MR. CHAIRMAN: Good afternoon. I would like to call the Subcommittee on Supply to order, please. We have the Minister of Finance before us. The resolution for the record is E7:
Resolution E7 - Resolved, that a sum not exceeding $12,867,000 be granted to the Lieutenant Governor to defray expenses in respect of the Department of Finance, pursuant to the Estimate and the business plans of the Nova Scotia Government Fund Limited and the Nova Scotia Power Finance Corporation be approved.
MR. CHAIRMAN: The honourable Minister of Finance.
HON. NEIL LEBLANC: Mr. Chairman, first of all, I would like to start off by introducing our staff. I have here with me the deputy minister, Bill Hogg. We have Joyce McDonald who is the Director of Finance for the department. We have numerous people with us here. Michael Rainer is the Director of Budgets. We also have Liz Cody who is, I always forget, the title is Executive Director of Fiscal and Economic Policy. We have Marie Mullally who is the President of the Nova Scotia Gaming Corporation. We also have Holly Fancy who is the IT Director and David MacNeil, who is the Director of Communications for the Department of Finance. We will have joining us Suzanne Wile who is Director of Government Accounting and also Doug Stratton will be joining us. He is the Executive Director of Investments and Pensions Treasury.
Mr. Chairman, I have just a few brief comments in opening here today. I would like to say, first of all, it is a pleasure to be here again. The Department of Finance has estimated its 2001-02 net program expenses to be $12.867 million. This amount is higher than the estimate for the previous year for a number of reasons. First of all, Finance has assumed the auditing function and staff on behalf of government. We have centralized it within our department. We are also facing higher costs to maintain the government's financial management system.
The Estimates Book also shows the debt servicing costs of just under $1.05 billion. This is the gross amount and it is important to distinguish between the gross and the net. Normally when we talk about debt servicing, we are speaking about the net amount which includes our sinking fund earnings. This brings our net debt servicing costs to the more familiar $909 million shown in the financial statements. However, during the estimates we will be speaking about the gross amount. We have a funded staff level of 191. Members should understand that funded staff levels do not always translate equally into the actual number of employees as there are always vacancies in the system.
I would like to point out some of the responsibilities of our department and which ones are carried out by the various branches in the department. One of the major branches is the critical area of Fiscal and Economic Policy. This branch covers taxes and tax policy and federal-provincial relations on these matters, economic analysis and also statistics. The people who work in this area do our modelling on revenues. They also develop new tax credit initiatives and do the negotiations at an official's level with the other provinces and also with Ottawa on fiscal arrangements such as equalization. It is through this branch that the government will be pushing Ottawa for more funding under the CHST or the Canada Health and Social Transfer.
I would also point out that my department plays a key role in the government's overall economic policy development and strategy. The more detailed development policies are, of course, the responsibility of departments such as Aquaculture, Natural Resources, Transportation and Economic Development itself. In Finance the concentration is more on economic analysis, the impact and assessment, with particular reference to making sure we understand how economic events and policy decisions will impact on our revenues.
Another key branch is Investments, Pensions and Treasury Services. This is the area where we manage our money, including the pension investments and debt management. This is a critical area for the long-term financial survival of the province. As some members would know, it is due to the very active management skills of our staff in this area that has kept our debt servicing costs relatively constant as the debt built up over the past five or six years. I would also note this is the same staff who have been able to reduce the foreign exposure from more than 72 per cent at the end of 1994 to 36 per cent a year ago, to 31 per cent today, and down to 20 per cent in the year 2004.
We also have a budget area which is overseen by an assistant deputy minister. This position plays a critical role in coordinating the government-wide budgeting process. I think it is important to point out that the final budget product is a result of a lot of work by people in my department and throughout the entire Public Service. The ADM's area now includes the controller's branch which is responsible for internal audit, government accounting and reporting as well as government services such as payroll and accounts payable.
This group has been very busy since our government took office. It was this group that implemented the move to Generally Accepted Accounting Principles and accounting for tangible capital assets. I think they have lost a lot of their hair and turned a lot greyer since that time as you will probably see from the staff coming in. They have also led the process to implement standardized accounting procedures beyond the government throughout the public sector, including school boards and also health boards.
As a department we are also home to the Finance Corporate Services Unit. This unit provides support and services to a number of other government departments and agencies in the area of finance, human resources and information technology. Collectively our most important role is as a central agency of the government providing support in a number of key areas, including the management of the budget process that we are now going through today.
The Department of Finance underwent some major changes during 2000. Procurement was moved to Transportation and Public Works. Pension regulation has moved to Environment and Labour, regulatory affairs and government auditing services is now centred in our department. Also, some of our budget personnel will be moving to Treasury and Policy Board. The Department of Finance continues to be a significant central agency of government. Our challenges are considerable as we continue with our plan to eliminate the deficit and reduce the tax burden on Nova Scotians.
Mr. Chairman, with just those very brief comments, I would be more than willing to take any of the questions that the members of the committee may have.
MR. CHAIRMAN: Thank you, Mr. Minister. I will start off with the NDP caucus.
The honourable member for Cole Harbour-Eastern Passage.
MR. KEVIN DEVEAUX: Mr. Chairman, I do have to be over for Education so I am going to split my time with the member for Halifax Chebucto. I wanted to start with some of the revenue projections, both last year's estimate and forecast and then this year's estimate.
The minister will know that the Auditor General had some comments about this in his report that came out this year and particularly in some of the - my term, low balling - his term, conservative estimate probably is more likely what he used, but where some of the
revenue numbers were quite low and then were brought up or were, as the forecast went on, and he said as an auditor he thought that that was a concern, that the government was somehow reducing estimates when they announced the budget and for whatever reason, maybe to inflate the deficit, at least at this stage, so that they could have rationale for not spending in certain areas and then in the end, you know, when we announce our new budget in April, in this case March 2001, we have higher numbers.
So I guess I will start off by saying, Mr. Minister, do you have any comments with regard to what the Auditor General had to say in his report generally?
MR. LEBLANC: I listened and I had read the comments by Mr. Salmon regarding the estimates and he had mentioned that perhaps they were on the conservative side. I would like to say that for ourselves the revenue estimates are prepared through Fiscal and Economic Policy, which is Liz Cody who is sitting alongside me here. The numbers are done, I think, on a consistent basis year to year. I guess you could ask, are we being overly optimistic, and some people say that perhaps we should - I think, as a government we should be consistent with whatever policy we put in place, but I would tend to think that we're probably more on the conservative side if you look historically. I think most people would feel that we should be prudent.
We had a very good year last year. All projections that we went by were basically in line with our projections that we put in place, taking into account that we were making government smaller. That was going to have an impact on the economy. We realize as a government we are a major employer, at the same time having the size of deficit we had was unacceptable and we made movements to move in that direction. So, for us, it was basically being consistent in how we projected it. We exceeded that and we're very pleased that that happened. However, I mean the opposite could be said, if we were optimistic in our projections and we didn't meet them, people were saying that we would have been trying to basically use the other argument, and I think for ourselves whatever we do, we should be consistent.
MR. DEVEAUX: You would argue then that it is better to be safe than sorry, better to be conservative - and I mean obviously small "c" conservative in this case - with your estimates and if by chance there's a windfall, then so be it. Better that than the other way around which is we predict too high a revenue and we end up having to deal with deficits?
MR. LEBLANC: I think if you look at what we had last year, we had used private sector forecasts. We were in line with those forecasts. We were a little bit lower, but we also had to take into account that we knew, as a government, that we were going to make government somewhat smaller. The people making those projections in the private sector are not part of the budgetary process and don't fully understand it. This year, even in our budget, we have included the projections of other indicators, or other private sector projectors. The Conference Board of Canada I think was one of the ones we had, also some of the banks, to
give people an understanding as to what they're saying and what our projections show. I think if you look at them, we are in line with what is going on and I think that's what we have to do. I, as minister, we, as a government, shouldn't have the latitude to try to change those numbers, we should be consistent.
MR. DEVEAUX: I think that's one of the points I would like to make and get your comment on. Last year - I am trying to remember the exact number - you said the economy would grow, I think it was 1.8 per cent or 1.5 per cent when the budget was first introduced.
MR. LEBLANC: The projection was 1.8 per cent.
MR. DEVEAUX: Okay, 1.8 per cent.
MR. LEBLANC: We ended up at 3 per cent.
MR. DEVEAUX: I don't have the exact figures, but CIBC or Scotiabank, in early 2000 had made some predictions with regard to where they thought the economy was going, they thought it was going to be much higher than 1.8 per cent. So there was a fairly wide gap between what the province was predicting and what the private sector outlook was. Is that correct?
MR. LEBLANC: Across the nation that was the case and I know that we have some numbers here, that almost every province exceeded their revenue projections considerably. I think that was basically the fact that we had put projections in for revenue forecasts which were basically in line with what was being shown at the time of the budget and the economy basically had performed, and that's something that is good, whether that is due to consumer confidence in the economy; once that gets rolling, I think all members realize that things can move along very well. For us, it did exceed it, but I think if you look at the other provinces, every other province in Canada did the same. Alberta did fantastically, but I don't think we can compare ourselves to Alberta, so I will leave that one alone.
MR. DEVEAUX: I don't know if you've answered my question. Let me back up. Do you have numbers there that sort of show in late 1999 or early 2000 what the banks and other private sector economic forecasters were saying they expected the Nova Scotia economy to be at, what their outlook was?
MR. LEBLANC: Projections for the last budget that we tabled?
MR. DEVEAUX: Yes, 1999-2000, what were the projections in the private sector?
MR. LEBLANC: Let me just clarify. It would be 2000-01 and you're saying 1999-2000.
MR. DEVEAUX: I am sorry, you're right, for the fiscal year 2000-01 what were their outlooks?
MR. LEBLANC: The answer is yes. There were projections that were readily available.
MR. DEVEAUX: Do you have them there?
MR. LEBLANC: We can get that to you, that's no problem. That's all public information anyway.
MR. DEVEAUX: Okay, because my understanding is that last year the province forecasted, at one point, much lower than what the banks might have been saying. So I will be curious as to what the numbers are with regard to that.
MR. LEBLANC: I will get those numbers to you. The projections were showing about 2.2 per cent to 2.5 per cent. We projected 1.8 per cent. Then again, the staff are also reminding me that they were not aware of the fact of whether we would be reducing our spending as a government, which is something that we, as a government, did, but that's in line. I will make a notation to get that information to you.
MR. DEVEAUX: This year the banks are showing, even the most updated ones which only occurred a couple of weeks before your budget, that it still is around 2.2 per cent to 2.4 per cent, I think. Privately CIBC, Scotiabank, I think they were coming in around that number which would be bang on with where your prediction is under the assumptions you're making in this year's budget, is that right?
MR. LEBLANC: Pretty well exactly. The average overall is 2.6 per cent and we're estimating 2.3 per cent and that encompasses seven different indicators - APEC, Royal Bank, CIBC, Scotiabank, Conference Board, TD Bank, and Bank of Montreal.
MR. DEVEAUX: Some of those go back to the fall, I believe, when the economy still seemed to be a little higher. If you take the more recent ones that were - I don't know if they were updated forecasts given to the economy, they're much closer to what you're talking about though, right?
MR. LEBLANC: Two of those are in February, the other ones are in October, November, December. So if you put that in perspective, perhaps as they go further on, I think the updates probably would be reducing the numbers more in line with what we have projected.
MR. DEVEAUX: So that leads to another question which is, last year you were as much as 7 to 10 points behind what the outlook was being forecasted by the private sector. This year you're much closer, if not bang on with what some of them are predicting.
MR. LEBLANC: I disagree. We were not 7 to 10 per cent behind what the private sector was indicating. It was 2.2 to 2.5 that they were indicating would be the increase. I point out again that there are also things of the government that we would be moving out of; we knew that and I stress, again, for the people making those projections, they weren't privy to that information.
MR. DEVEAUX: So do you feel pretty comfortable with 2.2 per cent as an outlook for how much the economy is going to grow this year given the sort of global situation?
MR. LEBLANC: I only wish I was as comfortable in making my own investments as I was trying to make this one. Obviously, it is an educated guess at a point in time. As the forecasts keep getting reported we will have a better indication, but the indicators are still saying that we have the lack of consumer confidence, especially in the United States right now, that things will pick up in the latter part of the summer into the fall. That's why these numbers are still at the levels they are and we are hopeful we will maintain that.
I point out again that Nova Scotia is in a little bit of a different situation than in the past. We have a much more diversified economy, but we also have a lot of exploration going on offshore. If you look at the TD report that came down I think two or three weeks ago, it mentioned that overall their projections were down but that the oil and gas provinces, they felt would weather this relatively well because of the fact that there is still demand. I think that's an appropriate comment that we have to take into consideration.
MR. DEVEAUX: Around personal income tax specifically; I don't have the exact percentage increase here calculating, at least not in front of me, but last year, and maybe since this is my first time as a Finance Critic you might be able to sort of explain to me, if it is possible, briefly, how you come about the number for increases in personal tax. Is it just based on increases in personal income or if there's a percentage increase in personal income, therefore, you correlate that into the same level of increase in personal income tax, or is it based on other factors as well?
MR. LEBLANC: I can't remember the question again, I apologize. You're talking about how it is factored? Obviously, the information, as we do our calculations is provided from Ottawa through CCRA, the old Revenue Canada agency, and for us, in this year, the increase that we are seeing is relatively small in this one area, this one fiscal year, especially when you look at it in perspective from what we have seen from the previous year.
Some of the changes that have happened federally, we have indicated that we are not initiating provisions to protect ourselves from bracket creep. I think you are already well aware of that. There are other issues though that the federal government has put into place that will also have an impact on our revenues. I go back to the capital gains changes they have put in place, where they reduce it to two-thirds and subsequently to 50 per cent. Those are things which define taxable income which we don't have control over. The national government still has that. In essence, we are still going to be losing revenue in giving a tax break to Nova Scotians because we are not keeping our definition of taxable income constant. So there are some tax losses, you could call it leakages, whatever you want to say, that if the changes in Ottawa would not have been in place that probably would have increased our personal income taxes that we didn't see here. But the numbers are all plugged in nationally. It is based on what is coming out of the taxation at the national level because they do that on taxable income and the projections come forward to our shop here and are plugged into our numbers and that is how we come up with it.
Maybe if you have a very specific question, I will try to elaborate a bit more, but I am doing an overview here, if you could just bear with me.
MR. DEVEAUX: I know that Stats Canada produces monthly reports on income. I don't know how delayed it is because, on the Web page, December 2000 is the last one I remember seeing. Do you guys have more recent information with regard to personal income in Nova Scotia on a monthly basis since December 2000?
MR. LEBLANC: Did you say on an increase . . .
MR. DEVEAUX: Do you have reports in January, February or March with regard to personal income in Nova Scotia - average weekly is what I am thinking.
MR. LEBLANC: I am being told that it is quarterly releases coming out of Stats Canada. I do know that a lot of the numbers that we get for planning or estimating are both CIT, corporate income tax, and personal income taxes are given. Usually there are two updates a year, usually in the spring and fall, that's why there usually are not a whole lot of changes to those estimates. The first forecast usually comes down and there are no estimates to those numbers because we don't have anything coming from the federal government. This last year has been an anomaly that there isn't a spring budget and as such, that will probably defer us from getting some of the additional information that we get in the spring that we've had in the past. Usually when they are preparing their budgets, they are updating all their information and once they do that, that information is shared with the provinces.
MR. DEVEAUX: Let me then ask another specific question. Is it still your department's assumption that personal income in Nova Scotia will be increasing this year?
MR. LEBLANC: The estimate for increasing is approximately $22 million. That is what the estimate over forecasts . . .
MR. DEVEAUX: Not the tax, the actual income. Do you still expect Nova Scotians' average personal income to increase? If so, do you have a percentage that you are expecting?
MR. LEBLANC: It is in our forecast on Page A11 of my Budget Address. It mentions that the personal income increase this year will be 3.2 per cent. If you just look on Page A11, there is a graph that talks about the fact that for 2000 the increase - it is about the fifth or sixth line down - last year was 4.7 per cent, which is an exceptional increase, it is very good for Nova Scotians. The increase this year is 3.2 per cent with projections for the following year of 4 per cent.
I would just like to make a comment. Many times people have said that they look at national trends and say that we have room to increase our taxes and I think I have heard some of those debates in the House. What we also have to look at in Nova Scotia is that our average income is not as high as some of the other provinces. So when you take that into consideration - I have heard some comments from some think tanks who say we have room to increase our taxes. If we were to have the average income of some of the other provinces, basically our taxes would be in line, the rates would be. I think for us it is a consideration that is part of that whole debate as to whether our taxes are reasonable, whether they are too high. Of course, you are going to get people on all sides of this argument, depending on which side you are looking at.
MR. DEVEAUX: With regard to corporate income tax, there is quite a jump this year. Can you explain where that much larger number is coming from?
MR. LEBLANC: The good news is that the corporate sector is still doing reasonably well. We always get into the fact that they have used a lot of their loss carried forward as they get a few good years. After awhile, those losses carried forward are getting utilized. There has also been some change in the ITC for manufacturing and processing, which means that this year that credit that was being utilized will be diminished and that has a major impact on it. Those are three different factors, one of which the economy is better, the losses carried forward are being used up and not available. In the last issue I talked about the manufacturing and processing. Overall though, I just would like to comment, it is still going up I think $30 million, from $169 to approximately $200, - which is a good size. I would have said probably a year ago now that that would have been a bit surprising. It is a pleasant surprise and we are very pleased with it.
MR. DEVEAUX: Well, since 1997, according to your own documents, it has gone up a fair bit from $121,000 to almost $200,000. We are close to almost doubling the corporate income tax brought in over the past. Harmonized tax you see going up, I take it that
is because you see sales generally going up? I think you have 3.5 per cent for this year that sales going are up to. Is that the assumption behind the HST going up as well?
MR. LEBLANC: If I could just point to the same table that I referred you to before, you are also getting into consumer spending, retail sales are still going up 3.5 per cent. I think in Nova Scotia there is reasonable confidence still in the economy even though we are hearing a lot of the dreaded slowdown in the United States. I think a lot of it has to do with the offshore gas and oil, people know there will be activity here and that has had a positive impact.
