 were transferred in. There is an exactly corresponding decrease of positions from other departments.

All the ministers have been up, I'm not the first or the second or the third or the fourth or the fifth or the sixth minister to be questioned on my estimates this year. All the ministers in one way or another have been questioned on their estimates. I don't know whether the Progressive Conservatives asked about FTEs, if they didn't that's their problem, not my problem, I'm here to talk about my FTEs.

 

So we're down to 19; 16 were transferred in, that is not a net increase to government. Of the remaining, three represented a transfer of funds from other departments, so there's an exactly corresponding decrease in the funds, of which two were internal audit from the Department of Health and Wellness and one was a transfer from ERDT but there was also - there was the increase of one from consulting. You cut the consulting budget but you increase the staff budget by one, so the overall budget goes down, the number of FTEs goes up.

 

Then there was the elimination of the two positions that I spoke about before. Now when you look at this all together and you add them all up, it represents a reduction. It's not an increase of 41, it's not an increase of 19, but you've got to look at the budget globally. So this made-up number of 550 includes this made-up number of an increase of 41. I've explained the 41 that I am responsible for and if the member just wants to keep on saying that other number, regardless of the facts, I guess I can't stop him.

 

MR. MACMASTER: Minister, this is exactly what we're trying to get at, the global numbers, because we realize that if you're going to have turnover, I understand what turnover is, I understand what retirements are, I can understand there being a variance in bodies but there shouldn't be a variance in the actual number of employees who, at the end of the day, come to work and are paid by the province.

 

When I think about centralizing, as another example, if there's centralizing occurring where there are bodies moving, FTEs moving from one department to another, there should be a corresponding decrease in the department they are moving from.

 

MR. STEELE: But there was, that's what I'm trying to tell you. There was.

 

MR. MACMASTER: But you keep talking about made-up numbers and when we look at the estimates, we're dealing with your made-up numbers and they're showing that there are 550 more people over the actual number of people who worked last year. It's not just us, Mr. Chairman; a number of people have noticed this. I think it's a significant story in this budget. I guess what I would ask next is - I know your department is responsible for SAP; we've heard it spoken about today. Last year you were asked how many people, by way of the SAP system, are paid in government as a means of maybe trying to get a handle on the actual number of people working in government by that measure. Can you give us an answer this year on how many people are paid through the SAP program?

 

MR. STEELE: I'm having déjà vu here. I explained last year why that was not a reasonable question to ask or to answer and I'm certainly not going to humour the member this year by pretending my answer is going to be different this year than it was last year.

 

MR. MACMASTER: Well, Mr. Chairman, I guess my concern in all of this is that there is going to come a future point in time where the government has made a promise that it's going to reduce the number of people working in government by 1,000. They talked about doing it by way of attrition. If we look at the budget numbers in departments, there is usually about a 10 per cent variance in most departments, so what it is doing in the short term is it's giving departments an ability to meet their budgets; it's giving them - as the minister said today - it's allowing them to pad their budgets. Now I know he'll say he didn't say that, but you did use the term "padding of budgets" and so if your budget is padded in your department by 1 to 3 per cent, it makes it a lot easier to come in and meet budget, so I think that is a short-term ability given to this government.

 

The only reason I'm bringing this up is I'm trying to hold the government to account. That is my job in Opposition and these are things I'm noticing. So in the short term, it is giving the government an ability to meet its budget targets because it is padding its budget by 1 to 3 per cent. To come up with that figure, you have to look at the salaries and the benefits of the extra FTEs, which they're not actually using. In this case, coming up this year, we'll probably see actual FTEs much like were forecasted for the end of this past year. That's the short-term benefit to the government.

 

The long-term benefit is that at some point they're going to come out and say, well, we've reduced 1,000 people through attrition and aren't we great because we made the tough choices - when really, the 1,000 people they reduced were imaginary. Minister, you said it already, you were talking about made-up numbers. Well if the 550-some people is a made-up number, then it's imaginary. I guess my fear is that if it is imaginary, I don't want you going forward in the future before an election campaign claiming that you reduced the number of people working in government by 1,000 if they were imaginary.

 

I guess my question would be, would you be open to an audit by the Auditor General of the FTE numbers and how they're calculated by each department to ensure - if I'm wrong, why don't we have the Auditor General look at it and clear away any misconceptions? That way, I'll be happy and perhaps you'll be happy.

 

MR. CHAIRMAN: Mr. MacMaster, if I may, I think the minister is saying that he is responsible for his department and the purpose of estimates is really for him to answer questions that relate to his department. I think that's where you're finding the difficulty is that he doesn't speak for the whole government.

 

MR. STEELE: I don't even know where to begin. The numbers on FTEs about the Department of Finance in the Progressive Conservative news releases are just completely made up. Now the member is just completely misquoting something that I said. Let me remind the member of what I actually said when I was referring to padding the budget and that is that it was something the Progressive Conservatives did that we stopped and that is the idea of these so-called funded vacancies where money would be allocated to a department even though everybody knew in advance the position would not be filled at any time during the fiscal year. That is something the Progressive Conservatives did. It was the Progressive Conservatives who padded the budget. It was us who stopped it. Let me just be crystal clear about that lest the member be tempted to go outside and claim that I said something that I didn't say.

 

Here we are - the Progressive Conservatives have a line; they have a story - it's a made-up story, but they're determined to tell it. There is nothing that I can say that is going to stop them from telling a story that they choose to tell, whether it's based on the facts or not. I've explained in detail - and I can go over it again if the member feels it necessary - about why the 41 number is a made-up number and why the reality is a whole world of difference from the number being claimed by the Progressive Conservatives. If the member wants, I can go over it again.

 

MR. MACMASTER: I guess to the minister's comments I would say that I have been elected the last two and a half years, so that's the history I bring to the Legislature. I think that if you really wanted to answer the question, which was allowing the Auditor General to take a look - and maybe the Auditor General will take a look at how these numbers are computed, because it's certainly creating a lot of controversy as we look at this budget.

 

I'd be happy to have somebody else look at it. I think the Auditor General would be appropriate for that. Maybe I'm wrong, but maybe we're starting to unravel some of the numbers behind this budget. I guess that's what my job is in Opposition, to notice these things. If that causes you frustration, minister, well, I'm just doing my job.

 

The next question I want to ask is on the debt. I know in your opening comments - I believe it was in your opening comments - you talked about the debt servicing cost, which I know is another item that falls under the department for estimates debate. One thing you said was that this year it's going to be $881 million. That is the cost to service the debt by way of interest. You mentioned that you hate to spend that money, but really it's a legacy of the past. I guess what I would like to ask you is, if the debt - the amount of money that's causing the cost of the interest payment in this year's budget of $881 million - is a legacy of the past, why are you continuing to add to the debt with operating deficit budgets?

 

MR. STEELE: My goodness. My goodness. Well, we could start with the structural deficit left behind by the Progressive Conservatives. After the recession hit, the Progressive Conservatives never passed, never debated a budget in the House. They never had to worry about what was going on after the recession hit - we did. We had the legacy left to us of the Progressive Conservative Government that they just couldn't stop themselves from spending. Spend, spend, spend when times were good and the revenue was rolling in, they just spent it all, and when they spent it all - when they finished spending it all - they made expensive long-term promises and set up expensive permanent programs as if the money would always be rolling in. Then the recession hit in the Fall of 2008 and the revenue stream just stopped, but all those expensive programs, all those expensive promises, all that spending just continued. They never had to worry about that because they got thrown out of office not that long after. It was us who had to pick up the pieces in the middle of a really severe recession.

 

After that happened, every single province in the country, without exception, ran deficits. That's just the nature of what happens in economic hard times - every single province. It didn't matter how rich or poor they were before. Everybody had to develop a plan to get back to balance, so most provinces - except for those with very substantial resource royalties, have run deficits for multiple years, just like we've had to. It's not a Progressive Conservative or a Liberal or NDP thing because it's the same across the country. This idea that you can turn it into some kind of partisan Party thing is hardly worth even addressing, but this is what happens in a recession and so everybody is running deficits. What we did was, in consultation with the people of the province, we developed a plan to get back to balance. We weren't way ahead of the rest of the country; we weren't way behind. Most provinces are getting back to balance next year or the year after. The one big outlier is the Government of Ontario, which is not forecasting getting back to balance until 2017 at their earliest.

 

Meanwhile the federal Conservative Government ran the biggest deficit in Canadian history, right? It's not like there's some kind of mystery about why that happened or it's not like there's something that was going on in Nova Scotia that wasn't going on anywhere else. That's just what was going on. That was the nature of the situation that we walked into and it didn't help that we had a previous government with the spending habits that it had and the lack of fiscal discipline that they demonstrated in spades.

 

So we developed a plan to get back to balance, but you can't do everything at the same time. Let's look and see - what would it have meant not to have run a deficit. In order to not run a deficit, we would have had to slash spending by - I haven't added it up, but it would be hundreds of millions, into the billions of dollars. Is that really the right response to recessionary times? I mean, the provincial government does four things, that's what accounts for most of the budget. We deliver a health system; we deliver an education system - or really two - we pay for P to 12 and we support post-secondary; we provide support for the poor and disabled; and we build and maintain roads. That's what we do, that's where almost all of the money goes, and if we were not going to run a deficit, alone in Canada, not run a deficit in the midst of a really deep recession, we would have had to slash hundreds of millions of dollars every year from those really important things. Is that what the people of the province wanted? I don't think so.

 

Not only that, but the federal government - the federal Conservative Government - undertook a stimulus spending program and everybody in Canada participated, including Nova Scotia. We thought, okay, one of the responses to this economic crisis is to spend more than we usually do - accumulate a little bit of debt because we can't let the economy sink any lower than it was going to sink. So we, in partnership with the federal Conservative Government, undertook the two largest capital spending programs in the province's history. Everybody supported it - or at least I thought they did. Although the way the Conservatives talk sometimes you have to wonder where they wanted the stimulus, they just didn't want to accept that meant you actually had to spend some money.

 

So we would have been alone in Canada not running a surplus; alone in Canada not participating in the stimulus program. Who knows what would have happened to the Nova Scotia economy. We actually fared pretty well. When the Progressive Conservatives and Liberals criticize our economic performance, they forget that we actually had the second leading economy through the first year of the recession. That's right - the second leading economy in the country.

 

Now they say, oh yes, but why are you adding to the debt? What kind of a question is it when you have a recession and everybody is running a deficit across Canada and you have a federal stimulus program that results in the two largest years of capital spending in the province's history? Meanwhile, they're telling you at the same time you should cut your revenue. It's like, how do they expect to do all these things at the same time? And the premise of the question is that it was possible while all of this is going on to pay down your debt. Now if you're going to pay down your debt, you've got to be running surpluses.

So it's not just a matter of balancing the budget any more, now the Progressive Conservatives say why aren't you running surpluses? Well, there was a big recession on and there was all this stimulus spending. It's what the people of the province wanted and expected. Now that the recession is behind us and the economy is recovering, now we say okay, now it's time to get back to balance.

 

People shouldn't be under any illusion, this is not about paying down debt because as I've said before, in order to pay down debt, getting back to balance isn't enough, it's not good enough. Because of capital spending, we need to be running surpluses of about $300 million in order to stop adding to the debt, roughly $300 million. So you need to get to that level just to stay even.

 

Now if you're going to pay down debt, actually make the amount of debt less, you've got to be running even bigger surpluses at the same time the Progressive Conservatives are calling on us to cut our revenue, slashing public services. There are some people who believe that stuff, I happen to not be one of them. I've travelled extensively for three years from one end of the province to the other. I've met a lot of people, talked to a lot of people. It's not what the people of the province want either. They don't want their public services slashed mindlessly, the way the Progressive Conservatives say they would. The interesting thing is, of course, they say they would but when they were actually in office, they doubled the size of government in 10 years. So they say one thing in Opposition and they do something completely opposite when they are in government, but that's another story.

 

It's not what the people want, they want us to continue to deliver public services. They want us to do it within an envelope that they feel they can afford, so you can't, at the same time, cut revenue and pay down debt, you just can't. Now if we're going to seriously pay down debt, I think you're looking at surpluses of, let's say for the sake of argument, $200 million or $300 million, which is a small down payment on the size of the debt which is over $13 billion now. Then, in order to pay down $200 million, you have to be running a surplus of $500 million; if you want to pay down $400 million, it has to be $700 million.

 

Imagine the level of taxation and the slashing of services that would be necessary for us to be running surpluses of $500 million, $600 million, $700 million, and to do it sustainably. Is that what the people of the province want? I don't think so. I sure hope the Progressive Conservatives run on that in the next election, I don't think they're going to do very well, slashing public services all for the sake of running a surplus.

 

There are not very many reasonable people who say that the real goal is to reduce the absolute amount of debt - very , very few people. So the measure that most people use is the debt-to-GDP ratio. The debt-to-GDP ratio, the advantage of it is that it allows comparisons between different jurisdictions, between provinces, states in the United States, countries, because the debt-to-GDP ratio, taking into account different ways of counting things, is a way of comparing the financial health of a jurisdiction. It is somewhat akin to measuring somebody's blood pressure, it doesn't tell you everything about the person but at least if you measured the blood pressure of everybody in the room you've got a direct point of comparison between everybody in the room.

 

So Nova Scotia's debt-to-GDP ratio is on a steady downward path. Now it did rise, of course, in the stimulus years because of the capital spending we were doing. That's normal, that was expected, that's what the people of the province wanted us to do. It's what we did. Now it has resumed its downward path, so from a financial health point of view, we're actually doing reasonably well. The debt-to-GDP ratio, to put it in simple terms, is exactly the same as the size of somebody's debt compared to the size of their income. A certain amount of debt is not problematic as long as you have the income to cover it.

 

Now the size of an economy is a proxy for the amount of government revenue but it's a reasonably good indicator of what the capacity, at least, of the jurisdiction is. So our debt-to-GDP ratio is heading in the right direction, at the same time that other provinces are heading in a different direction.

 

Now you look at our neighbouring Province of New Brunswick, for example - I don't want anything I'm about to say to be taken in any way as a criticism of New Brunswick, New Brunswick's financial situation will be solved by New Brunswickers, not by Nova Scotians. I just want to point out as a fact that New Brunswick's debt-to-GDP ratio has been climbing steadily in the other direction. As I mentioned before, in the last four years New Brunswick has added $3.3 billion to their debt.

 

Now that's just a different choice from the one we made. One of the reasons why that option is available to New Brunswick is because their previous governments had not put their province in the financial hole that Liberals and Progressive Conservatives had put this province. So we were already pretty well maxed out on the credit card when we came into office. There wasn't a whole lot of room left to add a significant amount of new debt, so we didn't. We just said that's not - apart from stimulus spending, which I thought everybody agreed with - that's not really a good option for Nova Scotia.

 

New Brunswick has been rapidly catching up with us and their governments over the last four years have added $3.3 billion to the debt, obviously climbing much faster than the size of their economy. So their financial blood pressure, as it were, is heading in the opposite direction from ours; the same thing in Ontario. Remember, Ontario is running great big deficits and their debt-to-GDP ratio, I believe, has passed Nova Scotia now because their path back to balance has been quite a bit slower than ours and they don't see themselves getting back to balance until 2017. Of course at the same time, the federal government has been running very large deficits as well and have been adding significantly to the debt.

 

I think that all in all, the choices we have made have been good ones, have been the responsible ones. We've kept our eye firmly on the key measure, namely the debt-to-GDP ratio and it is heading in the right direction. Our financial blood pressure is coming down but you know, if we hadn't inherited such a mess, we'd be further ahead than we are, right? The day we walked into office we inherited billions and billions of dollars of debt run up by the other guys, it wasn't run up by us.

 

I do love the way the member for Halifax Clayton Park says, yes, but you demanded it, you asked for it. That's like, wait a second now, we weren't around the Cabinet Table, we never got included in the decision-making. And they say, oh yes, but it would have all been different if you hadn't been such a good Opposition or something like that. It's like no, it wasn't the NDP at the table, it was the Liberals at the table, it was the Progressive Conservatives at the table.