MR. DEVEAUX: Then can you explain why tobacco, gaming and liquor are all - well, gaming is going up only slightly, but still down from last year's estimate. Liquor is up slightly over last year's forecast, but below last year's estimate, which is down. You overestimated on that. Those numbers seemed to have almost flattened out, or even lower than you had expected from last year's estimate and only slightly higher than last year's forecast. Can you explain why those numbers are flatter than the others? I am assuming tobacco is going to go up now because there is an increase in tobacco.
MR. LEBLANC: I think the Liquor Commission, for a long time the volumes have not changed. That has been consistent over quite a bit of time, I think trends have changed, consumption is basically stabilized. The efficiencies that have happened within that corporation, to a great extent, have done it by streamlining their expenses and trying to keep within their budgets, and I think they have done a good job of that. Maybe that is one of the biggest reasons that when we made the decision to continue operating that, that was probably one of the reasons why the comparison showed that we should keep it in operation.
The Gaming Corporation, this year, part of the problem we are having there is some of our ticket sales have basically not gone as well as we expected them to. Mr. Chairman, maybe on this question, since he had to shift, maybe I will just shift- if you want me to continue on this line of questioning, I can, maybe I can pick it up when he comes back, whatever the . . .
MR. CHAIRMAN: Just finish the question for Hansard and if he wishes to respond to it, he can do so later.
MR. LEBLANC: Those are two major issues that I would like to point out. I think I have answered the one regarding liquor. The Gaming Corporation, overall this year, there seems to be a saturation in that point and I think that is one of the reasons why we haven't seen the growth in that aspect. But it comes to the point where there is a saturation of any market and I think we are starting to see it in gaming.
MR. CHAIRMAN: The honourable member for Halifax Chebucto. Your time is 5:15 p.m. and you have the floor.
MR. HOWARD EPSTEIN: I would like to examine a couple of other aspects of the minister's departmental estimates and some aspects of the economy. I am wondering if we can talk for a minute about the proposed sale of Nova Scotia Resources Limited. Am I right to understand that it's your government's hope or plan to have sold the company sometime during this fiscal year?
MR. LEBLANC: The announcement for the sale of NSRL was in the last fiscal year. That is the year ended March 31, 2001.
MR. EPSTEIN: That is the announcement of an intention to sell.
MR. LEBLANC: Beyond that. It is basically an offer which if acted upon by the parties and we overcome all the barriers - they are obviously waiting for approvals and so forth which I could relate in great detail here, but the bottom line is, what I am saying is that if this sale becomes final the gain will show in the fiscal year, March 31, 2001. We indicated when we announced the budget that the gain had not been shown in the financial statements but that information was disclosed because this transcends the fiscal year in waiting for the information to come in. If it is sold, it will be shown on our financial statements for the year ended March 31, 2001.
MR. EPSTEIN: Just to go back, I take it the minister was referring to the various rights of first refusal and so on, is that right?
MR. LEBLANC: The deputy was just pointing out that there was an agreement of purchase and sale in February 2001. I will try to go into this in some depth here. That agreement basically talked about two different aspects, one of which was the asset sale that was being sold to Emera in conjunction with Pengrowth, which will be their partner if that clears. The second side of it was the sale of the remaining parts of the Nova Scotia resources outside of SOEI, which would mean the significant discovery licences and the company itself, that is being sold to PanCanadian.
The share was structured whereby the assets were offered first. That means that ExxonMobil and Shell had a right of first refusal on either shares or assets, whichever one is offered first. The first thing that was offered was the assets. That was the ROFR that they had to exercise. They did not exercise that option on that. Then, it went beyond that, it is in the process of getting approval from the SOEI consortium as to whether or not they will accept them as an alternate as to the province in regard to the project and, of course, tier two, which is in the process of doing it. That is where we are waiting right now for an answer, and that has not yet been determined.
MR. EPSTEIN: We are now into a new fiscal year. I gather what you are saying is that any revenue flow to the province from the sale has not actually occurred, you are not in receipt of cash because of any sale. But, you are saying that because you had signed the documents or essentially concluded the agreement in last year's fiscal year, at some point you expect to go back and re-state the financial position of the province for last year.
MR. LEBLANC: That is correct. That is if the sale becomes final as it is.
MR. EPSTEIN: And if it does not?
MR. LEBLANC: Then basically we, as a government, will sit down and decide whether we will begin the process over again. Then, of course, it will be in this fiscal year.
MR. EPSTEIN: What I am actually wondering about, in the end, is what you intend to do with the proceeds from the sale. Is it the intention of the government to use it completely to pay down debt?
MR. LEBLANC: Our intention, of course, is to lower our borrowing. On this asset we would also have a gain on sale, which will be shown last year in the year ended March 31, 2001. It is a one-time item, it is not a repeating item. Too bad, we would like to sell it more than once, however that is not going to be the case, we know that. (Interruptions) (Laughter) I want to get the cash for it at the same time. Mr. Chairman, a bit of humour is always good in these debates.
I would like to say that for ourselves, it is to use that to reduce the borrowing of the province. We have a lot of short-term borrowing, obviously, that will help us. Even beside the whole sale of NSRL, this year we have a huge borrowing program, we have a lot of debt that is becoming due. We also have some short-term borrowing. The proceeds of this will be used to lower our borrowing in this fiscal year.
I would point you to Page A56, in the third column of our Budget Address and the estimates for 2001-02, whereby the proceeds of the sale of Nova Scotia Resources Limited of $420 million calculated into that, that is for our borrowing program.
MR. EPSTEIN: I take it then, in a shorthand term, what you are anticipating is although you are calling it reducing borrowing needs that in the end you expect that there will be a debt reduction with the proceeds, or do you expect to continue to use this for reducing borrowing needs?
MR. LEBLANC: The bottom line for us is, we will be reducing the net direct debt of the province. I have no argument with you there. For ourselves, especially in the borrowing program that we have, this will allow us - it will not be dollar for dollar against the net direct debt of the province, that is obvious, but it will also reduce our borrowing
requirements. I think that is very important for the province, that we are able to use those funds for it.
MR. EPSTEIN: Again, just to be clear, you are not proposing to treat any of it as revenue?
MR. LEBLANC: No. The gain on the sale of NSRL, if it becomes final, will be shown in the fiscal year 2001. It is approximately, if I took a ballpark figure, we haven't got the final number, about $180 million to $200 million, in that range, in that fiscal year. We haven't done the final accounting. No matter what happens, it is a one-time event, and I have stated clearly that for ourselves, I don't plan to use this as a Messiah that we have balanced the budget or whatever because it is not going to repeat.
MR. EPSTEIN: I am certainly not arguing that you should do anything else with that money, let's be clear about that. I just want to check on this. One of the things that I do wonder is, has the analysis that led your government to conclude that this was a reasonable sale price ever been released?
MR. LEBLANC: No, it hasn't.
MR. EPSTEIN: I take it you have studied this analysis.
MR. LEBLANC: Yes, we have.
MR. EPSTEIN: Okay. Can you just remind us when that study was done?
MR. LEBLANC: I believe that study was done sometime in June 2000, if I recall, in that range. Don't quote me, I think that is ballpark.
MR. EPSTEIN: That was the study that suggested that this was an appropriate price? You see, my concern is simply this, that the market price for natural gas has changed quite a bit since the time of that study. Something that has always concerned me about Nova Scotia Resources Limited and the whole question of valuation of it is how to tie that to the market price of gas.
MR. LEBLANC: . . . was updated in January of this year. Just so you know that before you go any further, but continue. Price is a factor that changes, I don't argue that.
MR. EPSTEIN: It fluctuates, although it has mostly been going up, that has been the trend. If you say that the study from the consultants has been updated, are you saying now that they are suggesting a different sale price to you?
MR. LEBLANC: No.
MR. EPSTEIN: They say to you, the price of gas is going up but let's sell the company for the same price that we estimated last summer?
MR. LEBLANC: You are asking me two questions. One, whether there was a process to initiate the sale of NSRL. There was a valuation done last year in regard to NSRL as to what the net present value of the company would be. It was also updated earlier in this year, because I think it would be wise for us to do that before we make a final determination, and we did so. We have also talked about the fact that when and if - I guess we have to wait to see what will happen - this sale becomes final, we release all that information. I think it is important for Nova Scotians to have that. Clearly, the recommendation is substantiated by the data that is there.
MR. EPSTEIN: Again, they are saying to you there is no difference now, in their opinion, as to the appropriate market price?
MR. LEBLANC: For ourselves, the changes there, as to whether or not it changed our mind in regard to it, the answer is no, but I am not going to get into the specifics of it because until it is finalized, for us to be talking about the numbers that are included in the report or releasing the report, I don't think it is appropriate; which I have been asking whether we should do so, and for ourselves - Excuse me for a second. I shouldn't be eating at the same time, I apologize.
MR. EPSTEIN: It keeps your strength up, it is fine with me.
MR. LEBLANC: I had a cold last week and here we go again, and the week before.
MR. EPSTEIN: Feed a cold, go ahead.
MR. LEBLANC: In this instance, for us to release information before the sale is final I don't think is appropriate because we would basically be giving the position of the province for people who would want to bid on the assets.
MR. EPSTEIN: All right, well, let me tell you my worry and my concern.
MR. LEBLANC: Sure.
MR. EPSTEIN: It is this. We all know that Nova Scotia Resources Limited lost a lot of money in the process of exploration and for oil and extraction of that, and that this is the debt that the company carried and has not yet been offset, of course, by revenues from the profitable side of the business which has been the extraction and sale of gas. I have asked NSRL for projections in the past, which they told me they had done internally at NSRL which looked at their debt position and their projected revenues from the sale of gas and they
looked to see if at some point they would be able to cover off the losses from oil from the revenue from gas.
Now, they have never given me these documents although they told me that they did such studies, and this was about three years ago that I asked for these studies which they said they had done. It seems to me that although they didn't give me the studies, they were saying to me at the time that under no scenario that they could see for the price of gas were they going to be able to cover off their losses, but this was three years ago when the price of gas was about one-third of what it is now. What seems to me absolutely crucial here is the same question again. Given the spectacular rise in the price of gas, how is the health of the company in terms of revenues from gas compared with the losses from oil? Is it still the case that given that rise, that we won't be able to deal with the debt that was accumulated? Because the key question is, shouldn't we hold onto the company for a number of years if there is enough revenue to pay off that accumulated debt, because the situation at the moment is that we've already rolled their debt onto the debt of the province and this is worrisome. Whether you can answer it now or you answer it when you make the consultant study public, that question surely will be central.
MR. LEBLANC: I think if you look at what Mr. Parker said at the Public Accounts Committee some weeks ago, I am not sure when he came forward, that even with the changes, there is no way that Nova Scotia Power - no, I am sorry, Nova Scotia Resources Limited . . .
MR. EPSTEIN: That was your last privatization.
MR. LEBLANC: Let's start another one here.
MR. EPSTEIN: I remember that one well, too. That's exactly why I am worried about this one.
MR. LEBLANC: Well, that was the right decision then and we have a difference of opinion on that issue, but I think sometimes we agree to differ and that's fine, but on this one here, even with the changes that we have, it is still basically not a situation that we will be able to pay off our debt anywhere close to it.
MR. EPSTEIN: All right, even if we are not able to pay it off, are we able to pay it down and recover at least part of it because, again, the question has to be asked that way. Does it make sense to sell it five years in the future after we've had the benefit of some profitable flow of gas revenues?
MR. LEBLANC: I am in a difficult situation of trying to talk about what's in the consultant's reports and the appraisals because that's basically the gist of it, when you're asking the question, is it beneficial for us to hold it or to sell it. I can tell you that it is
beneficial for us to sell it. A lot of the data and the projections that you're talking about are included in the work that has been done.
MR. EPSTEIN: This goes into the calculation of net present value?
MR. LEBLANC: That's correct. So we're getting into the projections and I know that the member is asking a question that's a good one, but I am in a situation of basically not being able to provide the numbers without releasing the consultant's report and I am committed not only to you, but I am also committed to the press, for us it is paramount if the sale becomes final that the information all be shared. Nova Scotians have the right to have that information and we will be making it public and maybe at that time, with your indulgence, we will have this debate. It will be after the estimates, I realize that, but even if we can do it on the floor, or just one to one, I will go over it with you in detail.
MR. EPSTEIN: I take it the report will have made long-term projections for the price of gas in the marketplace and the price and so on?
MR. LEBLANC: Yes, that's correct.
MR. EPSTEIN: Yes, okay. That's probably as far as we can get, as you say, given that you're not prepared to go into it in any more detail in terms of the result but I do have to say to you, of course, this will be a central question in terms of major public policy decision here and I am sure the minister can anticipate that it will be looked at in a lot of detail when it comes out.
MR. LEBLANC: I think there are two issues, one of which is that when we look at where we're going long term in regard to NSRL, is it the right thing to move out of. We have the projections of what it is of whether we keep it or whether we are to sell it. The other issue is that there is a lot of risk factor involved in staying in the offshore and I know a lot of people feel that government should be involved in such enterprises, just the experience of government, I haven't seen very many projections going forward in the business case scenario that we have put forward that government has met its objective. I am not proud to say that and Nova Scotia is not alone in that practice.
If you look across Canada, most things that governments have got involved in, we probably haven't met our objectives, whether we are bad businessmen or whatever criticism we can give ourselves, it hasn't happened and that's one of the things that (Interruptions) Well, that happens in all stripes, all colours, and you can look across Canada, we can sit here and talk about all kinds of examples. I think that for ourselves, we get a quantifiable amount for what we have sold, we limit our exposure to it, but the other thing is that I really believe that this is a sector that the private sector should be in and when government stays in it, there
is also a lot of time, focus and energy that has to be put into it. Those are all factors which should also be considered, too. I know that you heard me making these statements before, but I still believe them very strongly.
MR. EPSTEIN: It is a fair statement that you made. There are factors like that involved. What I was focusing the discussion on was the question of the timing of the sale. We might agree or disagree on whether to sell it all, but certainly this question of timing is one that we could have a hard-nosed look at.
Can I just go back to another side of it, not the financial side but maybe the contractual side. Can you just give us a quick look at what the procedural steps are or decision-making steps are in terms of the potential purchasers' decision making that has to be made before the government will know whether there's a sale or there isn't and what kind of timetable you're contemplating?
MR. LEBLANC: The timetable, basically we haven't set a firm timetable in the sense of exact number of days. The people who are involved, the companies that are involved, have asked for some extensions and we haven't any problem; it isn't something that has to be done today. If they want some more time, if we can be co-operative, then we are prepared to do so and we have done that. As for where we are now, there are two issues, one of which is that they are looking to get approvals from the partners in the SOEI project, I referred to that before, and that's what they're waiting for at the present. How quickly they'll get their response or how that process will go, basically it is for them; it isn't the government's direction, we're not in the middle of these discussions, they are the ones actually going to deal with the other partners. So it is a process that is outside of government. Once they get their answer, then they'll come back to us and that's really where we are in it.
Could I just point out, you mentioned things about the prices and everything else and I think it is important that we do mention this. When we began the sale of NSRL, the prices were lower than they are now but during the year prices go up and prices go down and we've already seen some changes in those prices. If you look at the last year, if you look at a graph, there is quite a bit of volatility to it, when most of these prices came in, the bids that are coming in are coming in when the prices are high and, for ourselves, we think we've picked a good time to deal with NSRL. I would much rather deal with it now when prices are in the high range versus when they were $2.25 or $1.85. So, this gives some added value to the company. I always say I would much rather be selling an asset when the market is strong than when it is weak. When it is weak, no one wants to buy it. When it is strong, people see the potential, and that's the same thing, this isn't new to government. If you're involved in business, there are times to sell and there are times to hold. Right now I think is the time to sell.
MR. EPSTEIN: Except, of course, I think I have just heard you again say that a strong gas price gives some added value to the company, but at the same time you're saying there is no added value to the company over last summer's estimate, so I am a little worried about that.
MR. LEBLANC: There are two things. When we look at projections, we look at the long term. You're looking at the price today. Will it stay that way forever? Some people look at a situation and say gas prices are going to stay high forever. People look at oil prices. Oil prices are going to stay high forever. If you look at the timing of both gas and oil, they go up and down. If you look at history, it seems to repeat itself whether we agree with it or not. People who are involved in this industry probably look at the past history and don't look at the very highs as being where it is going to end and don't look at the very lows as being where it is going to end either, they probably use a medium.
MR. EPSTEIN: Well, I don't think anybody is talking about forever. In any event, just one footnote, though I have to say, I mean you mentioned the risk of staying in the business while the offshore is under development. Mr. Minister, it is one thing to suggest that there is risk, but on the other hand, I keep seeing in documents that your government generates, including the draft energy strategy that was just released, very optimistic projections about the capacity of the offshore to generate commercially exploitable gas and the figures are no longer the three trillion cubic feet of the six wells we have under development right now - the projections range all the way up to 40 trillion cubic feet in those documents and they're being stated in terms that are very optimistic. So I am not sure whether there's a huge amount of risk there of staying in that business.
Maybe we will move to another interesting and happy topic. Do you have anything to say to us about the value of the Canadian dollar this year?
MR. LEBLANC: Buy low, sell high. For ourselves, obviously, it has been very volatile. We look at the situation, everybody is predicting the Canadian dollar to do better. We have heard that for how many years now? It is getting to be repetitive. We think the estimates that we have put forward are based on forecasts that we see for the year. You tell me whether it is going to be accurate, but we have to make an estimate as best we can. Only time will be able to tell us whether it will be exceeded or met, or whether we will go the other way, but we will have a better idea.
If we look at the situation that we've put into place, we've estimated $1.5712 which translates to 63.64 U.S. versus Canadian. It has been very volatile and as much as I can, I try to listen to the forecasts because every time they forecast something, it doesn't seem to be accurate, but the good thing though is that we have lowered our exposure, especially to foreign exchange, and it has been very good. We have had a very good year in reducing that. We are down to 30.8 per cent when we tabled the budget, of foreign exchange, the vast majority of that is all in U.S. dollars. If we just follow the Act that we've put in place which
mandates that we shall repatriate some of that U.S. debt when it comes due and change into Canadian, by the year 2004 we will be down to 20 per cent and so, you know, we're in the right direction.
This year we've made a major reduction. We have taken advantage of different areas when they came forward and so for ourselves we're very pleased that there is less exposure which is very positive for the province.
MR. EPSTEIN: In fact, this is the only reason I am asking. I am certainly not asking your opinion for purposes of making investments. What I am asking about is this question of our exposure in terms of our debt and I think the department has made great strides in patriating the debt. This has been exactly the right thing to do. I approve entirely. I think the pace is very good. What I am really wondering is whether there's any opportunity to accelerate the pace or is it just a question of converting as some of the obligations in American dollars become due?
MR. LEBLANC: If you look at what we had planned last year, we didn't plan to be as low as we are today. A lot of that happens when circumstances present themselves during the year whereby we as a province can take advantage of that. We have mentioned here today that if we do nothing, then we will be down to 20 per cent by the year 2004. That is if we do nothing. We will weigh basically the situation into the year, whether it becomes an advantage for ourselves to either swap or to hedge some of our debt and reduce it. I am not making any commitments that it will happen, but at the same time we will remain, I guess, open to the possibility that it could occur again because that's exactly what happened last year when the circumstances presented itself. We did take advantage but, Mr. Epstein, I am not prepared to predict that it will happen, but we will look for opportunities.
MR. EPSTEIN: That sounds fine to me, but can I just ask about this 20 per cent figure because I think I have heard you or others from perhaps your government mention this from time to time and it sounds to me, if I understand it correctly, that 20 per cent is about where the department seems to think it wants to stop the patriation. Can you explain, is that your intention or do you intend to move to 100 per cent?
MR. LEBLANC: The Act as it is says that we have to reduce it to 20 per cent. It is mandated by law that that's what we will go towards. Once we get to that, there are other factors which will play into it. We also have royalties which will be coming in, a lot of which will be in U.S. dollars and right now we're receiving very minimal royalties. Within a few years that, hopefully, will change, especially after we get past the first three years where we're working 1 per cent of the gross royalties, our gross revenues, and then we'll be changing into 2 per cent or 5 per cent. Then once we go by that, then we get into the 30 per cent of net. It will depend on how much of the capital investment they've made that will be moving through those different levels of royalties that we will receive, will have a better understanding.
For ourselves we have been taking advice also from our staff as to what is the appropriate amount of foreign debt, should it be zero, should it be 20 per cent. Once we get to that level, I think as a government, we will sit down and take a look at it, should we be reducing it even further or is that the proper balance taking into consideration the amount of U.S. dollars coming in. We will be receiving U.S. dollars at that time, that we could basically deal with our debt management in another way that we don't have available to us today, but those are options that we're going to look at. Right now we're by law mandated to reducing to 20 per cent, but we're not sitting here today and saying that it shall not be reduced further than that, that we're going to say we will look at a strategy when we get closer to the 20 per cent.
MR. EPSTEIN: That sounds right. The argument in favour of holding your debt in your own currency is, of course, you don't have to worry about fluctuations in the exchange rate. The argument for holding debt in foreign currency is that sometimes there's a better interest rate. So you're suggesting that that's what you will be looking at?
MR. LEBLANC: I think for ourselves we are going to be looking at staff recommendations, as I mentioned before, Doug Stratton, who heads our Investment and Debt Management section. We are in a process right now of moving towards 20 per cent. We know at the bare minimum we will be there by 2004 and we may get there faster by the discussion of what I outlined before.
MR. EPSTEIN: I am not sure I understood the point about some of the royalties being paid in American dollars. You're saying that you might judge the timing of conversion of that money to Canadian currency according to fluctuations in the market? I am not sure what you're saying.
MR. LEBLANC: The revenues that we will receive will be in U.S. dollars. That in itself provides a natural hedge against the fluctuations that we have. So that is an option that we did not have before. So when we get closer to that amount, we will look at what kind of revenues we will be receiving in making a decision, is it in our interests to bring that down or to leave it roughly there and use the revenues coming in as a natural hedge. That's what I am saying. It gives us options that we did not have in the past, but we do have today.
MR. EPSTEIN: I am actually quite interested in the question of royalties that might accrue to the province from the offshore, but before I turn to that, can I look at one other matter that worried me, or interested me I guess, about the province's finances for a long time and it has to do with the pension plans that are public sector pension plans and the position of the province with respect to covering the pensions of teachers and public sector employees. At the moment there is a huge amount of money that the province has generally under administration, or that the province participates in administering, I think up around $30 billion total at the moment. Is that wrong? I am sorry.
MR. LEBLANC: It is about $6.8 billion in pension funds. Maybe I didn't understand the question. You were saying, was it $30 billion you were referring to?
MR. EPSTEIN: Well, I have to say I don't have my copy of the Auditor General's Report in front of me at the moment, but my recollection was that there was an array of various pension plans that added up to around $30 billion, but I better go back and check. I can see, although you're getting some advice from your deputy, maybe that helps. (Interruption)
MR. LEBLANC: The deputy is mentioning that supposedly he read the same comment in the report. I don't see this as being anywhere close to it. Just bear with me for a second.
MR. EPSTEIN: Sure.
MR. LEBLANC: It is assets and liabilities so you're getting sinking funds, pension funds, liabilities. So it is along those lines and . . .
MR. EPSTEIN: Let's not worry about the exact amount because that wasn't the focus of my question. Really what I was wondering about was the current state of play as to the health of the funds and let's start first with the Public Service Superannuation Fund and can you just bring us up-to-date with respect to how that is doing?
MR. LEBLANC: Sorry about that, I just wanted to make sure I had it right. As of March 31, 2000, it was at 106 per cent. Now we are in the process of doing another evaluation. We still have some concerns. We have a lot of older workers who are going to be retiring and, of course, like some of us, who are getting a little older, we all have a little bit of grey, it makes you look very distinguished by the way. (Laughter) Actually, so those are concerns that it is going to increase the cost, as we have a turnover in government and have younger workers, obviously that will help. That is where it was as of March 31, 2000, at 106 per cent, so our Public Service Superannuation Fund is doing very well. We are very pleased with that.
MR. EPSTEIN: Are the evaluations done annually? I see your deputy nodding yes, so I guess the answer is yes, that they are done annually. There will be another one being done around this time - is that right? - so we might hear the results of that soon, is that correct?
MR. LEBLANC: We are doing it now, actually. It will be part of the financial statements that will be reported for the fiscal year ended March 31, 2001.
MR. EPSTEIN: I guess really what I am wondering about is lines of public reporting on this, because it seems to be an important but generally obscure corner of government administration, that is I don't think there is any requirement to lay these results in front of the Legislature. I am not sure. Is there an obligation?
MR. LEBLANC: It is being reported in Volume 2 of the Public Accounts, and it is also being put on the Web site for the members. This year, that is one of the things that we did, rather than have a huge mailout we did it by Web site. How much did we save on that? We have $10,000 or $15,000, that we saved. A lot of these issues, things that we mailed, we made copies, traditionally we have all done them. I know the member for Lunenburg West, when he was minister, would know. You keep doing all these reports that you mail, some of them collect dust either in the old warehouses or in somebody's home. More and more, we are trying to use the Web site to make that available. If people want it, they can get it. It makes a lot more sense than trying to mail it to everybody, because most people, to be perfectly honest, don't read it. As long as they get their cheque every year, that is what they care about. Other ones obviously have a distinct interest in it.
MR. EPSTEIN: That is fine with me. I may have to have a word with Mr. Salmon, because my recollection, again, is that I thought he had made a comment that there was no reporting obligation, that is that the line of reporting, I think he said, went to P & P rather than to the Legislature. But if you are making the information publicly available, that is fine.
MR. LEBLANC: I think maybe he is saying his comments or opinion should be tabled in the House, that may be the situation that we have. I will look into it, so at least I will be aware. I am not aware of all the details on that, but staff can tell me that.
MR. EPSTEIN: That is fine.
MR. CHAIRMAN: You have 5 minutes remaining in your time, sir.
MR. LEBLANC: The deputy says it may be some of the trust funds that we have had that maybe aren't being reporting. We will take a look at what he said in the report. I will keep an open mind.
MR. EPSTEIN: I will check in more detail, as well. This is useful. You may recall, of course, that a few years ago the province was in a position because of the performance of the plan to take a pension contribution holiday. I take it that this is not your anticipated situation at the moment?
MR. LEBLANC: If I could just answer that question, we are not close to the point whereby we would feel we would be giving a pension holiday. I mention, again, the fact of the older workers, how much they are going to be taking, is a concern. I think it wouldn't be
very prudent to be looking at pension holidays right now. We don't want to find ourselves in a situation of being . . .
MR. EPSTEIN: What about the teachers' pension plan?
MR. LEBLANC: The teachers' pension plan, about 90 per cent, as of March 31, 2000, again, that information is available on the Web site and you can probably find it there. We have done very well, we have been very pleased. We have the investment committee that works with Doug Stratton, who is to my right here, and I think many members of different sectors, I know Mr. Greg Blanchard sits on it, Mr. David Peters sits on it. The previous government did some good things on that, I will give them a lot of credit. I think it has been good. The people feel a part of the whole structure. It was a so-called closed domain before, I think it has really opened up, and I hear a lot of positive comments from people who sit on the committee, that they feel it is performing very well. Obviously, when you do well, it is great. This has been a very difficult year for the investment sector of it, but we have different types of investments, some in the fixed income, some in the equity markets, but overall they are doing very well.
MR. EPSTEIN: When it was realized a number of years ago that that particular plan was not being funded at the level it ought to have been, a statutory scheme and an agreement was put in place to change the contribution levels and to require the government to make some extra contributions. What I am wondering is, following the schedule of agreed-upon payments, do we anticipate that the plan will be 100 per cent funded by the time we finish with that schedule?
MR. LEBLANC: Always the cautious one, he says it depends on the markets, on the return. Obviously, we feel we have exceeded our projections up to now, so that is positive. When we had the investments plan, it was the intent to have the plan basically fully funded at the end of this investment. If you want to follow that, if things remain as rosy as they are, we should be able to do it, perhaps ahead, on time, but you have to put the caveat in there that it all depends on the returns, and we shouldn't be counting our chickens before they hatch. I am moving on to the next speaker, before he gets on.
MR. CHAIRMAN: The honourable member for Lunenburg West. The time is now 5:53 p.m.
MR. DONALD DOWNE: Mr. Minister, thank you for being here. I have the pleasure of taking the next hour of questioning. I want to say hello to the staff, many of whom I have worked with and know. You are fortunate to have quality staff.
I want to cover a number of areas. Obviously, the initial questions on net direct debt growing, and I want to cover some of the concerns about the fact that you have had - I wish I had had, in the 14 months I was Minister of Finance, I would have loved to have had - $512
million additional revenue from Ottawa, and why our debt is still growing and we still don't have it balanced. We will get into the detail of that a little later on.
I want to ask about issues on tax cuts. You mentioned before, and part of the blue book promises that you are going to, in your fourth year, reduce income tax by 10 per cent. Could you indicate just what that 10 per cent cut would look like? If at Nova Scotia middle rate income bracket of 14.9 per cent, what would that look like at the end of your 10 per cent tax reduction? How would it affect an individual at 14.9 per cent?
MR. LEBLANC: It is difficult to predict whether it will affect every individual. I do know that if you look at the costs of it, I think the estimate is about $136 million in tax cuts that we are projecting for the year four. There has been some tax reduction as I mentioned before. I am not sure whether or not you were here when I was talking about that. Some of the changes have happened in Ottawa already and they are changes that they have had in the definition of income. I refer specifically to items such as capital gains, whereby the definition has moved from two-thirds down to 50 per cent. That just in itself, was a reduction in tax of about $12 million in 2000 and a reduction in tax of $28 million in 2001. So there has been in a real sense some tax reduction for Nova Scotians, just the fact that some of the definitions have changed. Being in this portfolio before, you know what I am referring to.
The other issue is that you are asking how those tax cuts will look in 2001? For ourselves, the bottom line is that we want people to pay less provincial tax. As to how that will be formatted, that will be in our budget that we table at that time.
MR. DOWNE: You mentioned $136 million. I think in your blue book election promise you thought the actual tax cut would cost about $110 million. It is now at $136 million. What confidence do you have that by the year four in your mandate that it will not be in excess of $136 million? Or, do you know that?
MR. LEBLANC: Our projections that we have now are that. What confidence do we have? Well, I guess, the only thing you can look at is that basically the first two years have been on schedule. We believe that the economy will continue to perform. I think we are well positioned in the sense that our economy is relatively diversified and we also have the benefit of the offshore coming onstream. Those are things which are very positive, but I look at what is going on throughout Nova Scotia. I was in your area the other day speaking to the Chamber of Commerce and I know that you were there. A lot of rural Nova Scotia has really changed its economy quite a bit from what it has before. Those are all things which have proven to be very beneficial to our province. Because of that, we are in a much better position today than we were some years ago.
MR. DOWNE: Maybe you misunderstood the question. I will go back just a moment. You mentioned earlier that the federal capital gains reduction of 75 per cent down to 50 per cent is a saving to Nova Scotians. Are you telling me that the Conservative Government blue
book, a 10 per cent reduction in tax, is predicated on the fact that the Liberal federal government that reduced capital gains, is part of your 10 per cent formula of tax reduction for Nova Scotians?
MR. LEBLANC: I am sorry. Could you just repeat that question again? I was having a conversation at the same time and I apologize. Can you just repeat it one more time?
MR. DOWNE: My question to you is, you mentioned that the federal capital gains reduction from 75 per cent to 50 per cent represents a tax saving to Nova Scotians. My question to you is, is it your understanding or your philosophy that the 10 per cent reduction that you indicated in your blue book is part and parcel of the federal government's reduction in capital gains? Is that part of what you say the 10 per cent would represent?
MR. LEBLANC: No.
MR. DOWNE: So then, back to the original question, what will this 10 per cent really mean to Nova Scotians from a provincial perspective? In other words, if you are at a 14.9 per cent tax bracket provincially, what is the 10 per cent reduction going to mean? Is it 10 per cent less of the 14.9 per cent? Or is it another number?
MR. LEBLANC: No. It will be 10 per cent less in provincial income tax that they are talking about. I mentioned before that though we have not changed our income tax rate, there are events which are happening today which are having a positive impact on people's income taxes in Nova Scotia. We mentioned that last year, the change in taxable income is a change in the definition of income. We basically share the definition of income with Ottawa. So, although we have maintained our rate, we are also affected by any change in the definition of taxable income. In this year, just those changes that you have referred to - capital gains - this year cost this province about $28.9 million. Our revenues have decreased already because of that so in a sense, there has been some tax relief because we do not control the definition of taxable income.
MR. DOWNE: I realize that, but you do control some other aspects because of the fact that you decoupled from the federal income tax. There are some areas that you do have full control over, Mr. Minister, and I guess my question back to you is, excluding the fact that the good federal government is reducing taxes to Nova Scotians, I would say that in effect, by the fact that you have decoupled from the federal tax - and I have mentioned this maybe about four times to you before - the fact that you didn't flow through the provincial portion of it, that you have in effect, increased the tax, the provincial portion, of the federal tax. Even though the tax rate didn't go up, but as a percentage of the federal tax which is just the opposite argument you just made a minute ago, we are now at 60 per cent of the federal government tax. Prior to that, we were at 57.5 per cent. Is that not an increase relative to the
federal tax - the same argument you used here a minute ago on the federal tax reduction on capital gains?
MR. LEBLANC: Because you are talking as relative to the federal tax. We told Nova Scotians they would maintain the tax levels of where they were. In relation to the federal government, the percentage has changed. I don't argue that. The federal government has the ability to lower its tax rate because they have a surplus. They made many changes - a lot of those things are basically what people would call downloading or reductions in CHST or changes in the equalization formula and the provinces took part in helping Ottawa balance its budget. They have a situation today that they have a surplus and I am very pleased that they have a surplus. They are in a position to give tax cuts. We are not in that situation as yet. We have lost some of our tax revenues due to the fact that the definition of taxable income basically means that people have less taxable income also provincially, we have not changed our indexing. We have kept levels at where they were when we took office. We will make those changes once we balance the budget - which is in the year 2003-04.
MR. DOWNE: No matter how you want to cut it, we are now at 60 per cent of the federal tax, maybe higher, but we are in and around 60 per cent. So, in effect, we are paying as a percentage of the federal tax, more money. So, my question is, if you have a 10 per cent reduction in income tax, is it a 10 per cent reduction based on the year you took over power or is it 10 per cent after you have all these increased costs of taxes to Nova Scotians as a relative percentage of the federal tax?
MR. LEBLANC: It will be based on the year that it happens. That is based in 2003-04.
MR. DOWNE: Whatever rate the province's taxes are at that point - whether they are through increased taxes or user fees or whatever it is - the 10 per cent reduction will be based on whatever component of tax you can ratchet up as a percentage of the federal tax or what other tax you want to put in at that point. It is not a 10 per cent reduction from when you were elected, it is going to be 10 per cent of what it will be in the year four?
MR. LEBLANC: That is correct. If you did a 10 per cent today, it would be $125 million because our personal income tax estimate today is $1.25 billion. So if you look on the revenue page in our estimates, if we were to give a 10 per cent tax cut today, it would be $125 million. If we give a tax cut in the year 2003-04, it is planned to be $136 million.
MR. DOWNE: That is based on the fact that the income will increase for Nova Scotians?
MR. LEBLANC: No, because the economy is growing. I have mentioned before that . . .
MR. DOWNE: Yes, I know . . .
MR. LEBLANC: Let me answer the question and then I will be more than prepared to take any more questions with regard to this.
MR. CHAIRMAN: Order, please. Let's have some civility. Don't interrupt.
MR. LEBLANC: No, there is no problem. We have no arguments.
MR. CHAIRMAN: Thank you.