 

Here's the thing about Progressive Conservatives - they are actually really bad at managing money, at least Nova Scotia Progressive Conservatives, right? Most of the financial problems in this province are attributable to the Progressive Conservative Government from 1978 to 1993 and the last Progressive Conservative Government. Most of the problems we have are attributable to the Progressive Conservative Government.

 

Now the Liberals inherited quite a mess in 1993. They came into office after a really poor government and in the middle of a recession and they did a lot of things - we may agree or disagree but essentially they inherited the same kind of mess that we did, from Progressive Conservatives. So the best we can hope for is that it's a very, very long time before Progressive Conservatives ever get the opportunity to handle the province's finances again. In the meantime, we're going to do what we can to live within our means and get back to balance.

Now, having said that, let me get back to the actual numbers. The debt servicing costs are actually lower than they've been for a long time. We've been able to benefit from really historically low interest rates and we're locking them in now. So we're making smart decisions now that are going to benefit Nova Scotia for a generation.

 

I would just point out finally, that from 2011-12, up to 2015-16, according to the financial plan, our debt is projected to increase by only $200 million in four years and our debt-to-GDP ratio is going to continue to go down. I think that's pretty good, I think that's pretty good handling of the province's finances.

 

MR. CHAIRMAN: Thank you, minister. The time for the PC caucus has expired and it is now 4:55 p.m.

 

The honourable member for Halifax Clayton Park.

 

MS. DIANA WHALEN: Thanks very much, I'm pleased to be back into the debate again for a little while on the budgets for the Department of Finance. It probably would be good to just continue to talk a little bit about debt servicing and I think that was towards the end of the questioning here that we had gotten to that.

 

We know that the Auditor General probably went a little further than usual in speaking about the debt of the province and how it is growing and how he is concerned for the future. I know he brought a report to the Public Accounts Committee. I think his intent was to have us draw our attention and the attention of the public to the level of debt that we're carrying. I know the minister said in his opening comments about the debt being roughly the interest-carrying costs really of the debt being roughly 10 per cent of our expenditures as a province. So it is a problem and I think the minister shares a concern that it's a lot of money and it's going out the door simply to just tread water, really, to maintain the debt we currently have.

 

I was looking in the Budget Highlights document, there's a nice little chart there just showing where it's going. Of course it is planned that it is going to be rising, just in the way I guess the back to balance - it works on the operating budget but it's not working well on the level of debt that we're carrying.

 

My comment really would be to ask why it's going up like that, even in the years beyond what the minister is saying will be a balanced year, it is still forecast to get very close to $14 billion in 2015-16? I would guess that if you are balanced, then that is coming from a - I guess it's coming from capital, capital purchases or road building or something of that nature. Could you just say what would be driving it up if, indeed, you're going to be back to balance, to use your term, in 2013?

 

MR. STEELE: Yes, it would be exactly what you said, even if you have an accounting balance, amortization of TCA spending drives up your debt. That's why I was saying that to have a true balance, if I can use a loaded term like that, that is to not add a nickel to the actual debt, you'd have to be running a surplus in the vicinity of $300 million to cover off all of the TCA amortization.

 

I don't agree with one of the premises of your question, though, in a sense. I can't remember again what word you used exactly but as long as the debt-to-GDP ratio is going down, we'll be okay. It is the financial blood pressure, it is the effort that would be required, in terms of revenue - slashing spending and increasing revenue to actually pay down the debt in absolute dollars, I think is more than the people of the province think is reasonable, but as long as the debt-to-GDP ratio is going down, then we're doing fine.

 

This is actually remarkable, compared to the past, to have the debt go up by "only" $200 million in four years is quite remarkable because don't forget, at the same time the economy is growing so the ratio of the size of the economy to size of the debt continues to go down. That's what we're aiming for, that is this government's debt policy and that's what we're achieving.

 

MS. WHALEN: Maybe we could talk about the expansion of the economy then because ours has been a very poor performing economy, and the last year I think it grew by about 1 per cent. It was the lowest in the country, I believe and maybe you can clarify. We're certainly at the low end, at the very lowest end.

 

I'm wondering, certainly the ratio is looking better and it even improves as the debt approaches $14 billion, based on these assumptions. Could you say what you're guessing the economic growth will be for next year and what is it based on? It's still a low rate of growth, isn't it?

 

MR. STEELE: I could talk for an hour about how we devise our economic forecasts but I won't. I'm just going to ask Joyce to pass over to me the forecast assumption. The increase in real GDP for 2012 is 1.7 per cent and for 2013 is 1.9 per cent. That's really before there's any impact to speak of from the shipbuilding contract because there's a little bit of that included in the 2013 number, but the real impact of the shipbuilding contract is in years after that, so we do expect reasonably robust growth by Nova Scotia standards. I say by Nova Scotia standards because we will not compete with provinces like Newfoundland and Labrador because their GDP is boosted by the amount of oil production that they have. They have oil and we don't. As the prices of commodities increase - like potash, natural gas, oil and all sorts of petroleum products - then other provincial economies take off, like Alberta, Saskatchewan, to a certain extent Manitoba, and British Columbia. We don't have those same resource riches so it is not reasonable ever to expect us to be in the top tier of Canadian provinces. It's just not going to happen. What we can expect is to seize all the opportunities that are in front of us and that is exactly what this government is doing.

 

MS. WHALEN: Well thank you very much, I appreciate that. I don't disagree that the ratio is important and that your lenders will be looking at that ratio when they determine our rate of lending. Let's face it - the discussion here really is around debt and the servicing of the debt, so your bond ratings and the level of endorsement you get from the different rating agencies is important and debt-to-GDP is a ratio that they use. Again, I'm just looking at some pretty big increases there and I suppose the future years you're looking at the shipbuilding contract so I guess we have to be buoyant about that until we see what actually comes forth from it, so I accept that part.

 

I'm just surprised really, honestly, to see that the debt would be allowed to get to $14 billion. That's where it's at in 2015-16 on this chart, very close to that. Is it based on extra spending that was done because of the stimulus? Is that where it's fuelled from? That's a lot that you take on. The stimulus spending is over now, so that should all be in there, right?

 

MR. STEELE: I don't know what you mean by "allowed to get to $14 billion". The fiscal plan is in front of you and the amount of the debt simply flows from the fiscal plan. If anybody doesn't want to, "allow" the debt to get higher, I say, great, let's have a serious discussion then about what new revenue are we going to raise or what spending are we going to cut? Now, the Liberals come into the Legislature and they demand increased spending on this and they want taxes down, spending up, and it's like you can't have it all; you just can't have it all. So when you say "allow the debt to rise", well we won't allow the debt to rise if you would point out a couple of hundred million dollars of spending that you don't want anymore. I don't hear the Liberals saying that.

 

MS. WHALEN: Well I guess government makes the decisions and government has the choice to do what they like to do. The $300 million would be less than the two percentage points that you want to reverse on your HST, so it's a choice of the government to either lower taxes or lower the debt, so it's just a choice, so we're having a discussion about which way you want to go.

 

You have said personally, minister, it's $360 million or more from those two points on the HST. I think there is a question about the debt rising and what the cost is of that, because even if it's good in relation to the GDP or that ratio that we're looking at, it's still not good in terms of the cost to manage it, to pay the $881 million to service it this year. I'm sure that perhaps my colleague from the Progressive Conservative Party had asked about increasing interest rates, but we know that this is phenomenally low interest rates in these current years. The last few years it has been so low that everybody knows that the level of household debt is high; there's a real fear that when interest rates rise, we're all going to be in trouble and the Government of Nova Scotia will be in trouble too.

 

My question would be, really, that making the choice to - and it is a choice in terms of what is before you when you look at fiscal policy and what you want to do - if the debt rises and, if as we expect, the interest rates rise, then the carrying cost is going to go up and that's going to have a detrimental impact on the province. It will cut the spending available for other things. I guess I'm just asking, if we want a specific question, what would your projections be for the interest rate increases?

 

MR. STEELE: I'm not sure if one of our budget assumptions includes interest rates. I'm just going to turn to Joyce and see if she can locate that. Again, I wouldn't go beyond the fiscal year that is in front of us. I wouldn't purport to project further into the future.