MR. LEBLANC: We have said that we will maintain the levels of taxation at where they are. We have done that. When it comes to 2003-04, people will see a 10 per cent reduction in the personal income taxes that they pay in this province. So, as of that time, that estimate will be $136 million. I just want to make sure that I explain myself properly.
MR. DOWNE: I think most Nova Scotians believe that there would be - at the end of your 10 per cent reduction - 10 per cent less tax than they were paying when you took over as a percentage of the federal tax. The federal tax went down, you clawed back or didn't flow through the provincial portion of that. The capital gains provision, you had no way of decoupling from that, so you had to pay that.
I want to move on to bracket creep, which is an issue that I was always under the impression that you being a good fiscal conservative and a strong private sector individual would really want to allow people to have dollars in their pockets that they legitimately should have. Now, bracket creep, as you know, was brought in by Brian Mulroney - I am not sure, but, nevertheless, that was brought in for whatever reasons, and it is not a fair tax. I think you would agree with that. It is a provision that says because inflation goes up, whether your salary goes up or not, inflation goes up, you are possibly going to be pushed into a higher bracket.
My question to you is, why didn't you take off bracket creep in the Province of Nova Scotia? I understand that is costing the taxpayers $25 million this coming year. Is that accurate?
MR. LEBLANC: The estimates we got from staff were in that range, if we put indexation in on those brackets, it would have cost us $25 million. I go back again to the statement that we have made, we are asking Nova Scotians to work with us and make reductions in spending in the Public Service and that is never easy. For ourselves, that is why we laid out a plan that said that we would do it over three years, they will bring in a balanced budget, and the fourth year would bring a tax cut. For ourselves, we are still on target on what we are saying. Are you referring to whether or not we should give some other tax cuts in the interim? Our position has been adamant that we are going to stay consistent and we
will give the tax cuts once we have balanced the budget of this province. I have said that on numerous occasions, and I still say it here today. The timing, when it will happen, will be the year 2003-04.
MR. DOWNE: Mr. Minister, can you tell me how many people are going to be affected in the Province of Nova Scotia because of bracket creep? For example, how many Nova Scotians who are now at a lower rate of 9 per cent, will actually be going up? Or individuals who are at 14.9 per cent, how many will actually be going up because of bracket creep? Do you have a breakdown of how many Nova Scotians are going to be affected by that, and what rate would they actually go up to?
MR. LEBLANC: I don't think we have that information. We don't have that; the staff says they could try to see whether we could get those numbers for you.
MR. DOWNE: Well, if you don't have that statistic, how do you know it is going to cost about $25 million?
MR. LEBLANC: I stand corrected, my staff says we have it but we don't have it here. Anyway, those calculations were done. I will try to see if we can get that for you.
MR. DOWNE: The last time I asked you to provide information I think I waited almost a year, and it was just about the time the Auditor General, about two minutes before he started his presentation that that information became public. Can I ask the minister, I plan to be here for a little while, would you be able to present that to us today or tomorrow?
MR. LEBLANC: Tomorrow.
MR. DOWNE: Tomorrow would be fine, we are all busy tonight.
MR. LEBLANC: That is fine. She said that some of the staff wouldn't be there to run it, but we will get it. Staff tells me that information is available, and we will get it to you.
MR. DOWNE: Tomorrow?
MR. LEBLANC: Yes.
MR. DOWNE: Suffice to say that there will be individuals who are currently at 9 per cent who will be going up by the time we hit your magical period of tax reduction.
MR. LEBLANC: The point you should also make is that people's overall rates don't change, basically only the portion that goes over that threshold would change. The effect of this is not major per individual, it is minor, but it does have an impact on the bottom line, I
don't disagree with that. If people move up into a higher bracket, it doesn't affect all their income, it only affects the portion that would move into the other bracket.
MR. DOWNE: Mr. Minister, I still see this as a hidden tax, whether you agree or not. I am sure that if you are on this side of the table you would be saying, Mr. Minister, you said in your red book, no new taxes. Mr. Minister, I am saying to you, in your blue book, you said no new taxes. This is a tax. You didn't take it away when you had a chance to take it away, and the bottom line is Nova Scotians are paying more tax. Just standing still, doing no more than what they are currently doing, they are going to be paying more tax.
MR. LEBLANC: I don't agree.
MR. DOWNE: Am I wrong on that, Mr. Minister?
MR. LEBLANC: I don't agree. We told Nova Scotians that we would maintain the status quo, and that is where we are. There have been some tax reductions already in some of the areas that the federal government has changed, the definition of income. You mentioned before, we honour the definition of income per the federal government, and as such, we have no control over that. There have been some tax reductions for certain people, especially in regard to capital gain. For ourselves, we set out in our blue book when we would have reductions in taxation.
MR. DOWNE: The bracket creep is still an issue. When the minister reduces the tax by 10 per cent assuming he will reduce the new level of income, whatever, from where we started that 10 per cent reduction, is the minister prepared to commit that he will also eliminate bracket creep, over and above the 10 per cent reduction in year four?
MR. LEBLANC: Mr. Chairman, for ourselves, we will make the reductions in year 2003-04. Nova Scotians will pay less than 10 per cent. As to how it will be done, it will be shown in the budget of that year. I am not prepared to indicate ahead of time how that will break down. For ourselves, we are saying today that the impact that Nova Scotians will see will be a reduction in personal income tax of 10 per cent.
MR. DOWNE: It could very well be that they won't see an income tax reduction as much as a bracket creep reduction or some combination of other types of tax reductions, not necessarily totally income tax.
MR. LEBLANC: I am saying today that the details of that will be in the year that it is announced. I know you would like for me to indicate ahead of time, I am not prepared to do so in advance of it.
MR. DOWNE: Keep your options open, Mr. Minister. Is that what it is?
MR. LEBLANC: I don't think it is appropriate for me to be speculating how we will give tax reductions in the year 2003-04, committing in advance of the budget being prepared. I think it would be inappropriate. We are telling people that they will see a 10 per cent impact on their income taxes in the year 2003-04.
MR. DOWNE: Mr. Minister, maybe I am missing something here. What is the complication? If you are going to give a 10 per cent reduction, are you considering bracket creep as part of that 10 per cent or not? Yes or no.
MR. LEBLANC: Mr. Chairman, I have already indicated that for me to predict two years from now how that will transcend into the budget I don't think it is appropriate. For ourselves the one commitment that we have given Nova Scotians time and time again is that they will see a 10 per cent reduction in their income tax in the year 2003-04. I know the honourable member would like me to indicate how that will happen, for ourselves I don't think it is appropriate for me to be speculating as to how it will, other than the fact that we have clearly indicated in our blue book it will happen in that fiscal year.
MR. DOWNE: But it is clearly an option you are looking at, that bracket creep will be part and parcel of your 10 per cent reduction?
MR. LEBLANC: The bottom line for ourselves is 10 per cent. That is what we said we would do. People want to see a change in their cheque, and that is what we said we will do, and that is what we will do.
MR. DOWNE: Mr. Minister, you brought in a number of user fees over the last two budgets. I think it was projected at around $26 million to $29 million, somewhere in that vicinity, in additional taxes that you have charged through the term user fee. Can you tell me, from what you have projected that number to be and what the reality of that number would be, what is the difference or what is the actual number?
MR. LEBLANC: Are you talking about last year or this year?
MR. DOWNE: Yes, last year. When you brought in your budget last year, you projected . . .
MR. LEBLANC: I think it was $20 million. I think there was an issue brought up regarding the Seniors' Pharmacare Program, as to how much was in there, was it an additional fee. I think it was approximately $4 million that was pointed out, I think it was by yourself or the NDP, someone mentioned that it was an additional cost that the seniors would be paying and we should have added that to it. I didn't disagree with that, it was more of an oversight on it. I don't know, there were a few other ones. I don't have the numbers here. Obviously, we have been preparing for this budget. I haven't been reviewing last year's
budget. I kind of apologize. Maybe you could be a little more specific, and I can try to get the information to you.
MR. DOWNE: Mr. Minister, normally most Ministers of Finance review their previous year's income streams just so they have an idea of what has gone on . . .
MR. LEBLANC: That is a bit of a stretch.
MR. DOWNE: . . . because invariably a question would be asked. I assume you must have spent some time looking at the revenue streams that came in last year, this is that windfall year that you seem to be talking about all the time, when Paul Martin gave you a $249 million gift from heaven. You must have looked at some revenue numbers.
MR. LEBLANC: Mr. Chairman, it is not a revenue, it is a recovery. It isn't looked at as revenue, so when we looked at our revenues, those don't show up.
MR. DOWNE: That hasn't been challenged, yet, enough to be able to determine whether or not it is a revenue or a recovery, nevertheless if it is a recovery it is a reduction in expenditure.
MR. LEBLANC: I am just using the same good people that you referred to for advice, and they both tell me that it is a recovery not a revenue.
MR. DOWNE: Mr. Minister, I am not here to argue with staff. I think the staff are great people.
MR. LEBLANC: I know that.
MR. DOWNE: You are the one that is talking here. I am just saying to you, I think, in fact, Mr. Minister, that the $29 million that was projected, can you inform the members here on your user fees, the hidden taxes that are there - or some people would call them taxes - how much additional revenue did you take in because of that? Can Ms. Cody or Mr. Hogg . . .
MR. LEBLANC: Mr. Chairman, we would have to go back and do the analysis. We have done analysis in cost recovery issues this year based on this fiscal year. I know the member feels we should review last year and do all the estimates again for this year, but that isn't the way that the budgets are prepared. I think you are asking, out of the $29 million, did that number change for this year on those issues. Is that what you are referring to?
MR. DOWNE: Two things. The first thing, how much did you actually get in? If $29 million is what you projected to get in - it was only an estimate of what you were going to get - what did you really take in, what did you really claw out of the pockets of Nova
Scotians last year on those user fees/taxes? I want to know what that number really is. It might be less, Mr. Minister, it might be more.
MR. LEBLANC: We would have to do the analysis in regard to that. Obviously there isn't a line item in the budget that refers to the numerous cost recovery issues that we put in. I don't have that here. We would have to do that analysis. I think the honourable member probably knows that. I think it touched numerous issues last year, and it isn't one line in the budget.
MR. DOWNE: This year you are going after some more user fee programs. I think your comment in here was that it is only a $3 million take this year. The $50 for seniors who are unable to go somewhere, they are in a hospital and they can't find a bed somewhere and they are not able to look after themselves. That $50, and those kinds of hits on people, Mr. Minister, you are projecting another $3 million this year, is that accurate?
MR. LEBLANC: The issue, if you look at it, there was a listing put out in the budget bulletin that showed $2 million. The other issue, of course, is the $50 a day that you are referring to for people who are in an acute care bed who are looking to be placed into a long-term care facility, that is another approximately $1 million. You are talking approximately $3 million in cost recovery fees or user fees, however you want to determine it.
MR. DOWNE: Mr. Minister, is that also part of the Point Pleasant Lodge, where you have said . . .
MR. LEBLANC: No, it is not. That is a decision . . .
MR. DOWNE: I understand back in the 1980's there was a provincial government - you were there probably at the time in the 1980's . . .
MR. LEBLANC: Could be.
MR. DOWNE: . . . the provincial government actually got into an agreement with the hospital saying look, the hospitals are saying we can't keep these people in who need to go for palliative care, or maybe they are in for treatments of some sort and they are not well enough to go home because they have to be there to do the treatments every day, and some people live in Yarmouth or in Clare or in . . .
MR. LEBLANC: Lunenburg West.
MR. DOWNE: Well, that is right. The reality was that the hospital said if Point Pleasant Lodge would come up with a program, we will subsidize their meal allowance - because they really are in-patients - to the tune of $14 a day; we will also look after ground transportation. I understand, in your budget, you have eliminated that, Mr. Minister. You
have eliminated that agreement, that provision. I think it is 48 per cent of the people who are taking those treatments that are staying at Point Pleasant Lodge.
MR. LEBLANC: First of all, I would say that this budget did not do that. This budget gave funding to the Capital District Health Authority, and the Capital District Health Authority as an entity has made a decision regarding this. I don't have all the details, I am sure the Minister of Health does. In this budget, we did give increased funding to the Capital District Health Authority that is here, because basically the agreement is not with the provincial government or the Department of Health, it used to be the specific hospital, now that has all been combined in a group and as such they have supposedly made the decision. I am not privy to the details there, that was made by an agency outside of government.
Mr. Chairman, is it possible to have a couple of minutes, a two- or three-minute break? Let's make it a three-minute break, and I will be right back.
MR. CHAIRMAN: We are recessed for three minutes at the request of the minister.
[6:21 p.m. The committee recessed.]
[6:25 p.m. The committee reconvened.]
MR. CHAIRMAN: We will continue. Mr. Downe, we have taken five minutes, and you have been a little longer, so we started at the five-minute point, if that is reasonable. You agreed to a five-minute recess.
MR. DOWNE: Whatever you guys feel is fair is fair, because that is just the way it is going to be anyway. I apologize, Mr. Minister, for being late, I was being interviewed. I apologize for that.
MR. LEBLANC: That is no problem.
MR. DOWNE: I thank you for waiting. The bottom line, as I see it, on the issue of the year 2003-04, a 10 per cent reduction will be a combination of bracket creep, user fee increases, not flowing through the federal tax on income tax, and the bottom line is that you are basically giving back to Nova Scotians what you have already taken from them over that three- or four-year period that you started when you were elected, or a percentage of that. The fact that you are not going to be able to clearly state that bracket creep will not be part of that formula or will be part of that formula leads me to believe that in fact bracket creep will be part of that formula. We will wait and see, Mr. Minister. Year 2003 is not that far away; we will know for sure by then. Unless you don't have a plan - and that is the other thing I wonder about, maybe you just don't have a plan for how you are going to do that. Anyway, we will see that in a period of time.
Mr. Minister, talking about plans, I want to move to the issue of debt in the Province of Nova Scotia. I am sure you thought this question was going to come.
MR. LEBLANC: Not really, but it is okay.
MR. DOWNE: During the last election, the now Premier made a fairly substantial deal about the fact that the net debt of the province will not go up. I think the comments were that the net debt of the province is going to be held. We can get some of the quotes to back up the statements, I think I have made some of them in the House. On Page A55 of the Budget Speech it shows the net debt of $10.096 billion at the end of 2000. Is that accurate?
MR. LEBLANC: Are you talking about Page A55 or are you talking about the estimate for 2000, or . . .
MR. DOWNE: Yes, you can take it out of your Budget Address, on the back page.
MR. LEBLANC: That is A57.
MR. DOWNE: Yes, A57. It talks about in the year 2000, $10.096 billion.
MR. LEBLANC: Yes.
MR. DOWNE: The forecast for the end of this fiscal year is $11.349 billion. Could the minister explain to me and to the public what represented the $1.3 billion net debt increase from April 1, 2000 to March 31, 2001, which is the full year that you had 100 per cent of the budget control? It wasn't part of a previous administration's budget or anything else, this is all your budget program. Can you explain the $1.3 billion - roughly - increase in that period?
MR. LEBLANC: Mr. Chairman, first of all, the breakdown is there. I was going to say it is a new page, but it isn't. We have had this before, but we are putting more and more detail into the financial statements every year, so this is something we have added, quite a bit more. For ourselves, the breakdown is in here, per different category that is there. I am trying to see whether or not the member could actually specify which of the lines he would like us to get into.
MR. DOWNE: Maybe you can explain the change in net unfunded debt of $843.4 million.
MR. LEBLANC: In regard to the net debt, and I should point out there is net debt on Page A57 of Schedule 18, and then on the following page we get into net direct debt, which is Schedule 19. The big reason, especially, that net debt changes from the fiscal year ending March 31, 2000, to March 31, 2001, the large number in that refers to, if you go to the previous schedule we have, Schedule 17, if you look to the bottom where we have total borrowing requirements, the total of $2.968 billion, just above that, the short-term borrowing increase of $766.2 million, and the majority of that, if you want to look further up - and I am trying to be as simple as I can - to the first category which talks about cash operating requirements, there are five items ahead of that on top of it. It talks about Government Operations, Net Capital Advances, Tangible Capital Assets, Non-budgetary Transactions, and the last one which is Nova Scotia Resources Limited is $675 million.
The $675 million is moving the debt into cash requirements of the province, that makes up the majority of that $766 million that we talked about, below that, and that is far and beyond the biggest reason why our net debt increased in this fiscal year, let alone the operating loss, the deficit that the province had.
MR. DOWNE: I wonder how many people were able to follow that, Mr. Minister . . .
MR. LEBLANC: It is a complicated accounting exercise; I don't argue that. That is why I was asking if there are specifics here that I could do for you. The details are listed here, it is also the description of net debt versus net direct debt. I would envision that most Nova Scotians hardly know the difference between the two.
MR. DOWNE: On Page A57, the change in unfunded debt is $843 million. Can you give me the detail of that?
MR. LEBLANC: Which one was that?
MR. DOWNE: On Page A57 - pardon me, that was the forecast on 2000-01, and the estimate for 2000, I was going on that column there, the $843.4 million - the net debt has gone up $1.3 billion over what we had planned on, and yet last year in your budget estimates, and I will table this, the projected gross and net debt, in the Schedule 20 last year, shows numbers substantially lower than the numbers we currently have, shows the net debt in the estimate for 1999-2000, $9.7 billion, forecast $9.5 billion; the estimate for 2000-01, $9.9 billion; in 2001-02, $10.19 billion; then 2002-03 goes back to $9.98 billion.
These numbers that we have before us in Schedule 18 are consistently showing that we are $1 billion to $2 billion a year more. Can you explain why the numbers last year and the numbers this year are so far out? Mr. Minister, this is last year's, do you have a copy of it?
MR. LEBLANC: We pulled out the document. I do know that part of the reason for the change in the debt is in regard to the P3 leases, whereby we had set up four or six of the leases as a lease because the Auditor General was accepting them as basically an operating lease and not a capital lease. Subsequent to that happening, the Auditor General indicated that he would accept those in their form, so that has had an impact on it. The member brings up a good question. I think some of this has to do with when we prepared our final financial statements some of these issues had changed. We will get a reconciliation, but for us to sit down here and do it right at this moment I think, first of all, it will take some time, but you bring up a good question. I don't argue it, you deserve an answer and we will get one for you. We will have to try to see if we can do it tonight and, if not, we will bring it tomorrow when we come here.