 

Here's the thing about rising interest rates - I know you didn't say this but I do get some correspondence that does say this - they say okay, you've got $13 billion of debt, we're paying an average of whatever the interest rate is, and if interest rates go up, they act as if that new interest rate applies to the whole debt and of course it doesn't. Part of debt management is spreading out the risk, spreading out maturities so that if and when interest rates go up, as they surely will, the increase in cost only slowly creeps into the system as each debt issue comes due. So there's not a large, immediate impact. There's a small impact every year as interest rates go up because as you turn over your debt, you've got to turn it over at a slightly higher interest rate than you borrowed it before, usually.

 

We know when all of our debt issues are coming due, we know what the interest rate is, so there would be an increase in debt servicing costs resulting from that gradually over time.

 

Here's another thing that's going on, continues to go on, because interest rates are low, we are going longer on our bond issues than we usually did, even as recently as when I came to office three years ago, we were still borrowing at 5-, 10- and 30-year terms. In the last year or more, I don't think we've done a single five-year issue, we're only doing 10s and 30s because when the rates are low, you want to lock it in for a very long time. The same principle people follow when they are taking out a mortgage - when interest rates are low, you want to lock in for a very long time.

 

I remember my father saying once - my father didn't talk about money very much, he was very Scottish about that, money was a very private, personal thing. I have no idea how much he ever earned because he would not want anybody to know what his salary was but I remember him saying once, one of the few times he actually talked about money in our house, when he bought his house in 1962, he had what by our standards today is an incredibly low interest rate - he borrowed it for 30 years - and by the time there was about five years left, he said the mortgage company was begging him to pay it out because they had locked in a long time ago at a low interest rate. So he sailed through the 1980s. People got mortgages for 15, 18, 20 per cent. My dad was still there with like 2 per cent or something, something incredibly low.

 

It is the same thing with Nova Scotia bonds, now that rates are low we are locking in for a very long time. Do you know what? If we have a big bout of national inflation, we could actually end up paying less, in real terms, like actually making money in real terms. Now we don't hope for a bout of inflation but when you lock in at low rates, that's the sort of thing that can happen.

 

Because we're going long now, we even issued a 50-year bond recently, which is virtually unheard of but there was an insurance company that wanted to match its liabilities so they had long-term liabilities and we were willing to sell them a long-term bond, so we sold a 50-year bond at the same rate that we could get a 30-year bond. That's the kind of thing that is going on in the market right now. That's good for the people of Nova Scotia, that's really good, locking in the rates. So on that particular bond issue, we know exactly what our costs are for the next 50 years, so on that score I don't think we have a lot to worry about.

 

The only other thing I wanted to mention - the budget document, Joyce has pointed out to me, that at Page 3.51 of the Budget Assumptions and Schedules, it says no substantial rate hikes are expected in the next year, so we would have based our assumptions on the premise that there would be no substantial rate hikes. That's the way it looks because that's certainly the signal coming from the federal reserve in the United States and also from the Bank of Canada.

 

I guess the point of what I'm trying to say here is that even if rates do start to rise, the impact on our bottom line is not immediate but very, very gradual.

 

MS. WHALEN: I can appreciate that and that's a good point to raise, that it wouldn't be overnight because you've got things locked in and they'll come due at different times. That is a good point to raise for all of us because we see the threat of it. For a lot of us with personal debt, it's going to hit us a lot sooner than it will in the long run. So even thinking about 50-year bonds is a positive thing.

 

I wanted to ask you about any exposure in foreign currencies. I remember when Michael Baker was the Finance Minister I think he repatriated, if that's the right word, all of our debt pretty much to Canadian dollars, especially when the U.S. in Canada had moved up to be almost on par. Have we got any foreign exchange exposure within our debt now?

 

MR. STEELE: Yes, you are correct, the previous government fully eliminated foreign currency risk. We do still have some bonds in foreign currency but they are fully hedged, so effectively the risk has been eliminated, so we are currently sitting with zero foreign exchange risk. That was something done by the previous government and something that we have continued.

 

I think our debt management policy allows for up to 20 per cent but the previous government put it down to zero and we've kept it at zero.

 

MS. WHALEN: I'm glad to see that you've continued that at this point in time because there is a lot of risk involved in that over time, again, especially when you're doing it for 10- and 20- and 30-year periods of time. We certainly were hammered with it at one point in time when the Canadian dollar was very weak. That was something at the time, I remember during estimates thinking that Michael Baker had done a good thing when he did that and he was quite proud of it as well. I think we have to give some credit where it is due and I'm glad to see that where that was in place you've continued that policy because that would be something else that would just create a level of risk that we would rather not have.

 

I'd like to move, if I could, to the idea of some of the federal programs and revenue that we're getting from the federal government, just to look at that. Is there, I guess, a part of your department that specifically does the relationship with the federal government? I know it's incredibly difficult to figure out what the equalization payments are going to be from year to year but do you have specialists or people who have that job, to look at all of the federal transfers?

 

MR. STEELE: People in the business say that there are not more than a dozen people in all of Canada who understand federal-provincial fiscal relations and fortunately one of them works for the Nova Scotia Department of Finance, that is Paul Davies in the Fiscal and Economic Policy Division. He is our expert, he reports to a gentleman by the name of Mike DeCoste. Mike is also very knowledgeable but Mike is covering a broader area than Paul does, so when we have questions on this we turn to Mike and Paul. It is just remarkable how much they know and how well they understand a very complicated but very important aspect of our finances.

 

MS. WHALEN: Very good, I'm very glad to hear that. I know I've met Paul when he comes with you to the quarterly updates . . .

 

MR. STEELE: The spouse of Jean Davies.

 

MS. WHALEN: Yes, and he lives in Rockingham as well. And I'm glad to hear that. It's a wonderful neighbourhood, I could wax eloquently on that a little easier than on this stuff. I'm glad to hear that you have somebody so good.

 

What I'm interested in is whether or not there have been any specific threats that have been identified recently because there was talk about the transfers from the federal government, particularly around Health and they do flow through Finance, it is a revenue source. I wonder if you could perhaps just explain what the threat is coming in the future around the Health transfers? I think that was a principal one that came out from the Conservative Government federally.

 

MR. STEELE: Yes, I'm a little reluctant to do that here, or I'll do it really, really briefly - not because it's not important because it's extremely important, but just because I really want to be fairly strict about saying that here today we are here to talk about fiscal 2012-13 and these changes to federal-provincial fiscal relations are in the future. There is no impact on 2012-13.

 

Very broadly speaking, the federal government has solved its fiscal problem by creating a problem for the provinces but it's not immediate. They are smart enough to know that they can reassure people. So in their messaging they always talk about now don't worry, nothing is going to change until at least 2017, but that's the problem. The kicker starts in 2017.

 

They have, over the federal governments - not just the Conservative Government but also the federal Liberal Governments - have bit by bit, year by year, withdrawn from their share of funding the health system, so now it's down to about 20 per cent.

 

The original concept of federal health care funding was that it would be 50-50 but now we're down to 20 per cent. But it's really complicated, it's much more complicated than just saying it dropped from 50 per cent to 20 per cent. The federal government argues that they're paying more but it's ways that the provinces don't recognize or don't recognize anymore.

 

There's a little bit of gamesmanship going on with the federal government when they describe how much support they provide to the provinces in terms of health care funding. Basically let's start with the premise that it's at 20 per cent. Over the course of the next, I believe it's either 35 or 45 years that share will drop down to 11 per cent.

 

It's not that the demand for health care is going to go down, it's not. The provincial government - which is another way of saying provincial taxpayers - are going to have to make up the difference. It's not the government's money, it's not my money, I don't have $9 billion in my pocket. I am the steward of the people's money and if the federal government withdraws but expects the same services, it's the provincial taxpayers who have to step in. That's a problem, in the long run.

 

MS. WHALEN: I appreciate knowing when it's actually going to hit but I think that is a concern to all of us and hopefully, that will be somehow changed in the coming years and maybe it won't actually occur.

 

I'm wondering, as well, about the changes announced to the OAS and once again, that's going to be off into the future, I think even further into the future. Would it be the role of your policy group at all to be anticipating the costs that those changes to the retirement age are going to make to Nova Scotia?