MR. DOWNE: I would appreciate that, Mr. Minister. When you take a look at $1.5 billion, what the Health budget was when you took over, and now you have spent - what? - $300 million more in Health since you have taken over, borrowed money.
MR. LEBLANC: Of course that didn't include the deficits that were in the hospital boards. There are other issues if you want to compare apples to apples that we should make sure we put in place.
MR. DOWNE: I am anxious to compare apples to apples, Mr. Minister, so you will get back to us on that one?
MR. LEBLANC: It is a good question. The member has a relevant question. Staff tells me we have the reconciliation for the debt servicing costs; we didn't do it on the debt, but it is something we will get for you.
MR. DOWNE: Mr. Minister, talking about debt, one of the big issues about being a good minister is planning, all the time planning, planning and preparing for strategies on dealing with very complex issues. One of the areas that I think is important is your plan on debt and I haven't seen anything come forward, and I am sure you must grapple with that issue. It seems to me we talked about surpluses, and in fact I think in the last budget you indicated you were going to come in with a surplus plan. I haven't seen a plan on retiring the debt, and I was wondering is it just that there are so many current issues that you are struggling with that it is hard to come up with the time to deal with this other one, or the fact that you just don't have a plan?
MR. LEBLANC: Mr. Chairman, I think we have one of the best plans in the sense that we are bringing about the balancing of the budget. I think for any of us that we realize that to continue over the long term with deficit budgeting as we have done can't be sustained. We have moved to put into place a four year plan, which basically talks about a three year plan to bring about a surplus then, subsequent to that, a tax reduction, which I think is good
for the economy but also for those who are giving as of now, that there is a stimulus to the economy in that fourth year.
At the same time, for ourselves, before we can talk about a surplus and a debt reduction plan, we have to first of all get out of the red and move into the black. We have brought ourselves closer to that. For that, I feel that we are on the right plan. Obviously, we would like to find ourselves at that point in time right now. We have made some decisions this year which keep us on target that we have outlined.
As to how the surpluses will be applied, I indicated to the member in Question Period and I have also indicated to the press that as a government, as we move closer to that point in time, a decision as a government, not only myself as Finance Minister, will be put in place as to how we deal with surpluses, whether they shall be applied entirely to the debt or whether the percentage will be a high one or whatever. As Finance Minister, it is my personal opinion that as much as possible, if not all of that, should be applied to the debt, because we are in a situation where if you have too much discretionary spending, if you have surpluses and you can still spend it, then you haven't dealt with the fundamental problem that we are still carrying too much debt in this province.
For ourselves, I think we have to come up with it. Even in our blue book there were commitments that we should commit a part of it. Sometimes I wonder whether or not we shouldn't commit more, because the debt is a dilemma. I know the member shares my concern in regard to debt and what it means to the province in the long term.
MR. DOWNE: You are right, Mr. Minister, I do share your concern. Last year in your budget you made the statement that you were going to come out with a strategy, a surplus management strategy, and that the plan will address the needs of Nova Scotians including tax reductions, debt reduction and providing core services. That will be, you state in here, as part of next year's budget we will introduce a surplus management plan. You don't have that.
MR. LEBLANC: In this budget, the answer is no. I have clearly said it before, we are not in a position to reduce the debt until we get ourselves into a surplus position. I don't argue with the member that a plan will be required, and as a government we will deliver on that. I have also indicated what my opinion is, although I have also put the caveat in my answers to you in the House that that is a decision as a government we will make as a Cabinet. I have indicated my personal preference is that as much as possible should be applied to the debt because of the fact that basically it is the people's money.
MR. DOWNE: Well, I agree with you. That is just the technical side, and that is fair. The reality is you stated that you will be coming forward with a strategy in this budget and you failed to live up to your comments in the last budget. You have a $249 million windfall from Paul Martin last year, over and above what was projected.
MR. LEBLANC: How did that come from Paul Martin? I don't understand.
MR. DOWNE: Well, the federal government, Jean Chretien, Paul Martin, all your buddies up there who have been bailing you out. Clearly the debt has grown and you don't have a strategy for it. Are you not planning to have a surplus? Don't you want to have a surplus? You could have balanced the budget this year. Is it that you don't want to have a surplus at this point, that you haven't got the strategy, or you just haven't had time to do that?
MR. LEBLANC: Mr. Chairman, no matter what . . .
MR. DOWNE: I know what the process - excuse me for interrupting, I shouldn't do that . . .
MR. LEBLANC: It's okay.
MR. DOWNE: I understand that Cabinet and everybody else has to do their thing, that is not the issue. The issue is I expected that strategy, I believed what you said, I trusted you, and it is not there, and my question is why?
MR. LEBLANC: Mr. Chairman, first of all we have to point out the obvious. We do not have a surplus. That is something that is obvious, not only from what we told Nova Scotians would happen, it is also obvious from what we tabled in the House, the budget, we have an approximately $91 million deficit. We will have a plan to deal with surpluses when we have a surplus. I am not saying that as a government we shouldn't plan ahead. There is nothing wrong with planning ahead, but it also has to be put in place when it occurs. We have not reached that stage. No matter what happens, it is a situation where if we were prepared today we would not be able to deal with or act on the fact that there is a surplus because there isn't one.
The other issue, even on the $250 million of the additional monies that we received, approximately $100 million of that was referenced to the federal government and $150 million was dealt with in personal income taxes for Nova Scotia, just to clarify that. It is $250 million increased revenues and we are very pleased with that, but I can't give Mr. Martin all the credit; I am going to give credit to the Nova Scotians who pay the income tax because the economy was better.
MR. DOWNE: Mr. Minister, I will have to take a look in another book. It seems to me I added up how much money Ottawa gave you, and it was around that $150 million. I will check it out; I could be wrong. It seems to me I checked it out with your staff when I was in the briefing and I asked them the numbers. We tried to add them together, I might have made a mistake. It is possible.
MR. LEBLANC: No, actually, just to clarify it, the prior period adjustment is part of the monies that you . . .
MR. DOWNE: I know, I understand that.
MR. LEBLANC: No, listen. In regard to the prior period adjustment, the staff was under the impression that most of that was federal before; a lot of it has to do with personal income tax referring to Nova Scotia. When we looked at the analysis it was $150 million provincial and $100 million federal. The bottom line is it doesn't really make any difference where it came from, we did have additional revenues and we are pleased that the federal government did give us some money. Obviously we feel they should be giving more, especially in some of those other programs, but that is another debate for another day. You weren't aware of that information, and I felt that you should have it. Subsequent to the budget being tabled, we have received some additional information. What you are saying there is what you were told on the day of the budget.
MR. DOWNE: Mr. Minister, prior to your adjustments there is a five year rolling average adjustment. The federal government takes a look at the five year back average and they roll it forward and see whether or not the money should be coming. So, it came out of income tax, and you are right, prior adjustment is money - and I think you got caught with your pants down there, or pants up I should say, all of a sudden you had this prior adjustment come in and you were saying, well, wait now, this doesn't fit my plan. My plan is to show that we are in serious trouble, no matter how we mismanage this we are going to be able to get there and I am going to be a little hero. At the end of the day, you had so much revenue coming in you didn't know what to do with it.
Anyway, Mr. Minister, I just wish and I am sure that the staff who are here wish I could have had that $512 million as well. (Interruptions) I might have more hair. You were the lucky one, and I am just making sure that you are going to be held accountable for that windfall from Ottawa. I will say that I did expect, I trusted you, I believed what you said, I believed what was in the written text, that we should have had a strategy, and a strategy doesn't mean you have to wait until you get there to have it, I happen to have a five year strategy on my farm, and I am not at year five when I build my strategy. You need to have a strategy before you get there. It is kind of late, waiting for the horse to get out of the barn and then figuring out a strategy of security for the barn.
The bottom line is that you have a responsibility of good management; part of your fiduciary responsibility is to plan for the future. You missed that opportunity. You blew the opportunity of $200-some odd million windfall, and you are going to blow this opportunity if you don't put a strategy together. I think Nova Scotians would be anxious to see that strategy, Mr. Minister. I for one would like to see that.
Part of that strategy talks about a number of fronts, tax reductions and things of that nature. But there is another part of this strategy that is important as well, and that is the whole issue of debt management strategy and what you are going to do there. You are not saying anything about that. I guess my question to you, Mr. Minister, is - you have indicated that it is a serious issue and I concur with you 1,000 per cent, if we ever go sideways on interest rates, hang on - would you commit on behalf of Nova Scotians to come up, within the next 12 months, with a debt reduction strategy?
MR. LEBLANC: Well, I want to say one thing, the member asked me whether we would restate 1992 and 1993, I asked my staff whether they could do it. They indicated it would be something they would be doing very quickly and it takes a long time to get it done. The member has taken me to task on this on numerous occasions, I can't recall how many times. However, in regard to the debt management, I am more than prepared to look at it. You are asking me whether or not I am prepared to commit to something today, I am prepared to take a look at it and to deal with it. You are asking me today, I am not prepared to commit today that we will bring it forward. At the same time, it is a very good suggestion and I am not arguing that.
We have some excellent people in our division, a lot were put in place by yourself and your predecessor and I give you full compliments for it. We have one of the best management divisions in Canada. I think the level of confidence we have in Doug Stratton and his staff, they are good and I think they have served this province well. I give you full marks because most of them were there before I came. So there you go. I am prepared to give credit where credit is due. Whether you hired them or your predecessor did, I think the administration did some good things in debt management.
For ourselves, specifically referring to, I think we are always looking at how we manage it, so whether or not we will come up with a formal debt management policy, I think we basically have - first of all, the best thing we did is have competence, we have been well served, we have also dealt with the fact of flexibility. We have made provisions whereby we can borrow money, and we are going to have to borrow money. We borrowed domestic, we also have shelf documents, both in Japan and in the United States, whether we shall use them will depend on the circumstances, whether we can hedge money or make exchanges or trade-offs, that we can do that in Canadian funds. We have also filed EMTN documents in Europe.
We have a lot of debt, and that is nothing you are not aware of. For ourselves, we need options as much as possible. No matter what happens, we have to make sure that we borrow as much as we can in Canadian equivalence. We have done a lot of planning to try to make sure that we are positioning ourselves appropriately to be able to access funds as cheaply as possible. Every dollar that we pay in service charges is taking dollars out of the programs that we want to deliver to Nova Scotians.
I think we really do have, to a great extent, a debt management scheme already in place. Your comments, I will take them as noted. I am not prepared to make a commitment today. The fact of the matter is, there is a lot of ongoing work. Maybe when you respond to my comments, if you could emphasize a bit more exactly what you would like to look at, I will take them as noted.
MR. CHAIRMAN: I wish to advise the member you have three minutes left in your adjusted time.
MR. DOWNE: The first point you made was that you made a commitment a long time ago about providing the information back to 1993 when we inherited the debt from, well you were part of that government prior to that. It was an operating deficit in excess of $1.1 billion, and that was a qualified $1.1 billion, it could have been a lot higher. There are three or four things that were added in later, so it is probably closer to the $1.8 billion that we originally thought, from what we can calibrate looking at it; nevertheless, a huge debt.
The reason I kept bringing that issue up to you, Mr. Minister, was commensurate with the fact that it took so long to get the data back. At the end of the day you hired a staff person, a previous staff person under contract to do that work and then to wait for the minute the Auditor General's Report was to come out. First you make me wait forever and then you just throw it out and put a press release out the minute the Auditor General was speaking. It was almost like you were embarrassed by the fact that you were part of a government that left a yearly operating deficit in excess of $1 billion. So that is why I kept bringing it up. I was waiting for that. It was commensurate with the time I had to wait, and my response was commensurate to how you presented it.
I would have appreciated sitting down and going over it as two professionals, to explain to me what is going on and then go forward with that. As you say, I don't want to talk about the past, but sometimes you do. You don't want to talk about it when I bring it up, but you sure want to talk about it when you bring it up; anyway we both agree on that.
I would say that the surplus management strategy that I believed what you said was going to happen didn't, should be done within the next year. I think that is important. During that same time, because they do tie together very well, the debt reduction program, and I would recommend a year. I think what we need to do is take a look at what your plan of strategy will be. In the numbers that I have, it shows your net debt growing every year you are in power. You are going to grow the debt of the Province of Nova Scotia each and every year you are in power before the next provincial election. I am just saying, because of that, that is why I think it is important that you have a strategy.
MR. CHAIRMAN: The honourable member's time has expired. Now, back to the NDP caucus. The time is now 6:58 p.m.
The honourable member for Halifax Fairview.
MR. GRAHAM STEELE: Mr. Chairman, I came in here originally to fill a chair for my absent and otherwise occupied colleagues, and I got so interested in what was going on that I jotted down a few questions that I would like to ask. Excuse me if I cover some territory that had already been covered while I wasn't here.
The first question I want to ask has to do with the way that the accounts were presented this year. The government is engaged in a process of reorganization, several complicated reorganizations, Environment and Labour being put together in the Department of Environment and Labour which is actually more complicated than it sounds. Certainly, the one that is very complex, because it draws pieces from several departments, is Service Nova Scotia and Municipal Relations. Yet, nowhere in the accounts is it possible to look and compare the line items from one year to the next.
I was of the understanding that Generally Accepted Accounting Principles required some kind of a reconciliation so that the reader of a financial statement could compare the previous year's operations with the budget. As far as I can see, those are missing. In the budget lock-up a staff member told our caucus people that the government had such a statement and it would be provided to us within a day or two, and within a day or two we were informed that, in fact, the government did not actually possess such a statement. My first question to you is, does the government, or does it not, have some form of reconciliation between last year and this year in respect of the amalgamated departments?
MR. LEBLANC: My understanding is that there is not a so-called reconciliation. We realize that when you reduce the number of departments and you change some of the components and you move them to other departments, it isn't like just taking two and adding them together. It is complicated. I don't for a second diminish that it is difficult to compare; because it is a transition year, it is a problem.
I should go back to the PSAAB, because your colleague, the member for Sackville-Cobequid, made mention of one of the points in PSAAB, Public Sector Accounting and Auditing Board - suggestions - talked about comparability. Comparability is something that is a goal that we should be moving forward to as much as possible provide because it puts things in context. First of all my recollection is that it isn't a principle, it is still in the discussion stage at the PSAAB my understanding is that's where it is. I can get the staff, some of whom are chartered accountants, to do more view on that one. We also have the problem that we are in a transition, and that makes it more difficult. A lot of times you are trying to compare apples to oranges or pears to pineapples, and it makes it hard.
I appreciate you as an Opposition member, trying to analyze every component, looking at what happened last year both in estimates and in forecast and trying to compare it to this year's estimates, it is difficult. However, I have seen this in my experience in the past, being both a minister and also in Opposition, that when changes come in, a lot of times it takes a lot more research just to try to compare.
MR. STEELE: The word that you used, Mr. Minister, is "difficult". I will use a different word, I will say it's impossible. It's impossible for the Opposition or any member of the public to have the least idea about whether the budget for particular line items is going up or down. It's impossible. I do have the Public Sector Accounting Guidelines in front of me here and as far as I can tell it's pretty plain, it's not just a desirable, it's a requirement.
Let me just read to you a line or two from here: A comparison of the actual results for those originally forecast by the fiscal plan and with those of prior periods is necessary to identify significant variances. To facilitate meaningful comparisons, planned and prior period results would need to be reported on a basis consistent with that used to report the results of the current period. In addition, financial statements should provide information necessary to establish trends in spending revenues, investing and borrowing, costs of operations and in key relationships.
It seems to me, and I am not an accountant, just in the plain reading of these rules, because these are the Generally Accepted Accounting Principles, that this budget violates that principle.
MR. LEBLANC: I disagree, and I will tell you why. One is that when you refer to the same principles that you are providing, they are talking about the financial statements. The financial statements are the audited financial statements of the province as prepared for the fiscal year which, for March 31, 2000 will be prepared - I shouldn't say when because as soon as I give you a date I probably won't meet it - hopefully a lot faster than last year. We had a lot of work to do last year to put it in compliance with GAAP because we moved a lot of the issues, tangible capital assets, pension evaluation, there were a whole lot of issues that took a long time. I think my staff aged years let alone months during the process. The other thing when we are referring there, the comparability, my interpretation is clear that it is spending trends, it isn't line-by-line issues.
Though I appreciate that you, especially in your first go at the House - although I think you have a lot more experience, sometimes, as a researcher than you have as an MLA, because you have probably touched on more facets of it and you can speak for yourself - that, for ourselves, we have maintained the reporting in GAAP, but I do agree that it is difficult, with the changes coming in, especially when you change some of the components of departments and move them to others and combine other ones, that it is more problematic. I don't for a second dispute that it is more difficult for you to compare; that is part of the problem when you do it.
I still go back to the point that we have made, we have reduced the size of government in the sense of departments and, because of that, we have also looked at things we felt were efficiencies by putting together - I go back to Labour and Environment and Regulatory Affairs - we feel with the changes that it will bring efficiencies, but it makes comparison more difficult. I think I am starting to repeat myself so I will stop at that.
MR. STEELE: Well, let's talk about efficiencies then. I asked the Minister of Environment and Labour to produce any kind of reconciliation between the previous departments and his existing department. He quoted from a briefing note that claimed that the amalgamation would save money. We asked him to table that, he never did. We still haven't seen it. There is a document out there that claims that amalgamating Environment and Labour and whatever else saved a certain amount of money.
I am not just going to take the minister's word for it just because the minister stands in the House and says it is so. I am not going to just take his word for it, I want the proof. That is what public accounts are for. It is not only for people who are reading the accounts, like the Opposition, but it is for the government itself. You must have some way of knowing whether efficiencies have been achieved or not. So, frankly, I find it hard to believe that within government there is no document that would trace line items, for example Compliance in the Department of Environment into the new line item Compliance in the Department of Environment and Labour. Because compliance functions of Environment and Labour have been slammed together, we have no way of knowing what resources are being devoted to Environment and Labour or whether efficiencies have been achieved, whether objectives have been met.