 

I'm thinking particularly of a lot of increased costs in community services, as we get older people unable to continue working or people on assistance who would be switching off and going onto Old Age Security, no longer switching at 65. There'll be increased costs to the Workers' Compensation Board who would normally, again, see those clients, those people they deal with, move to Canada Pension or Old Age Security.

 

I think it's going to be a big cost here, particularly where we have a province which says we have about 20 per cent of people with disabilities. We have a lot of our workforce that are not active, we have people who have dropped out of the workforce and are perhaps living on some other kind of supports, so having a longer time to get to the pension years, is going to be very difficult to our province.

I'm sure that the Department of Finance has anticipated it and I'm just wondering if there's any action that has been taken at this early time.

 

MR. STEELE: That's a really big, really important question but I'm not going to address it here today. It really has no relation to the Department of Finance's budget or any of the resolutions I read but I want to stress, it's a really, really big, really, really important topic and there's probably nothing in the recent federal budget that is going to affect more Nova Scotians more deeply than that, apart from maybe the changes to Employment Insurance. Those were the two big, significant pieces in the federal budget and we really all need to work together, I think, to understand the implications of that.

 

I totally agree with you, there are all kinds of implications that we haven't even imagined yet but we need to save that for another forum and another day, I think.

 

MS. WHALEN: Okay, that sounds good. I think it's too big to ask in Question Period and I know you're waiting for questions.

 

MR. STEELE: It is.

 

MS. WHALEN: All the finance questions are too big for Question Period, it seems. Maybe we can have a discussion some other time about it but that is something that I think - I'd be comforted to simply know that it's on the agenda of the Finance Department and the Office of Intergovernmental Affairs and that it has been raised as a significant concern because we have to start now to let the federal government know what that implication is here in this part of the country.

 

MR. STEELE: I agree with you, it has implications for the Department of Community Services, the Department of Labour and Advanced Education, the Workers' Compensation Board, there's a lot of work that needs to be done to fully understand the implications of what's being proposed.

 

MS. WHALEN: We have to make sure that the federal government fully understands. I mean we can understand it and I think we can see it coming down the pipeline, so that really is my concern on that one.

 

I have some small questions around the supplementary information so I thought I'd just go there.

 

MR. STEELE: Are you looking at the supplement from the 2010-11 . . .

 

MS. WHALEN: I'm looking at Volume 3, to use the right terminology, Volume 3, which has the lists of all the staff and travel and so on. So just a few, to get into line items, if we could.

 

MR. STEELE: Sure.

MS. WHALEN: In the travel section there are two entries that show travel over $10,000, I think out of the total 10 travel ones that are indicated, and one is sort of a catch-all. Two of them are over $10,000 so the question is, what were the average travel expenses for those staffers and what is the travel need for those staffers, really? Just for those who don't have their books, one of them is $19,092, the other is $13,267, which are both higher than the minister's travel allowance, which was $8,600, so it just seems to be out of whack.

 

MR. STEELE: Thank you very much, an interesting question. One of them I have no trouble answering, as you could tell. The other one, I needed to consult with the ADM here. The first one is Helen Costello, who is in Sydney, a lovely person. Most people don't realize the Department of Finance has an office in Sydney but we do. We have five or six or seven staffers, it fluctuates. It is an SAP office and they do municipal support up there.

 

See this is one of the neat things about SAP, once you are on the system it doesn't really matter where you are, you can be anywhere. We had, and I'm not sure if we still have, a small office in Truro and we have an office in Sydney. Helen is the manager of that office in Sydney and so her travel costs would be accounted for by the fact that she, probably uniquely in that office, would be travelling fairly frequently back to the mother ship in Halifax for staff meetings, so back and forth, Halifax-Sydney.

 

The other one is also related to SAP but this is a bit of an odd one, it's not what it appears. This is a person who served on an international committee dealing with SAP. She was travelling back and forth to the United States a few times but most of this money, probably roughly 75 per cent of it, is recoverable from an outside body, outside of government. So the actual cost to government is, roughly speaking, about one-quarter of that figure that you see there.

 

You see, this is one of the problems with the Public Accounts, what it shows is the expenditure, it doesn't show when some of that expenditure is recovered from an outside body.

 

MS. WHALEN: Thank you very much and I do appreciate that because it seemed like an outlier, certainly, to have that high an amount on just one staff member. As I say, it's more than double the travel that you had incurred yourself when we would expect you to be around the province doing all kinds of official business and maybe travel as well across the country. So that was one question I had.

 

Would you say that overall the average there, if you just averaged the 10 people, it's still $8,900, would most of those people be from outside of the Halifax office? Do you think that would account for others, generally speaking? There are 10 people whose travel was above $3,500 because there's another catch-all for the smaller amounts, so I'm not examining everybody who travelled in the department.

 

MR. STEELE: You know just casting my eye down there, I know Douglas Murphy and William Ngu are in the Office of the Superintendent of Insurance, Office of the Superintendent of Financial Institutions - the same person, by the way - Doug Murphy. William is the Deputy Superintendent of Financial Institutions. So they would be - for example, you look at William, he's a manager of audit and examination for financial institutions so he would actually be travelling around. We're responsible for overseeing the health of the credit union system, so he would actually be travelling around, visiting, auditing credit unions which, as we know, is a network all over the province.

 

Something similar would be the case for Doug Murphy. Now Doug's travel expenses are interesting; because he's a Superintendent of Insurance and the Superintendent of Financial Institutions, which means he is responsible for the credit union system, which means he actually has a remarkable number of out-of-province meetings every year, national organizations. Either of those jobs by itself would be a handful but he's got them both. So my guess is that most of Doug's travel would actually be travelling to national meetings. For example, if there's a national meeting of credit union regulators, or a national meeting of insurance regulators - that explains those two.

 

If you want to, I can consult my staff about the details. I'm not sure if you want to get into that level of detail. The story will be similar for most of them. If you want me to, I can; it's just going to take up a fair amount of time.

 

MS. WHALEN: No, we can move on. I'm okay with that. I'd like to ask you what the estimate would be for this year for travel, is there a single amount that has been budgeted for travel?

 

MR. STEELE: We can get that for you. It's going to take a minute or two. You take things like my travel - I don't think there's a line item in my budget for travel; it's part of the office of the minister. My travel, of course, is a combination of national meetings. There are two national meetings of Finance Ministers every year. There is also an investor tour every year as we talk to people who actually buy our bonds and then there's the travel around the province. The fairly extensive financial consultations we do are not cost free, so that would account for most of my travel.

 

I do have the answer for this year. The total travel - it's not a line item, but it's in a different form - the total of travel for everybody in the Department of Finance amounts to roughly $235,000. That would be both within the province and elsewhere.

 

MS. WHALEN: Is that comparable to this year's $162,000, if it's gone up to $235,000?

 

MR. STEELE: I'm not sure what numbers you're looking at.

 

MS. WHALEN: Well I'm still looking at this Volume 3 and the total of all the travel there, which includes . . .

MR. STEELE: Don't forget that item includes a lot of small accounts as well. It's not every single travel account.

 

MS. WHALEN: It says that there's a $72,080 amount for accounts under $3,500.

 

MR. STEELE: This is a problem - once we get into things that are not unique line items, different things will be counted in different ways.

 

MS. WHALEN: Well I'm asking if they're apples and oranges or apples and apples.

 

MR. STEELE: Apples and oranges. I was told that the travel budget this year - the $235,000 - is down from last year of $267,000. For example, I don't know - it is apples and oranges anyway. It's not the same number.

 

MS. WHALEN: Could you give me the number then? This number here is obviously not the total number, so could you say it again? This current year that corresponds to the staff that we've been talking about.

 

MR. STEELE: I can't do that. It's not broken down that way.

 

MS. WHALEN: Didn't you just say $260,000?

 

MR. STEELE: That's the global number, but whether it actually corresponds to these exact same staff members or different staff members, I couldn't say.

 

MS. WHALEN: That's fine, but can you give me what corresponds to the $235,000 this year?

 

MR. STEELE: But the $235,000 is this year.

 

MS. WHALEN: This year's estimate, so what is last year's forecast?

 

MR. STEELE: Last year is $267,000.

 

MS. WHALEN: Thank you, so we'll talk . . .

 

MR. STEELE: No, that was last year's estimate; the estimate is $214,000, somewhere in there - but it's not a separate line item and Joyce has pulled out a book I've never seen before, which is always dangerous. She's looking at something that's accounted for in a different way than what you see in the supplement here.

 

Can I mention one other thing about travel, if I may? One of the practices instituted by Dr. Hamm when he was Premier that was reinstituted is that ministers have to approve all out-of-province travel, so every single time that a staffer wants to travel outside the province, I see it, I approve it in advance and so I feel that I have a pretty good handle on who is going where and for what purpose for out-of-province travel. That doesn't apply to in-province travel.

 

MS. WHALEN: I think that's a good plan to do that - to keep track of who is travelling further. It's just another level of oversight and control, so that's a good idea. I'm glad you gave me the right number. Part of my question was, where would I find the estimate for travel? Now you've answered that - there is not a line item that I can find.

 

MR. STEELE: I suspect - although I haven't consulted with Joyce - so she's pulling out something, what SAP counts as travel, which could be done differently than what is done in the supplement, so it's not a directly comparable number.

 

MS. WHALEN: Going back to this again, I wanted to look at the grants and contributions, just a few things I wanted to hone in on there. I'm just trying to see which page it is - Page 129 in Volume 3 and it's for the year ended March 31, 2011. I've highlighted a couple of them that I wanted to get an explanation for, if I could, I think they're of interest. There's probably more if I want to go there but I'd start it with the Northwest Atlantic Fisheries Organization, $52,906. What was the grant for?

 

MR. STEELE: I can address that one but I'm just wondering, because on my item on Grants and Contributions, I have two items and I think you said several so I'm worried that you're looking at a different . . .

 

MS. WHALEN: Yes, it goes on with "Other". "Other" starts at the top of the page, so there's more.

 

MR. STEELE: The Northwest Atlantic Fisheries Organization is a little bit of a head scratcher, it's referred to as NAFO. What it is, is an ex-gratia grant which is based on the equivalent amount of personal taxes paid by the employees of the organization. NAFO manages the foreign fishing issues on our fishing banks, outside the 200-mile limit. This is one of the relatively rare cases where the employees of an international organization are based here in Nova Scotia and because of the status of the organization, they are, for want of a better term, forgiven their taxes. That shows up in our budget as a spending item.

 

We did actually look, in my first year as Finance Minister, at cutting this grant. This is a holdover from a long, long time ago. It was made reasonably clear to us that if we cut this, the organization would leave Nova Scotia. So we said all right, on balance everybody comes out ahead if they stay, so the item continues to appear in our budget.

 

MS. WHALEN: So they have a number of people here and that's the equivalent of the taxes that they would pay. I'm assuming we don't bother to collect the tax and then give it back.

 

MR. STEELE: Yes, that's right. The fact that I don't have in front of me is how many people this includes. At the time when we seriously looked at cutting this amount, I did know the number. It's in the single digits, it's not a big number.

 

MS. WHALEN: I agree, it's good for us to have an international organization here, rather than have them move to another province, I think that's a good idea.

 

I'd like to ask about the first one on the list for /N Spro Inc. and it's almost $700,000.

 

MR. STEELE: Yes, /N Spro, it took me a long time to figure out how to pronounce it as well. I don't know what the significance of the name is or why they spell it the way they do. This is an SAP consultant, so the amount that is allocated to them or was - I should say that what we're talking about is the 2010-11 fiscal year because that's the last year for which we have the Supplement to the Public Accounts. In that year they got a fairly substantial amount of money but I see six separate items adding up to the grand total. So this is the kind of money that you pay to SAP consultants.

 

MS. WHALEN: So it's not a grant in any way, it's just the cost of the consultants. This is just like a list of your payments to other people.

 

MR. STEELE: That's exactly right.

 

MS. WHALEN: All right, good. Just because it followed right after Grants and Contributions, so I thought perhaps there might be more to it.

 

I notice as well, the CFN Consultants, which is $107,000. Was there a particular consulting study done?

 

MR. STEELE: Yes, CFN Consultants is the company of Ron L'Esperance, which is a name I think you will be familiar with. In the 2010-11 year he did two projects for us; the first was the automobile insurance review at $58,000 and the Responsible Gaming Strategy for 2011-2016, which is another $50,000. I think you will recall that at the time, for the better part of the 2010-11 fiscal year, I was the minister responsible for gaming, although I am no longer.

 

MS. WHALEN: I wanted to look at the expenses, as well, that go across to Communications Nova Scotia. If we add that up, there's quite a significant amount and there's also a communications charge in the minister's office as well, so I'm guessing that this is in addition to the minister's office, first of all. We can see that last year and going forward, it comes under the Senior Management section.

 

MR. STEELE: I'm sorry, I'm not sure that I entirely understand the question. Could you go at it again?

 

MS. WHALEN: Well on this list of "Other", there is a whole slew of things to Communications Nova Scotia - Creative & Design, Graphic Display, Print Production, Queen's Printer, Support Services, and Video Production. Well one item alone is $287,000. I'm just checking that that's in addition to the communications budget you have within our own office, I assume those are Communications Nova Scotia people who work for you. So this must be in addition.

 

MR. STEELE: This is in addition. We're all learning things here today, I love my Communications staff, I just want them to know that. I spend more time with the Communications staff than any other part of the staff of the Department of Finance. They are really, really good at what they do and this is the cost of the staff.

 

The thing that I learned - it's funny, I've been the minister for three years, I don't think I realized this, technically the FTEs belong to Communications Nova Scotia and apparently we rent them, so this is the - I thought they were FTEs in the Department of Finance but apparently not. This is the price we pay to CNS for the Communications staff.

 

MS. WHALEN: So the staff are in this one under "Other"?

 

MR. STEELE: Yes, because it really includes everything under Communications Nova Scotia. That's under Communications Nova Scotia Support Services. So every time CNS does something for us, they send us a bill. So the costs rest in our budget but they provide the services. So this is a transfer within government, as it were.

 

MS. WHALEN: I understand they're part of government but what about - I'm trying to see this year's cost for communication in your office but it was something like $400,000, I think.

 

MR. STEELE: When you say my office . . .

 

MS. WHALEN: Well, let me see, maybe it's the deputy minister's office but I think it's the minister's office. It's Senior Management, it falls under Senior Management.

 

MR. STEELE: Yes, I'm not very happy with the category Senior Management. I was saying to my staff after the documents were printed this year, it includes a lot of stuff that by no reasonable definition, are senior management. There's probably a better way of organizing this; so the communications services are listed as senior management but I don't want anybody to think that this is all stuff that is being used like exclusively by me or the deputy. This is all the communications services throughout the Department of Finance. It includes the staff, of course, who are the core of the communications unit but it also includes things like paying for the printing of the budget documents that you have in front of you. Somebody has to pay for that. It comes out of the Finance Communications budget.

 

Somebody pointed out to me today, for example, that the lunch that is provided in the budget lockup to the Opposition comes out of the Finance Communications budget. So it's got to come from somewhere, it comes from Finance Communications. But if you want us to reduce that budget item, I know where I'd start.

 

MS. WHALEN: So then just for clarity, because I want to keep talking about apples and apples or oranges and oranges, when we add up that list, it would come to, I guess, the estimate or the actual for that year and it would have shown up under Programs and Services, under Senior Management? I'm actually looking at last year's here right now, I don't have this year's. But Senior Management in the one I'm looking at - Programs and Services - shows Communications in 2010-11 was $426,000 estimate, $416,000 was the forecast and 2011-12 is $415,000. So is it the same bundle of services, the people and the printing and the video making, all of that together, do you think it's the same? And the lunches, not only to keep Opposition but stakeholders well fed, they have to be fed, too. And media, they do too, let's make sure. I just want to make sure it's the same thing.

 

MR. STEELE: It should be almost exactly the same. I'm just being cautioned by Byron here that there may be the odd item here or there that slips into a different budget line item but it should be about the same.

 

As I look at the supplement for 2010-11 and I just eyeball it and add it up very roughly in my head, it comes out to about the same, the figure, it's in the $400,000 range. So I would say yes, if it's not identical, it would be pretty close.