Surely, Mr. Minister, you are not suggesting that such a reconciliation doesn't exist even within the government because, frankly, I don't see how the government could manage its affairs if it wasn't able to make that kind of comparison.
MR. LEBLANC: Mr. Chairman, if you look at the people he is referring to, a lot of them have basically moved from their present jobs; I guess you can talk about whether they are inspectors or other types of personnel who are there, support staff. To a great deal most of those people are still doing the same tasks they did before. I can't speak for the departments because, obviously, I shouldn't say that I know all the inner workings of each department because I don't. I look at the fact that we have reduced the number of departments overall as a government which, in effect, also reduces positions of ministers, if you were to fill them and they weren't being filled, but also reduces the numbers of deputy ministers who work and their support staff who are there.
If you look at some of the staff that we are talking about, a lot of them have commonality. The one I referred to, Labour and Environment and Regulatory Affairs, a lot of these people, a lot of the staff and a lot of the functions that we are turning to are going to the same locations throughout Nova Scotia but for a different specific task, I think that for
ourselves the efficiencies will show not only in the short term but more in the long term, is where we have to go.
The bottom line is that we do not have the money to maintain the status quo in all these departments, so we have to make them more efficient. I have heard it in the House many times that we have to priorize the services that we provide, and most of those refer to Health, Education and Community Services, especially to environment and quality of water. I can go on and on, the list never ends because it depends who you speak to as to what is important. I think most of us as Nova Scotians have foremost in our minds, especially the big three, Health, Education and Community Services, have to be the focus.
We still have a sizeable deficit to tackle from last year, and we reduced it to 91, but we have done some of that through efficiencies of combining. I know that the member would like to have those comparisons, but for a lot of them it is difficult to compare during the transition period. Next year, the comparison will be much easier; this year it is more problematic and I don't for a second diminish the problem you are referring to.
MR. STEELE: I will leave it there with the comment that you, Mr. Minister, are asserting efficiencies, and my point is simply that until I see the proof of that then I simply don't accept that there are efficiencies. If they are there, prove it. Just asserting it and then presenting financial statements that, frankly, don't prove it one way or the other - maybe there are efficiencies, maybe I would stand up and be the first to say, by golly, they have achieved efficiencies. I want to see the proof, and I don't see it in this budget.
Anyway, we will move on from there. Mr. Minister, I wonder if you could list for me all the ways in which this budget is not in keeping with recommendations of the Auditor General.
MR. LEBLANC: No, I couldn't.
MR. STEELE: Well, there is at least one in your budget statement. I can refer you to that one, and I guess what I am asking you is, are there others?
MR. LEBLANC: I know that we keep in close contact with the Auditor General. I know that we have moved forward on many additional initiatives. There was one that the Auditor General referred to, accountability and reportability, that we, as a government, should be moving towards trying to improve. In this budget there are changes that we have had put in place, especially in information technology, that we are trying to get more accountability, both from school boards and hospital boards, or DHAs. We feel those investments will go a long way in dealing with it. I didn't come with a list of issues that the Auditor General would like to discuss but, overall, I feel that our relationship with them is reasonable. There were issues he will bring on an ongoing basis and we will try to deal with them as they come forward.
MR. STEELE: I wonder if you could explain a little bit more about that issue that you referred to somewhat elliptically, where there is a disagreement between the Department of Finance and the Auditor General?
MR. LEBLANC: It wasn't a disagreement, it was the fact that the Auditor General said that we needed more information in order to make better decisions, and that's the one you refer to. In this budget, there is an investment in IT, in order to get that type of information. We have also made some investment in education to get better information out of the school boards. So we feel that the investments that we have made here are positive in a sense of trying to get as much information as possible so we make the right decision the first time.
MR. STEELE: I guess what concerns me a little bit is there is explicit reference to one particular disagreement in your Budget Address, not in your speech, but in the other documents and I will tell you what it is, except that what I would like to know is how many are there? Is this the only one?
MR. LEBLANC: I don't see us disagreeing with the Auditor General. Oftentimes we will have discussions. He will ask us opinions as to how we come up with recommendations and we explain it. Especially the same things in regard to our revenue projections, the Auditor General verifies our revenue projections, he comes forward and asks information and we provide that to him.
MR. STEELE: I have already confessed that my background is not as an accountant. My background is as a lawyer and there is one piece of advice that most lawyers give their clients and that is that if the answer is I don't know, say I don't know. So rather than listening to you say in as many words that you don't know, I will refer you to the one example that is here in your Budget Address on Page A17 - Nova Scotia Gaming Corporation. "NSGC recognizes mandatory deferrals paid to the casino operator as an expense when the monies are distributed. This treatment is not consistent with the Auditor General's opinion that the amounts should be recorded in the current year. The impact of the Auditor General's interpretation would result in a reduction of approximately $11.4 million in NSGC's net income in 2001-02."
So that relates to the accounts of the Nova Scotia Gaming Corporation. It says here that, "This treatment is not consistent with the Auditor General's opinion . . ." So my question, again, Mr. Minister, is there any other part of the budget that is not consistent with the Auditor General's opinion or is that the only one?
MR. LEBLANC: In regard to this issue here, the Auditor General has yet to give his final opinion on this. That will come into the audit opinion for this fiscal year with regard to that. This is an ongoing discussion that has gone on for the last two years. As to whether
there are other issues, not to my knowledge, that we are having in regard to this financial statement.
MR. STEELE: I wonder if I could turn to (Interruptions) I was just going to say, I will give you a chance. Do you want an easy one or do you want a more difficult one?
MR. LEBLANC: Whichever one you want. It doesn't make any difference.
MR. STEELE: Okay. Let's go with an easy one then. On Page 12.2 of the Finance Department's estimates, there is a very large increase in the budget allocated to the Controller. I wonder if you can tell me what that's for?
MR. LEBLANC: What we are having here is the amortization for the investment that we have made in the SAP is all coming into the Department of Finance. So that is a large part of this line here. It is about $2 million we are assuming, also, there has been an increase in the financial operating results of this, which is basically about another $1.5 million. The other issue here is that we have made an investment in the provincial public sector SAP maintenance fee. That would be to the MASH sector that would allow them to use the SAP at a much reduced rate than if they had to go on their own; we are encouraging that MASH sector to use a common reporting tool and SAP is what we are using provincially.
So we have made this investment that we feel, in the long term, will also pay benefits not only for municipalities in reduced costs, but for us in getting better information. Basically, that is the breakdown that we have here. The vast majority of this, going back, it is moving the amortization of the hardware of the program, the licenses, into the one department rather than having recoveries from the department and also the increased costs that we have made in the MASH sector and the increase in the operating fee that was through this year.
MR. STEELE: Okay. On the same page, the amount allocated to Policy and Planning is less than half of what it was estimated last year. Why is that? Why has Policy and Planning been cut so much?
MR. LEBLANC: We moved Mike Rainer this year, who is an individual I am sure you are aware of.
MR. STEELE: I know him. I have had some dealings with him in the past.
MR. LEBLANC: A lot of the staff have moved over to the Treasury and Policy Board, so that has made a major impact on this. The other issue is also that the office of the Assistant Deputy Minister is no longer in this sector, so that makes a big difference in that. It is transferred over to a new category called Policy and Planning. Actually, it's a shuffle within that same policy - I don't know if you can follow what I am saying here. There are
five different lines. The first one has been removed and it is moved into the second line of Policy and Planning. That includes the assistant deputy minister and also some other support staff. The budget preparation, which we spent $354,000 this year, has moved over to the Treasury and Policy Board. So the other items are just insignificant that are there.
MR. STEELE: So if I could summarize, even though the budget has been cut quite substantially, it doesn't mean there is anything less going on in the way of the Policy and Planning function, it has just been shuffled to different lines?
MR. LEBLANC: No, basically most of the staff have been moved out of the Department of Finance. A lot of the staff who worked in the actual line by line preparation have gone over to the Treasury and Policy Board secretariat. But we still have staff there to prepare quarterly forecasts and the planning we have during the year.
MR. STEELE: Those were the easy ones. I would like to turn for a second to the Budget Address document, Page A42, which is the five year fiscal plan. I just wonder if you could show me on this page where the 10 per cent tax cut shows up?
MR. LEBLANC: It shows up in 2003-04, in reduction in revenues.
MR. STEELE: So you are saying that the revenue for 2003-04 would actually be roughly $110 million to $130 million higher than shown there?
MR. LEBLANC: That is correct.
MR. STEELE: That line takes the 10 per cent cut into account?
MR. LEBLANC: That is correct.
MR. STEELE: I want make a bit of a perhaps pedantic point. What is the percentage of Nova Scotia provincial tax - 57 per cent, 56 per cent, compared to federal? What was it before the decoupling?
MR. LEBLANC: It was 57.5 per cent of the basic federal tax.
MR. STEELE: So the 10 per cent cut is actually 10 per cent of that 57.5 per cent. Isn't that correct?
MR. LEBLANC: It won't be done on a percentage of federal tax, it will be done on a percentage of what is paid.
MR. STEELE: Okay. But the point is that the 10 per cent comes out of the provincial share, the provincial income tax? Let me put it this way and, as I said, I am not going to spend a lot of time on it because, to a certain extent, it is a pedantic point. Nobody is going to see a 10 per cent cut in their overall taxes. They are going to see a 10 per cent cut in Nova Scotia's take.
MR. LEBLANC: It will be based on the provincial income tax that is charged. That is correct.
MR. STEELE: But they are not going to see a 10 per cent cut in their taxes that they owe?
MR. LEBLANC: You mean overall?
MR. STEELE: On overall taxes.
MR. LEBLANC: Some of that is federal. We are not giving a 10 per cent cut federally.
MR. STEELE: So the actual cut is going to be more like 3 per cent to 4 per cent of the overall tax. When I pay my taxes, I don't draw a dividing line and say, well, that is federal and that is provincial. It is just one big bill that I pay every year. I am actually going to see a 3 per cent to 4 per cent cut?
MR. LEBLANC: As much as many people would like for us to give a 10 per cent cut federally at the same time, we are referring to the provincial side of it.
MR. STEELE: I don't suppose you would consider changing your Party's propaganda from saying it is a 10 per cent cut to actually telling the truth, which is that it is actually a 3 per cent to 4 per cent cut?
MR. LEBLANC: I think that is your interpretation. I don't think anybody else believes that. I think people know exactly what we said in regard to that.
MR. STEELE: Who is going to get the benefit of this tax cut, do you think?
MR. LEBLANC: People who pay taxes.
MR. STEELE: Everybody? Is everybody going to get the same cut?
MR. LEBLANC: If people pay provincial incomes taxes, they will get a cut.
MR. STEELE: Is everybody going to get the same cut?
MR. LEBLANC: If it is 10 per cent, it is 10 per cent.
MR. STEELE: So you are talking about a straight, across-the-board cut. Everybody gets 10 per cent off their taxes?
MR. LEBLANC: That is what we are talking about.
MR. STEELE: The new tobacco tax revenue, how much is it going to be again, in this fiscal year?
MR. LEBLANC: You are talking about the announcement that took place?
MR. STEELE: Yes.
MR. LEBLANC: The estimate is another $15.7 million.
MR. STEELE: Okay, and where is that money going to go?
MR. LEBLANC: That money will go into the revenues under the tobacco tax revenues.
MR. STEELE: I don't mean which line item. What is it going to be spent on?
MR. LEBLANC: That item will go into the provincial revenues. The Department of Health made an announcement last week that talked about the fact that they will be working on a provincial strategy that will be announced this fall. As to what levels that will entail, that will be announced in the fall.
MR. STEELE: Do you think it might be as much as $15.7 million?
MR. LEBLANC: I am not going to speculate.
MR. STEELE: Has the Department of Finance conducted any public opinion polls in the last year?
MR. LEBLANC: Not that I am aware of, no.
MR. STEELE: One of the long-standing recommendations of the Auditor General is that exceptions to the procurement policy . . .
MR. LEBLANC: We did do one on the Web site. That was in regard to the tax review. I wouldn't consider that a poll, that is basically asking people their opinions. That wasn't a paid poll, that was, generally, internally. Just to make sure, that's a little extra information.
MR. STEELE: Okay, thank you. One of the long-standing recommendations of the Auditor General is that the exceptions to the procurement policy be reported to the House of Assembly and not just the Priorities and Planning Committee. Is that happening yet?
MR. LEBLANC: Procurement is under the Department of Transportation and Public Works.
MR. STEELE: Yes, last year it was in the Department of Finance.
MR. LEBLANC: Yes, it was.
MR. STEELE: Was any progress made on that recommendation in the last year?
MR. LEBLANC: Staff tells me he only made that recommendation this year. I can only speak with regard to last year. I don't believe it was done last year. The recommendation came forward last year, and I go back to the point that I am not responsible for procurement. It has been moved over. It was in my portfolio last year but it is no longer.
MR. STEELE: Moving over to the projections of royalties. In my previous job, I tried to get hold of the Department of Finance's projections of the royalties and had a great deal of difficulty finding it, although I did eventually get a document which, in some respect, raised as many questions as it answered. Is there an official revenue projection put out by the Department of Finance for offshore oil and gas royalties?
MR. LEBLANC: I do know that we put out a bulletin regarding that and I am sure that you saw it in the budget lock-up. I am just going to say that the projections that they have used for the immediate going forward, I think up to 2005, is in this projection that is here, in the information that is here. We did give one last year that basically was a couple of years old. That came out of the Petroleum Directorate. They are the ones who are calculating the numbers that they are basically sort of seeing coming forward. A lot of that is predicated basically on how fast they think that some of the other projects will get on stream and, also, is predicated on what they see will be long-term prices, because that will have a big impact on how quickly some of the higher royalty rates will kick in.
Obviously, they are in the process of probably trying to project new numbers. I don't have them here. Has the Minister of Economic Development and the Petroleum Directorate already gone through here? (Interruptions) Okay, I was away the last two days. I don't know
what is available for the long term. I don't think you are asking for today, you are asking down the road. Is that correct?
MR. STEELE: Yes, that's right, just the long-term projections over the next 20 to 25 years during the economic life of the project. Clearly, this revenue stream is going to be very, very important to Nova Scotia. I am just wondering if the Department of Finance has an official projection?
MR. LEBLANC: The last one we had was the one that we tabled approximately a couple of years ago. Obviously, we have been getting it in the immediate because we are trying to plan for the next two or three years. Those numbers we would have, but the ones going forward, I will try to see, from the Petroleum Directorate, as to what is available and what can be put forward. I would have to speculate on that, Mr. Chairman.
MR. STEELE: One of the other essential elements in how much Nova Scotia actually gets in royalties will be whether the province and the project owners can agree on things like cost accounting. What steps is the Department of Finance taking to - well, if you want to use this word - police the accounting of the SOEP project?
MR. LEBLANC: I think you used the term police, but it is to basically ensure that Nova Scotia gets its fair share. That is done through the Petroleum Directorate. They have the mandate to both monitor and to keep abreast of the issues that are there. I can try to get a little more information in regard to that so you can have it but, really, we are being provided that information from the Petroleum Directorate and they are the ones who are doing the monitoring.
MR. STEELE: Does the Department of Finance do anything to verify those numbers or does it simply accept numbers fed to it by the Petroleum Directorate and leave it up to the Petroleum Directorate to make sure that we get our fair share?
MR. LEBLANC: Well, the Petroleum Directorate is basically government itself. They have the expertise within the department and they have the resources available to them on an accounting and financial aspect to do their verification. So we are not looking to duplicate the work they are doing there, it is done within that sphere.
MR. STEELE: One last question on SOEP. On Page A8 of the Budget Address document there is paragraph about SOEP and I just wanted to explore that for just a couple of minutes. This is all in the context of talking about GDP growth, and it says "SOEP is a main driver in GDP growth . . ." So, clearly, a GDP growth is one of the key variables in the economic forecasts of the Department of Finance of the province. So if GDP is a key variable and SOEP is a main driver, obviously these projections are of some importance. The third sentence though is a bit curious. It says, "Given the introduction of this new industry into the
provincial economy, there is a potential upside risk on the economic assumptions related to exports and to corporate profits." What does upside risk mean in English?
MR. LEBLANC: I am just trying to find the line, I was on the wrong page. If you look at the offshore in regard to GDP, the offshore basically has two aspects to it, one of which is the export itself, how much money is going through it; the other thing, in regard to that, what does that really mean in regard to corporate profits. The corporate profits will basically be the better indication of what we will get in regard to corporate income tax. What we are pointing to here in this line is that we are bringing forward that there is a difference sometimes in regard to pure GDP growth, and what would be translated into corporate profits, which would basically affect the revenues of the Province of Nova Scotia.
MR. STEELE: But the point surely is that the GDP growth will have other impacts on provincial revenue, quite apart from corporate income tax. Sure, I accept that there might be a difference, you can have GDP going up, but corporate income tax, in particular, may not go up by as much. Surely, if the GDP goes up, driven by SOEP, there are other impacts, personal income tax, HST revenue, who knows? Not just corporate income tax. How much of a variable is this?
MR. LEBLANC: That assumes that it is going to stay in the province, but if it is exported you don't. That is the situation you get with SOEP. A vast amount, if not all of it, is being exported. If you have higher prices, does that relate to more HST being paid here, and the answer is no. If we have higher prices, does that relate to, you talked about, employment, and the answer to those issues is no. I think that is what this information that we put here was trying to point out, that the offshore is a bit of an anomaly because it is one issue that basically, a lot of time, is being driven by companies who are international in stature versus one who is based here in Nova Scotia alone.
MR. STEELE: Mr. Chairman, I would like to now share my time.
MR. LEBLANC: Mr. Chairman, can we just take a two minute break?
MR. STEELE: I would like to share my time now with the member for Cole Harbour-Eastern Passage.
MR. CHAIRMAN: We will take a two minute recess at the minister's request.
[7:34 p.m. The committee recessed.]
[7:37 p.m. The committee reconvened.]
MR. CHAIRMAN: I would like to reconvene with the continuation of questions.
The honourable member for Cole Harbour-Eastern Passage.