 

MS. WHALEN: Thank you very much. The last one I wanted to get an explanation for, still under this Volume 3, was the Deloitte & Touche, $110,000 and then the Deloitte Inc. at $2 million.

 

MR. STEELE: Yes, the Deloitte & Touche one is for audit services. This would be audit contracts that they win in open competitions, I would say relatively often, by which I mean a few times a year I'm signing off on a requisition to pay Deloitte for an auditing contract that they've won.

 

The larger one, Deloitte Incorporated, just looking down the list it is apart from $112,000 for audit services, which would be different from the other one, it's all SAP and related support. Deloitte & Touche does offer SAP consulting services and the vast majority of that amount is for that. I can list the items off for you if you like, but it's six separate items, separate contracts.

 

MS. WHALEN: Can I ask, those experts that they send in for SAP consulting, are they resident here in Nova Scotia or do they bring them in and house them while they're here?

 

MR. STEELE: The answer is, in a nutshell, it would be a little bit of both, depending on the project and the skill set required. Some aspects of SAP can be so specialized that there is literally nobody in Nova Scotia who can do the work.

 

MS. WHALEN: We need to hire some more of those people.

 

MR. STEELE: Well not necessarily because it may be project work where there's not enough work to employ somebody full time, so that's precisely when you want to have a consultant, so you hire the skill set when you need it. When you don't need it any more, they are gone.

 

SAP staffing is highly competitive. If you are going to attract and retain people you have to pay some serious dollars because they do have choices about where they can live and work.

 

MS. WHALEN: Thank you very much. I'm just aware that with consultants when they come in, there's a lot of cost if they're not resident here. Often the big firms will have teams of people who they have in their consulting teams, that they have somebody in a local office but the rest of them are coming from somewhere else.

 

MR. STEELE: Just the last thought on that would be, remember that these contracts are won by competitive bid, so if there's somebody who can do it locally, without those additional costs, and somebody who can't, well the lower-priced bid is going to win. By and large, I would say that the only time you are bringing in people from outside is when there is truly nobody here in Nova Scotia who can do the work and that does happen from time to time.

 

MS. WHALEN: Thank you very much. I did have others that are marked so I'm just going to go through quickly and see if there's ones that I want to go to or not. I don't really want to ask you each and every one - maybe the larger ones. There's one there for $1 million that is Illumiti Inc.

 

MR. STEELE: It probably won't come as a surprise to you by now that any of these big numbers are SAP consultants. This is a company that has three separate contracts; $555,000, $420,000, $86,000. It's an expensive system and this is what you pay for the expertise that goes with it.

 

MS. WHALEN: It's becoming clear. There's another one, Via Consultants Informatiques (2,000) Inc., is that SAP again?

 

MR. STEELE: So, with the word Informatiques, you'll probably guess that these are SAP consultants.

 

MS. WHALEN: I'm picking all the big ones.

 

MR. STEELE: They have four separate contracts; $1.3 million, $831,000, $670,000, $113,000.

 

MR. CHAIRMAN: I would like to interject for a moment, if I could. The Liberal caucus has 10 minutes remaining. We started today at 2:00 o'clock, there was a five-minute break, so we finish at 6:05 p.m. It's my understanding that there will be no reading of resolutions, that the minister is so popular that he is being requested to come back on Thursday. Is that my understanding from the Progressive Conservative caucus? You'll have 10 minutes, providing there's no reading of the resolution, so you want time on Thursday?

 

MR. ALLAN MACMASTER: Yes, Mr. Chairman, I think we'll need to carry the discussion into Thursday.

 

MR. CHAIRMAN: Okay, thank you very much. There are 10 minutes remaining for the Liberal caucus and then we will go to the Progressive Conservative caucus for 10 minutes. Ms. Whalen.

 

MS. WHALEN: I do have one other line of questioning. I wanted to talk about the department's efforts on any kind of comprehensive tax review. Our understanding was that one was begun in the Spring of 2008 and that the minister has said in the past that there was no tax review underway, but that there was a Web site developed for the Department of Finance and that there was a brief overview of taxation revenues by source, as well as a few other pieces of information on that Web site and that the process was put on hold with the election in 2009. I'm wondering if you could speak to any plans to look at a comprehensive tax review or the response to having one that was in its infancy at that time. I'm just changing gears.

 

MR. STEELE: Some of these issues are like vampires. No matter how hard you try to drive a stake through their heart, they keep coming up again.

 

MS. WHALEN: Well, we like this one.

 

MR. STEELE: Tax review - there was no tax review. When I came to office, there was no tax review. It wasn't in its infancy or anything else; there was no tax review. The Progressive Conservatives undertook something; they finished it in January 2009. It was not put on hold for an election. There was nothing going on when I became the minister. I don't know how many times I have to say that. There was no tax review.

 

The Progressive Conservatives did not publish the document that was produced out of what they did do. Now whatever it was they had done was finished, it was over, there was nothing going on. They didn't publish it; we did. We didn't create a Web site, we posted it on the Web Site in conjunction with last year's budget because people kept saying, well, where's the document? All right, here it is - and from the day I posted it, I don't think I've heard one peep about the document since. I wonder how many people have actually read it.

 

MS. WHALEN: Well, we read it.

MR. STEELE: It's dated January 2009 and it is the only thing the Progressive Conservatives did. There was no further work done or contemplated when we walked into office. I just hope that is as clear as I can possibly be.

 

Now, in terms of taxation, I've never been exactly sure what the Liberals mean by a comprehensive tax review. I think it's a way of the Liberals avoiding dealing with any taxation issue, because whatever comes up they just say, oh well, we would submit that for a comprehensive tax review. Every budget, in some sense, is a comprehensive tax review. Every budget is looking, again - particularly on the Finance side - about our sources of revenue. We make changes in the budget - some big, some little - and you can see a pattern over time like the reduction of the small business corporate income tax, but that is what the Department of Finance does. We're working on taxation all the time - thinking about it, working on it. The stuff that reaches fruition makes its way into a budget. I'm not sure what it is the Liberals mean by a comprehensive tax review when we are comprehensively reviewing taxes all the time. Maybe the member, if she wants to pursue this, could explain what a comprehensive tax review is that's different from what we already do.

 

MS. WHALEN: Again, this isn't time for you to ask me questions - it's time for me to ask you questions, but I think it's pretty clear from things we have said what we mean about that. I just don't want to waste time telling you today what it is, so we can talk another time.

 

What I feel is important is that we look at the taxes we've got now, instead of piecemeal adding credits and this and that and things that are politically popular along the way so we end up with a really complicated system, which may not ultimately be stimulating the economy in the right way or generating the right amount of revenue. There are things that you can reduce that will actually have a commensurate, or even better, return in terms of economic development. I think when I read the mission statement of your department, it's also to see that you increase revenues and have a role in creating a system that would stimulate and grow the economy and help more people work and more people pay taxes. A comprehensive tax review would lead you in that direction rather than doing things piecemeal.

 

Since there's only a few minutes left, I believe - could you tell me how much, Mr. Chairman?

 

MR. CHAIRMAN: You have four and a half minutes.

 

MS. WHALEN: Well that's better than one minute. I would like to ask a little bit. One of the sources of revenue is the rebates and credits - or actually it's one of the costs, isn't it, rebates and credits under your department?

 

MR. STEELE: Correct.

 

MS. WHALEN: I'd like to ask you about the uptake - and I'm assuming it comes under yours - the uptake for the credit for university students who stay and work in Nova Scotia. I believe that the forecast is always quite a bit less than what is estimated on the cost to run that program and offer that rebate? That is a tax issue and I'm sure it falls under your banner.

 

MR. STEELE: I guess the direct answer to the question is no, I'm not responsible for that, it's not included in this particular line item. I think that question is better directed to the Minister of Labour and Advanced Education. I believe that her estimates are coming up shortly. If she has not already started over in the main Chamber, I think she is going to start on Thursday and it would be a really good question for her. This is not part of that particular line item.

 

Just for the information of the member, what is included in that line item are the Affordable Living Tax Credit and the Poverty Reduction Tax Credit. The Affordable Living Tax Credit amounts to - the 2012-13 estimate is $70 million and the Poverty Reduction Credit is $3.5 million, for a total of $73.5 million.

 

MS. WHALEN: Can I ask the minister, are those the only two items in that? It's Rebates and Credits, I think, is how it's defined, I just don't have mine.

 

MR. STEELE: In that particular - I'm just looking at - my estimate, my Resolution E37 is for $73.5 million and those are the only two items in that resolution of $73.5 million - $70 million plus $3.5 million.

 

MS. WHALEN: Thank you very much. I think my time has elapsed.

 

MR. CHAIRMAN: You actually have two minutes remaining, time for a quick question.

 

MS. WHALEN: Well I could pontificate. I think we hear enough of that in the House. Let me just go on again, we'll see what else is in there. Again, going back to the taxes that we look at, the minister has said that every year it is basically a review of your combination of taxes and how you're going to get enough revenue to hopefully meet your obligations each year.

 

Given that the federal sources are largely out of your control as well - you can do some negotiating but they largely are determined out of your hands, then we have only the provincial ones to look at. So I'm wondering if we could just look at one item there and I think we'll go to have a look at the government enterprises again. We talked about the Liquor Corporation, could you talk about the gambling revenue in there and the prospect of growth in that area? Just the revenue, I realize you're not the minister for gambling.

 

MR. STEELE: I'm just going to need a minute to put my hand on it because I know it's there.

MR. CHAIRMAN: And perhaps a quick response, if possible, because the time has just about concluded.

 

MR. STEELE: I'm going as fast as I can. So the revenue to the province - yes, that's right, I just don't have the correct numbers at hand, although it's a fair question in the sense that I do have some overall responsibility for the revenue, that particular item I don't have the detail at hand but if we go back at it tomorrow, I will have that for you.

 

MS. WHALEN: I would just ask that that can be provided to us.

 

MR. STEELE: I know it's somewhere in the books here in front of me, I just haven't put my finger on the correct page.

 

MS. WHALEN: Okay.

 

MR. CHAIRMAN: That concludes the Liberal caucus time. I will now call on the Progressive Conservatives for 10 minutes of questioning.

 

The honourable member for Inverness.

 

MR. ALLAN MACMASTER: Thank you, Mr. Chairman. It's a shame that we have to get interrupted but I know it's the nature of the committee and it is, of course, in fairness to all members. I just wanted to carry along from the minister's comments as he talked out the remainder of the last hour.

 

He spoke about having to deal with the structural deficit. I know that they brought some economists together and they did a projection on the deficit, based on current spending. That assumed something, Mr. Chairman - and it was a pretty big assumption - and that assumption was that nothing could ever change and that expenses of the government of the day could not change.

 

I guess one thing that kind of amuses me is the minister spoke about the previous government and he referred to them as spend, spend, spend. I guess if there was so much spending going on, I wouldn't think it would be difficult to eliminate that structural deficit. He said that he would have had to slash spending.

 

I just want to point out that historically, I remember in 2002-03 we had the first balanced budget in 40 years in the province and to make that budget balanced, decisions were made. They weren't easy decisions but they do provide a good example for this administration today, Mr. Chairman, to look back. I know they voted against that budget and they voted against other budgets that were focused on bringing expenditure in line with revenues. We can't take that away, that's all fact, it's all on the record.

 

If we look back at that point in time, we see that - and minister, you yourself voted against those budgets. If we look on the record, there was probably - of the budgets you described as spend, spend, spend, I know you voted for at least two of those, so I just want to put that on the record because it is fact.

 

There was something else you mentioned; Nova Scotia, if we weren't going into deficit spending, we'd be the only province basically that wasn't deficit spending. You also referenced that the federal government was deficit spending. I think one thing we have to remember is that the federal government is responsible for the entire country and some of the provinces have very cyclical economies. I think about Alberta with its natural resources; when the price of oil goes up, the royalties go up for Alberta. Over 25 per cent of Alberta's revenues in recent years have come by way of royalties, an incredibly cyclical economy. So when we have business cycles where there are big drops in those cyclical economies, it stands to reason to me that a federal government would need to look at deficit spending in a case to carry the whole country.

 

When I think of our province, we have a defensive economy. I saw a figure the other day that 28 per cent are employed through the Public Service, so we've got almost one of every three. That number may be higher as well. My point being that in a defensive economy, you shouldn't have the need to deficit spend as much because your economy is more stable and it chugs along even in recessions.

 

The other point that needs to be made, in a defensive economy you also don't have a future day where there's going to be a windfall. Alberta, in contrast, a cyclical economy, again when the price of oil goes up and the profits are higher and the royalties are increased from extra activity because there's more activity as they try to get the resources out of the ground for the higher price, they do have future days when they're going to have higher volumes of revenue coming into the treasury.

 

I guess the question it raises for me is, if we're in government in Nova Scotia and we have a bad record, we have really a very limited record of paying back deficit budgets that were spent in the past. I guess what I think to myself is why would we incur more of them at this point in time, especially when we know that we don't have a bright spot in the future, unless we find some kind of a significant resource discovery that would pay off the deficit that we are incurring today. Those are some of the things I think about.

 

I think that deficit spending and interest costs, like the debt servicing amount - this year it's $881 million - they're not just a legacy of the past in this province, but they're actually a legacy of the present with your government, minister, and ultimately it will become your legacy. If we look at the numbers - based on the numbers that the department has provided - under the Budget Highlights 2012-13 document, we see that at the end of this year, the debt is going to be over $13.7 billion. If you divide that by the number of years that the NDP has held government - four years - you're looking at about $350 million per year, which is quite a bit more on average. If you divide the amount of debt accumulated since 1962 through 2008-09, you're looking at actually more debt added by the NDP Government per year in the last four years than any administration in the history of the province. I think that's a fact that we should not forget and I guess it is proof - I don't guess, I know that it's proof that deficit spending and a demand on future Nova Scotians to have to pay for that deficit spending by way of - this year it's the $881 million debt servicing cost - is a legacy of the government; it's a legacy of the present.

 

I would like to see that change and that is why I raise it here today. I know that it was raised by the Auditor General as well. He had stated - and if I may read it into the record - this came from the Report of the Auditor General to the Nova Scotia House of Assembly in January of this year, in 2012:

 

"Government's practice of borrowing to pay for current expenditures raises ethical questions. Is it right for Nova Scotians to expect, and receive, government services that they as a group do not completely pay for, deferring part of the payment to future generations? Is it right to add significant interest costs that continue for an indefinite period of time to the cost of services, again paid for by future taxpayers? And is it right for governments to decide to spend more than they earn, for short-term benefits, deferring payment to dates far in the future, if at all?

 

I take the view that, while governments have the ability to spend in excess of their revenues, to do so is not financially responsible, except in exceptional circumstances. Governments may need to borrow in times of emergency, such as war or natural disaster; they may need to undertake very large scale capital projects, such as dams or major hospitals, that would be unaffordable without debt; and they may need to finance short-term downturns in the economy. In any such case, the borrowing government should consider what is an appropriate and reasonable pay-back time, to minimize the cost to the taxpayer.

 

In all other cases, I believe government has a responsibility to its citizens to live within its means. That involves paying for its spending from current revenue.

 

Further, government has a responsibility to pay back its borrowings. Long-term debt is damaging to the province. Government should have a goal to eventually eliminate long-term debt and should have a plan for doing so. This is only possible through operating surpluses, as painful as they may be.

 

This province has had periods during which surplus revenue has been used to pay down long-term debt."

 

If I may add, Mr. Chairman, that happened during the John Hamm Administration. Those periods - and also through offshore royalties that were achieved under the MacDonald Government.

 

MR. CHAIRMAN: Member, I'm going to have to interject. Your question has been a very long one and we haven't really gotten to it yet so we will have to get to your question on Thursday. It is now 6:05 p.m. and the four hours that we have allocated for today have expired. I thank you all. Answers sometimes are quite long and questions can also be long as well. To this chairman - and I think to every chairman - it's all part of the four hours, so thank you.

 

That concludes the time for estimates today. Thank you, minister, and thank you members.

 

[The subcommittee adjourned at 6:05 p.m.]