MR. KEVIN DEVEAUX: Mr. Chairman, I have until when?
MR. CHAIRMAN: I will clarify that in a minute for you.
MR. DEVEAUX: I guess I will start. I want to - I am sorry I had to leave, I had to ask some questions in Education - ask a couple of questions. Let me just clarify what I was going back to before, and maybe you have rehashed this with others. I got a sense from what you were saying before, Mr. Minister, that you or your department have taken a position that you want to be fiscally conservative in your projections with regard to revenue, consistent but conservative in order to ensure that there aren't any surprises as the year progresses. Would that be an accurate statement?
MR. LEBLANC: Mr. Chairman, I think if you look at the history of the province, they have used the modules that come forward and they probably don't go to the upper end of the projections. If you look at the history of it, as you will see in this year's projections, they are usually mid-range, whatever. That means that if they follow suit, they will basically be - you could call that, conservative, but I think it is probably trying to be - realistic in their projections. I think that is appropriate. I would much rather have that than have them always being optimistic. I think that leaves you too open to fluctuations.
MR. DEVEAUX: Realistic on the low end though, can we agree on that? I am not saying that is necessarily a bad thing. I accept that with numbers . . .
MR. LEBLANC: I think it is more mid-range, if you look at the projections . . .
MR. DEVEAUX: But, again, consistent and not trying to be overly optimistic but trying to be realistic.
MR. LEBLANC: I can only go by what my staff has done because we don't discuss how the projections are done. They prepare them and they present them. I think if you look at the trend, that is usually the way they have done it.
MR. CHAIRMAN: I wish to advise you have 22 minutes, you have until 8:01 p.m.
MR. DEVEAUX: Thank you very much, Mr. Chairman. I want to go to a specific number, and I am getting into the murky world of determining equalization, which you need books probably this thick. I know your staff has the question I asked during the lock-up as well, so I am going to go back to it.
You are calculating $1.394 billion in equalization this year. The federal government as of March 2001 is calculating $1.307 billion, which is a difference of $87 million, which is quite a big figure when we are talking about a budget deficit of almost an equivalent amount. You have said, and I agree, that on many occasions you have been consistent, realistic, my term would be low-end realistic to conservative, yet on this number you are much higher. Now, Lord knows if any of us can explain in the time allotted exactly how we calculate equalization. I do know that you have your own model and that your numbers are based on your model, and the federal government has their model.
How do we come to that difference? That is a big difference. I guess my first thought is, when we think of Ontario and the economy slowing down and they are a big chunk of where our equalization comes from, how do you consider that equalization will basically stay at the same level - I think it goes down $1 million, according to your forecast from last year - when in fact the federal government, based on their modelling, is showing it going down $85 million, $88 million? Is there any way you can explain why that number is optimistic?
MR. LEBLANC: I should say, first of all, that the model, the program, that we use is provided by the federal government, so it isn't one that we have created on our own. It is too complicated, it would be inefficient for us to try to do that, and very costly if you wanted to do it. There are two issues, one of which is that the federal government will provide, in their equalization formula, estimates that they feel we will receive, both in income tax and - so when those estimates change, it also changes the equalization formula.
Obviously, we have an advantage provincially, staff has, of basically being able to fine-tune what they see as local information, where federally they are doing it nationally and regionally, but at the same time experience has shown, from within the province, oftentimes we are in a position where we have additional information that they don't. You will probably have differences in estimates. This has basically been consistent over the years. In a sense, we take that information, or the staff does, and incorporates that into it. That explains some of the differences you have there.
MR. DEVEAUX: I could accept that if the numbers were consistently high in Nova Scotia compared to equalization. You estimated it higher than it was, and either the federal government came up or your numbers ended up coming down. I think, consistently in the past - correct me if I am wrong on this, because I am trying to look for the numbers here and I can't find them - Nova Scotia, again, with what you said earlier, realistic numbers, numbers that I would say are low-end realistic to conservative, has in the past few years estimated equalization to be on the low end, and it has come up. Alberta and Ontario economies, for example, have done very well in the last couple of years.
This year, you are high, compared to the federal government, where in the past few years, in your estimates, you have been much lower. That doesn't really explain to me why this year there is a difference that makes you "optimistic" as compared to normally when you are "realistic".
MR. LEBLANC: Equalization is something - one thing I learned in my time here, I don't try to understand it. There are 33 different factors in it. When I first came to this department, the first thing I tried to do was learn everything about it. I started out with debt management, Doug Stratton tried to explain it to me, but after about half an hour I realized that my time would be much better served if I left it to the experts to try to explain some of the issues in regard to that, and I would concentrate on other ones. This is another one that is extremely complicated, and I try to use staff, it makes more sense.
The issue here is that even some of the national basic federal tax information that the federal government has encompassed, even there we find that the timing of information, when they use it, whether you have updated numbers, whether we can use that in our model, a lot of times if everyone is using the same information it would make comparing apples to apples a little better, a little easier. Right now, we find that the timing of information that we are using, that we are using even more updated information than they are in regard to that one factor, which we think will add to our equalization, and that wasn't encompassed in the number that the federal government had.
The problem comes, if I could be bold, it is a difficult thing to explain one-on-one, you almost have to sit down and try to do it at a committee. It is complicated, and when you get into these issues I find it difficult. The other thing that is difficult is the federal government is not preparing a budget in the spring. When they do, their numbers are right up to date, and this year they are not because Mr. Martin has decided for whatever reason that he wouldn't have a spring budget. The information that is usually available to us at this time wasn't, and that is probably one of the reasons why we are getting into this difference of opinion between what the federal government is saying and what the province is saying.
MR. DEVEAUX: Okay. I have about 15 minutes left, so we are going to go into this in some detail. I understand it is complicated, I understand that my knowledge is only cursory, and it is only a small amount but I think it is important to put on the record. There is a big difference in the numbers and I think you can agree on that. First of all I am trying to remember what you said, the factor that you think makes the difference in that calculation, was it the basic tax?
MR. LEBLANC: It is also the national basic federal tax being used in the calculation, that is the amount of tax that we collect nationally. Basically, when we talked about provincial tax being a percentage of federal tax, it was a percentage of basic federal tax; that is what the calculation was based on. The latter numbers that we are getting are higher than what was used in the federal calculation, because they have not been as up to date as they
usually are. The spring is time they bring all their numbers up to date because they want to do that in the budget. When they are not preparing a budget, they are not as zealous, I guess that is the word - no, that's not the right word - as industrious in trying to get these numbers as up to date as they usually are. Usually we have those at our disposal when we do our budgets.
MR. DEVEAUX: You are saying that basically since your numbers are more up to date that is what made the difference in the numbers, based on the fact that your understanding is that the federal government will bring in more personal income tax, corporate income tax revenue, and that is you say basic, and I am not sure what you mean by basic tax as compared to corporate . . .
MR. LEBLANC: That would be personal.
MR. DEVEAUX: You are seeing that in 2001-02, your early numbers are showing that the federal government will be bringing in more personal income tax revenue and therefore that will result in a greater equalization, is that what you are telling me?
MR. LEBLANC: The equalization that we are looking at in this budget that we are preparing is based on a multitude of different things, one of which is based on the amount - it goes backwards in a sense, based on what has happened in the past, it isn't based on what is going to happen this year, it is based on past results. So when we are looking at those numbers, we are looking at the calendar year 2000 for basic federal tax. For ourselves, getting this number into it and doing this calculation, I go back to my statement again that the federal government, because of the fact that they haven't prepared their budget, have not really done the work that they usually do to provide us, so we, staff, have had to do a lot more of the work this year than they have in the past. They have done it on the latest information they have, and apparently that is not the information that is in the last module provided by the federal government. That is why our equalization, we are saying, will be higher.
MR. DEVEAUX: So you are saying your information is not as up to date as the federal or it is more up to date?
MR. LEBLANC: More.
MR. DEVEAUX: Again, let me clarify. Are you saying then that one of the 33 factors with regard to equalization, one of them is last year's or the previous fiscal year's personal income tax revenues for the federal government is how they calculate equalization for this year?
MR. LEBLANC: It is part of it. Actually the staff tells me there are up to 2,000 different factors if you get into it, so I am not sure we want get into 2,000, but just to point it out.
MR. DEVEAUX: Maybe not. To some extent, you can almost bring out the Ouija boards to try to figure out the science of how you calculate equalization. They still, this year, are paying out more money from two years ago. This is what I want to clarify, and I am trying to keep this as simple as possible and I hope there are relatively simple answers. Equalization for 2001-02 in Nova Scotia is based on many factors, but are those factors based on this fiscal year in Alberta, in Ontario, in British Columbia, for example? If the economy in Ontario is going down this year, does that have an impact, or is it how well the economy was doing last year in Ontario?
MR. LEBLANC: It is actually a combination of both. I will try to get staff to give you a little more detail on this one, rather than repeating it. I want to go back to talk about the budget, right around Page 30. Those are Roy Salmon's comments that we have here. If you go to Page 28, these are the Auditor General's comments in regard to the revenue. All the assumptions that we have done here in regard to equalization, personal income tax, all the revenues that we have, he has looked at the assumptions we have made. I quote here, "as at the date of this report, the assumptions used by the Department are suitably supported and consistent with the plans of the Government, as described to us by departmental management, and provide a reasonable basis for the 2000-2001 revenue estimates; and the 2000-2001 revenue estimates as presented reflect fairly such assumptions."
The situation we have here is complex. When you look at equalization a lot of factors can change it, and we know that. Basically we use the modules as well as we can to try to accurately reflect them. I just want to point out, if you look at any year, there are going to be prior periods of adjustments, and this year it was a positive; at the end of this year that could be negative. We don't actually know that until the year end comes. Obviously, we like to have a pleasant surprise, but one of these days we are going to get one of the negative ones and we won't be very happy.
MR. DEVEAUX: And I think that is this year. Let me be candid. I think, again with my rudimentary knowledge of this, the Ontario economy is not doing as successfully as last year; the Alberta economy is doing very well, but I don't think it is expected to be at the 6 per cent or 6.5 per cent it was last year; and British Columbia may be improving slightly, but not greatly. You have overestimated, potentially, equalization payments by $87 million. Quite frankly, let's be candid here, if the federal numbers are more accurate, you are going to have a heck of a time meeting your deficit target.
We will see, over the next year, as to what happens, but that is an $87 million difference which is a big difference in all the different numbers you have. That is a big one. I can talk about personal income tax revenue, and you can say we have done a realistic
number, but we have federal numbers that show potentially that your number, with regard to equalization, is much higher than it should be given what is potentially going to happen to the economies in Canada in the next year, even if they just slow down somewhat. You are saying that basically equalization is going to stay at the same level it was for the last year, I think a $1 million difference. It is something I want to come back to.
I know my time is running out, but I do want to ask a question that is related to federal transfers but not related to equalization. The federal government right now provides $4.5 million in French language transfers. Is that something your department has anything to do with, with regard to that number, any agreement with regard to transfers increasing? Does your department have anything to do with it?
MR. LEBLANC: That is done through the Department of Education, through the French Language Division.
MR. DEVEAUX: So you guys don't sign off on that at all? As the minister in charge of Acadian Affairs, you don't have anything to do with that either?
MR. LEBLANC: No. That is a good question.
MR. DEVEAUX: So if there are federal transfers of money done department to department, Heritage to Education, the Department of Finance would have nothing to do with it?
MR. LEBLANC: They are done directly, I do know from discussions in the past - my mind has gone blank - the head of that division does those negotiations in conjunction with the deputy and the department.
MR. DEVEAUX: The head of which division, in your department or in Education?
MR. LEBLANC: Education.
MR. DEVEAUX: Would your department be aware of any agreements that were signed or are ready to be signed with regard to those transfers, or is that again something done completely within Education?
MR. LEBLANC: Those are done directly within the department.
MR. DEVEAUX: Of Education?
MR. LEBLANC: Yes.
MR. DEVEAUX: Are you aware that in the budget documents produced by your department it shows $4.5 million being transferred, when in fact the Minister of Education is preparing to sign, in the next few weeks, a document that will raise it to $5.8 million? Are you aware of that?
MR. LEBLANC: No.
MR. DEVEAUX: Is any of your staff aware of it?
MR. LEBLANC: Not that I am aware of. I will make some inquiries, but basically the departments themselves are collecting those revenues and are disbursing the funds within the department.
MR. DEVEAUX: I guess I am not clear on how the accounting principles work in this. If you know you are going to sign a document that is going to be $5.8 million but it hasn't been signed as of the date the budget is produced, how does that work accounting-wise? Are you to not reflect it, even though you know or you are 99.9 per cent sure it will be revenue that will be brought in?
MR. LEBLANC: I should just point out that when you prepare the estimates you are in a situation where you are preparing it as of the time you are putting it forward. There will be changes throughout the year and they will be reflected in the forecast that comes forward. I think the big time for ourselves is that as long as we do the forecast, that we update them. Otherwise the budget will never be finalized, there will always be some changes as we prepare them because some of those discussions happen with third parties and we can't finalize them until they are finalized.
MR. DEVEAUX: So, it is not unlike the tobacco tax. When you did the estimate, you weren't sure exactly what it was but now you do, so in the next forecast your revenue from tobacco tax will go up $15.7 million.
MR. LEBLANC: That is correct. I would just point out that discussion has been going on with the federal government since the summer or early fall, moving forward, the federal election came on, events transcend that, we have been doing some planning, and when we estimated it you were in the situation, when this happened last week, we had no indication of when it was going to happen. It has been going on for a long period of time. So, those were factors that were difficult to estimate and we do the best we can. Obviously, when things happen, we will change the forecast to reflect that.
MR. DEVEAUX: I just want to go back to the equalization for a moment. I know that these models can be quite complicated, but this is something I need to put on the record. Is it possible for us to get a copy of the calculations made by your department that resulted in the equalization calculation of $1.394 billion? Can it be tabled? I am asking.
MR. LEBLANC: I will talk about that with staff. I am sure you will be coming back with another set of questions . . .
MR. DEVEAUX: Yes, I am.
MR. LEBLANC: . . . and at that time I will be prepared to answer that. I don't want to give you an answer here and then change my mind after. I will try to talk to both staff levels, the deputy and the head of the economic and fiscal planning, to determine whether or not we are prepared to table that.
MR. DEVEAUX: Okay, and I guess if there is a possibility of looking - I haven't read the Freedom of Information and Protection of Privacy Act recently to know whether I am entitled to receive it or if it is something that you are prepared to provide beyond what is in there. I would just ask, and you could give it consideration.
MR. LEBLANC: That is a fair question, and I will give you an answer.
MR. CHAIRMAN: The honourable member for Lunenburg West.
MR. DONALD DOWNE: I want to resume my questioning on the issue of not following through with strategies and statements that were previously made with regard to surplus management. The other part of the Budget Address in 2000-01, the minister talked about ensuring that the government does not repeat the mistakes of the past, this government will introduce tough new accountability legislation. Can you explain what you have done about that?
MR. LEBLANC: Mr. Chairman, a bill will be coming forward that changes the departments, one of which is bringing forward the Treasury Board Secretariat. That in itself we feel will be a great help in trying to bring about accountability throughout the government, not only within the Civil Service but also with other agencies such as DHAs and also with school boards. I mentioned before that we had made some investments in SAP, we are to extend that program to the MASH sector. We feel that will help them get access to that system at a much cheaper rate by doing so in volume rather than trying to do it individually. We also have made some investments this year in regard to IT, both in the health sector and also in education. Those are all measures that we are bringing forward to bring about more accountability. The major legislation is putting in place the Treasury Board Secretariat.
MR. CHAIRMAN: Just for the committee's information, we will be recessing at 8:53 p.m. That will be our four hour allotment. We have about 51 minutes left in your time.
MR. DOWNE: Mr. Minister, I think you have started a reputation of sometimes blaming people. You blame the previous government or you will blame Ottawa for giving you too much money at the wrong time, or not giving you enough, and the fact that we are now going to have this new Treasury Board is just another way or another place for you to be able to blame the Treasury Board for your lack of management ability or your lack of planning. Is that part of this strategy, so that it gets you off the hook on this?
MR. LEBLANC: I don't think so at all. I will be honest with you, when we left government back in 1993 one of the things that I felt was an important tool at that time was the Management Board. Whether you agree that we did a good job or not - I know I will never convince the honourable member that we did - the situation is that for us there was someone who correlated those activities.
I felt that the change happened during the term of the previous administration, departments were given their budgets and they were basically told to live within those budgets. A lot of times there were a lot of initiatives that took place that weren't working towards the good of government as a whole. I would use the example of developing a type of management system that maybe we should be sharing rather than going on our own.
Those are the types of initiatives that I think a Treasury Board can also bring about that will be very advantageous and also make sure that we keep departments accountable. I believe it is a good investment, it will also be utilized in the preparation of budgets, so I don't see it being redundant or duplicative. It also will help us make sure that departments are on line.
MR. DOWNE: Mr. Minister, I find it interesting, in the last year, on the issue of blaming other areas, in Health the minister continues to blame non-existing boards for cost overruns and things of that nature. I do hope that this Treasury Board is not just a place for you to kind of walk away from your responsibility, because at the end of the day the blame is clearly with the Minister of Finance. That is where you stuck it with me, and I will stick it to you on the same basis. Mr. Minister you are the one that the buck stops with.
I will compliment the SAP program; I am glad to see you are implementing that. It was one that needed to be done in Health and in Education to get a good handle on those expenditures. That is the right step, and I know the staff have worked very hard for a long time. I think we started that project and I compliment you for keeping it there, or moving it forward. The more you have information on what is going on, the quicker that information flow is there, the better it is.
I can tell you, back in 1993, there were times we had to wait over a year to find out what happened - a year after the year end was over to get a real handle on what was happening. It is just terrible. So this is really a good step in the right direction and I believe that your government is doing the right thing to keep it going. But the accountability plan is
not necessarily a plan as such, as much as a new bill introducing the Treasury Board Act. Is that how it will go? The detail in that bill will actually show how you are going to control that expenditure side better.
MR. LEBLANC: The bill will basically be enabling legislation to set up departments. We have changed many of the departments of government and, as such, I am sure you realize, as former minister, that you are only able to change one or two before you have to bring a bill into the House putting into effect the changes that you have. We believe that the restructuring that we have put in place by reducing the number of departments will have some efficiencies, especially at the deputy minister's position and it will bring about some savings in that instance. But the bill that we are talking about, the Treasury Board, is to set up the structure. The procedures and the policies that they will bring forward will not be in the bill, but will be in policy of the department.
MR. DOWNE: How is that accountability going to be passed out through - what am I going to see as a taxpayer with regard to that accountability? What am I going to be more aware of now under this new system than I currently am today?
MR. LEBLANC: Well, I took over finance from your administration, from you as minister, and we have some very good people in there. You mentioned Mike Rainer, and a lot of people here today are all well-trained professionals and they do a good job. At the same time, the familiarity with each one of those departments, to make sure that initiatives are changing in plans during the year, that they are well thought out to see whether or not they are in conjunction with the core direction of government is something really that didn't have the formal process of being evaluated within Finance.
A lot of the departments had the mandate within their own organizations to make those changes and I go back to the process, what is the gist of the Treasury Board. It is to make sure that the government is shooting on all cylinders and not trying to do something sometimes in a direction that counteracts what is being done in some departments, which is very beneficial. The other thing that it will also bring about is some expertise that ensures that the departments get a good sounding in every initiative that they take to make sure that it is efficient and well thought out, and the budgetary process will be better served by the changes that we bring into place.
I mentioned before the Management Board. The Management Board used to bring people in every two or three years, young professionals, who received some training at the centre. It is a good training process for many young professionals within the Civil Service that will give them the training that we need to ensure that there is continuity. I am sure you are aware that within our departments we are getting relatively - what is the word?
AN HON. MEMBER: Older.
MR. LEBLANC: He says older. But the breakup of our Civil Service is getting along to the latter parts of the years before retirement and we have to start planning a process to ensure that many civil servants will stay within, offer their expertise and will be well positioned for deputy's jobs as they become open. That is a big concern, that we are losing a lot of our talent through retirement or even moving on to the private sector. That is another positive aspect that I see that will happen with Treasury Board - people moving in and also moving out, gaining the expertise of the centre, understanding government as a whole and the experience that they will gain will prove to be invaluable. I really believe that.
MR. DOWNE: So you are telling me that the Treasury Board is a breeding ground for senior positions within government and deputy minister positions?
MR. LEBLANC: I think it will prove in time to be, just as much as the Policy Board used to be in the past. I think we as a government have to think not only about the tasks that they will do, but I think we should also look in the long term of government to ensure that we have long-term planning for replacement of our senior staff, because we will be needing them. I predict over the next five or ten years there will be requirements for many professionals to fill positions that will be coming open. I think if you look at the breakdown of our Civil Service and the ages that they have, there will be a huge requirement. This will not be the major training ground, and I don't for a second say that, but I think it will also have positive impact and the people who will work there will also receive proper training.
MR. DOWNE: Mr. Minister, in staffing these positions, are all those positions tendered and gone public? If this is what you call the breeding area, or the training area - the word I am looking for is training or education. It is the wrong word - the training area for future deputy ministers and other senior staff, the conditions for which individuals are brought into that area are very important to maintain the integrity of the Civil Service.
MR. LEBLANC: I see this being filled by internal competitions. That is what has been done up to now; we haven't hired anybody outside. Most of the people who are hired, a lot of them come from our department. I mentioned Mr. Rainer, and Mr. Rainer is one of those individuals who will be moving from my department to that department.
MR. DOWNE: You have a good person there, that is for sure.
MR. LEBLANC: He is very young, too, so he will be there for a very long time.
MR. DOWNE: Absolutely. Mr. Minister (Interruptions) I don't think we should get into that issue. I used to want to go there, but I don't want to go there anymore. The only thing I can tell you on the record is they only put marble tops on the best of furniture. That is all I know.
Anyway, I want to move on to NSRL and some of the issues surrounding that. I am not really totally clear on the response you gave to the previous question on NSRL. As I understand, the sale of NSRL, there is approximately $140 million of net profit from that sale.
MR LEBLANC: No, I didn't say that. I said there should be $180 million to $200 million. That is an accounting profit on that sale.
MR. DOWNE: The Auditor General is saying somewhere in the vicinity of $140 million. Maybe it is $180 million. My question is, how are you dealing with the $140 million or $180 million or $160 million? How are you dealing with that profit?
MR. LEBLANC: As I indicated before, if this sale becomes final - and that is still out, we have to wait to see - the sale will be treated in the year March 31, 2001, and would be included in the final results in that year as an extraordinary item.
MR. DOWNE: So you are projecting a $91 million deficit for 2001-02. If the sale is materialized in that time frame, that will show as a $140 million, $180 million, whatever that number will be, income to your revenue expectations?
MR. LEBLANC: No, I said it would show in the fiscal year ending March 31, 2001, not March 31, 2002.
MR. DOWNE: The reason I say that and it is a quote out of a publication and I could be wrong. The Auditor General is allegedly saying if it happens after March 31st, and that is what you are saying, March 31st of this year, it would go in after that period of time?
MR. LEBLANC: No, Mr. Chairman, what will happen is we have a conditional sale that is taking place now and if it becomes final it will show in the year that it occurred. It will show in the year ending March 31, 2001.
MR. DOWNE: Then the last fiscal year, the year we just completed? They're not in the budget yet?
MR. LEBLANC: That is correct.
MR. DOWNE: So you ended the year with a $91 million . . .
MR. LEBLANC: No, it was $189 million.
MR. DOWNE: A $189 million . . .
MR. LEBLANC: You threw me off with the $91 million; I am sorry.
MR. DOWNE: So the year we just completed, there is $140 million to $180 million more revenue, if this sale goes through, last year than was what accounted for?
MR. LEBLANC: If the sale becomes complete, the answer to that is yes.
MR. DOWNE: The difference between the sale, all parties have agreed and your shotgun provision didn't materialize - that is an accounting term, shotgun provision - you gave somebody else the option.
MR. LEBLANC: Can you ask the question one more time please?
MR. DOWNE: Where nobody else picked up on the deal, you had the option, first right of refusal. They didn't accept that or take you up on that, so the deal is still going forward and you are negotiating what right now?
MR. LEBLANC: The province is not negotiating anything. There were two processes to go by, one of which, first of all, was the ROFR option that was available to Shell and to Exxon-Mobil. The ROFR option that came forward first was on the assets, because that was the first part of the deal that was offered. Since those two companies had a ROFR on the assets or the shares, it was whichever one was offered first. Now the assets were offered first, so that was the one option of ROFR that they could exercise. The two companies did not take up the ROFR on that, so the other process going forward is for the company of Emera in conjunction with Pengrowth Energy. They are working with the SOEP project partners, that includes those two companies plus the other partners in SOEP, to get approvals to transfer themselves instead of NSRL as a partner in SOEP. Now that process is still ongoing.
MR. DOWNE: And that should conclude this year, one would hope?
MR. LEBLANC: Hopefully within a very short period of time. I am not going to project a date right now, but the answer is yes.
MR. DOWNE: It is 90 per cent there; it is not going to fall apart at this point?
MR. LEBLANC: I am not prepared to say one way or another. This is still a major thing for the companies to deal with. We will have to wait and see how it works out.
MR. DOWNE: It is interesting, in this new accounting procedure, we take a look at Sysco and we wrote a lot of debt off, you know, severance, even though everybody was still working, pensions, the value for the "green field" of the site, none of that was done, none of that was accounted for. We hadn't all the finalizations done. It was going to be sold about three different times. There is still a possibility of being sold, yet we booked all that debt and it is part of our operating deficit. Here you have an agreement to purchase that is just about
as unprincipled as Sysco, and you booked all this debt of Sysco but you haven't booked the net revenue from the sale of NSRL.
I guess my question is, because the Auditor General makes it very clear that that should go right directly to the bottom line, and it just seems to me like it is two accounting procedures that we have here - $200 million, $300 million, $400 million that we are going to throw on the operating deficit of the Province of Nova Scotia because we are going to have to pay money out to greenfield that site and we are going to have to pay money out for the pension liability and we are going to have to pay out for this and we have to pay for that, and even though you don't even know the real numbers, you come up with a number.
I dare say that you are probably $60 million out on the pension alone. I think you are. I think you will find that out at some point in time. My question is, how can you justify those numbers and yet you cannot deal with NSRL on a revenue stream now? It is like we can add to the debt but we can't add to the revenue side.
MR. LEBLANC: Mr. Chairman, there are two issues here. One is the forecast that we put forward and the other one is the financial statements of the province, which are audited by the Auditor General. I want to refer to the one aspect that he talked about with Sysco. The reason that we dealt with Sysco in that manner is that we did an actuarial report on the unfunded portion of Sysco as of March 31 - I think it was 2000, if I recall properly - and it was approximately $60 million underfunded. That was done on an actuarial report and the liability was shown in that regard.
In regard to the environmental reclamation costs that are involved in that site, that was done by an engineering report that was prepared by the Department of Transportation and Public Works. So those are two things which were quantified, which the Auditor General says that upon quantifying those two issues, they should be shown in the province's books and that is why they were shown at that one time. I want to point out to the member that we also showed them as an extraordinary item. When I talk about the operating deficit of the province, I make sure that we talk about the base because that is an extenuating circumstance that I don't think it makes comparison of base results of the province meaningful to someone listening to the debate.
The other issue that we have here in regard to the sale of NSRL, we have pointed out this year that we have a deficit of $198.9 million, I think that is the proper number. We also pointed out to the press and to those who listened when we did the briefing on the budget that if we do sell NSRL that this will be a one-time extraordinary item because it is not reoccurring and it will be shown in the year that it is sold. If it is sold in the year ending March 31, 2001, if the transaction becomes complete it will be shown in that year when we prepare financial statements later on in this year for the year ended March 31, 2001.
So it goes as to whether you can define them. As this transcended a fiscal year, because we haven't finalized the deal, if the deal becomes final it will show in our financial statements that we will prepare for this year. It will show as an extraordinary item and it will just be the bottom line of $198.9 million; it will bring that down. As to what the exact number is, that will have to be done by accounting and it will also have to be verified by the Auditor General. Whether the number is $140 million or $180 million, the number will be substantial.
MR. DOWNE: And that will reduce the operating deficit?
MR. LEBLANC: On this year, that is right. That is correct.
MR. DOWNE: So you have yourself built in, on all the revenue streams and all the other calibrations that we have here, you have a hedge of $140 million to $180 million on the sale of NSRL that doesn't show up anywhere.
MR. LEBLANC: I am not talking about this year's operation; this refers to last year's operation. I want to be sure that we understand, because you say we are building a hedge and there is no hedge in this year's operations if this deal doesn't go through.
MR. DOWNE: But the point is, Mr. Minister, you have last year, you don't want to declare it because you don't want to have all this money. I mean, the $249 million windfall, plus the $140 million which the Auditor General is saying the figure will be $140 million, but he is subject to being not accurate, but he is saying it is $140 million, so you really had somewhere in the vicinity of $400 million that you could have declared last year as revenue. You had that choice of declaring that as a revenue stream. You would use the arguments for the Auditor General why you don't want to, but you could have done that.
MR. LEBLANC: Two things. First of all I don't consider this to be a revenue stream, and I have said that all along on numerous occasions. This is a one-time operation. For us to use that as a revenue stream to do increased spending, I don't think it is appropriate. We have built up almost $700 million or $800 million of debt in NSRL. When we sell this asset, it should be applied to the debt. You shouldn't use it as an excuse to go spend more money because what will happen is that it will not reoccur. I think it is appropriate that we use that money to reduce our borrowing and that is the intention of government to do it.
So for us, I don't look at this as a one-time deal or a revenue stream or as something falling from the sky. I don't look at it in that way at all. It is a decision of this government that it is the time to move out of the oil and gas business. If it happens, then we will book it in March 31, 2001, and we have said that on numerous occasions and it will show in the financial statements that we have, if it happens.
MR. DOWNE: Mr. Minister, I realize it is not an ongoing revenue stream. I understand what you are saying, but the bottom line is you could have declared that revenue last year and come in with a surplus. You had additional revenue come in from Ottawa that you can't count on every year and you spent it. You already went and spent it, so the bottom line here is that from a truly fiscal position you said that you were not going to overspend in your departments and you were going to control all these issues. You had additional revenue and, quite frankly, you didn't want to declare the revenue from the sale of NSRL in a public way.
You want to do some sort of announcement later on of an extraordinary revenue stream. You knew darn well that you were going to have $140 million. You could have put a figure in there of $120 million and still been under what you are going to end up getting and still been legitimate. But, at the same time, you are quick to put in Sysco's debt as an operating deficit. I am saying to you that it is like sucking and blowing at the same time. I really don't know how you can do that. I don't know how the Auditor General can allow that or did you just argue well enough that the Auditor General said, it is not worth the battle, because you gave him your consent that you are going to announce it later when the deal is finalized? This deal is about as finalized as you are going to get any deal, at this point in time because they made the offer to you. You didn't offer them.
MR. LEBLANC: This deal is not finalized and for you to say that it is . . .
MR. DOWNE: I know it is not finalized, but I am saying, Mr. Minister, this deal, I don't sense from you, and I think I have listened to you speak enough times, if you really felt that this deal was not going to happen, your comments would be a lot more hedged in position than they currently are. Quite frankly, this is going to happen and you just didn't want to show the additional revenue. That is the bottom line here. You didn't want to show the fact that the province could have shown a profit last year by somewhere in the vicinity of $100 million to $150 million.
MR. LEBLANC: First of all, I don't agree. The other thing is, if I am getting predictable, then I have to change my style because I don't want to be predictable. The other issue is that I listened to what you are saying and let's say that the profit is $200 million. You are saying that if we included that in last year's statements, we would have a surplus of $1.5 million. I wouldn't have a surplus of $1.5 million. I would still have a deficit of $198.9 million. For us to say, on a one-time occasion, that we have got a surplus, we are fooling nobody and people shouldn't accept that. That is why I said, clearly, that no matter what the proceeds of this and what the gain on this was, that I wouldn't use that to create a surplus because it is a one-time event and we shouldn't do that. That is why I don't use the one-time loss of Sysco, the provisions, of inflating the base. I talk about the fact that we had a $367 million - or whatever the number was - I don't use the $765 million because that is a distortion of facts. It is one-time booking of the events.
If you want to go back to the 1992-93 year, it is funny because when we talk about the $1.1 billion we have there, there was $400 million written off on the evaluation of Sysco and also of NSRL in that fiscal year. That was a one-time event, which inflated the loss in that one year. Those things could have been written off at any point in time, but when your government came in, you wrote off that $400 million in that year and it also made the numbers look worse. That is irrelevant to what is going on here today. What we have to work on is the base. If we don't keep our eye on the base and these one-time events cloud our minds, then we are missing the whole point of the exercise.
MR. DOWNE: Mr. Minister, I am agreeing with you getting your debt paid off and your deficit paid off. I am agreeing with that. I am just saying that this was just a shell game that you wanted to take in regard to not declaring the true reality of the position last year. And under your so-called transparent, seamless, open process of being legitimately out front and explain to all Nova Scotians where you are, you could have taken in over $100 million extra and you didn't because you were scared that this would send a message that you have all sorts of money and everybody would want it. Well, quite frankly, that is just the way business is. That is just the way government is. You have all sorts of Cabinet Ministers who want to spend your money. You are the minister. You are the one who is there. You are the one who makes the decision so don't tell me that.
The bottom line is that you could have taken that money. You could have paid off that deficit. You could have turned that money into the debt reduction program, whatever you wanted to do with it. You could have declared it and you didn't. But you are quick to declare the Sysco deal of - I forget the exact figure, a huge amount money - and that is going to be an ongoing deficit. That is ongoing deficit, even though we haven't spent one cent of it and it is still there showing that we have an operating deficit that was part of that whole Sysco deal.
I agree with better accounting procedures. It was your staff that convinced me that that was the way to go and I believe in it. But the bottom line here is that you had a choice. I think you had a real legitimate choice. I think you could argue with the Auditor General to get that money in and you could have done it but you didn't. Now we are going to have an extraordinary statement made sometime later on that says, yes, but we told you we weren't going to use it as part of our revenue. My question then is, are you going to take that $140 million, $180 million and apply it directly to the debt of the Province of Nova Scotia?
MR. LEBLANC: Of course we are. The other thing I should point out, you are asking why we didn't report it. One of the complications was that there was a ROFR given by NSRL to the two partners. If that ROFR wasn't put in place, this deal would have been finalized before the end of the year and this gain on the sale would have been shown on that year. So you can explain that one.
MR. DOWNE: We can argue all those points, whether the ROFR was this or that. It is like armchair quarterbacks. There is going to be an armchair quarterback on you. There is going to be an armchair quarterback sitting right in there when you are all done, going over every little thing that you didn't do right, and why didn't you do this and why didn't you do that. That might be a lot quicker than you think that they will be doing that, Mr. Minister. (Laughter) So you be very careful how arrogant you want to show yourself to be.
Now I want to ask a couple of other questions in regard to the - I am going to move on to debt servicing again. With your $1.3 billion spending spree the year that you are fully in charge of everything in the Province of Nova Scotia, $3.5 million a day, what did that cost? What will that cost Nova Scotians each year to service? Does $70 million sound right?
MR. LEBLANC: We are just trying to work it out. I am looking at Schedule 19 and you are looking at Schedule 18. Schedule 19, of course, is the net direct debt for the last half. For ourselves, if you want to look at the debt servicing costs from year to year, is that what you are asking us to break down, the differential, or are you asking us the net direct debt increase overall, what that increased cost will be?
MR. DOWNE: Just from last year to this year, from March. The net debt of the province went up $1.3 billion. Am I correct?
MR. LEBLANC: Not direct debt, net debt did.
MR. DOWNE: So the net debt going up, what will that cost the taxpayers, that $1.3 billion?
MR. LEBLANC: There are two issues here, one of which is that the net debt goes from basically $10.1 billion to $11.3 billion. But the issue is that the actual borrowing has not increased by $1.3 billion. If you want to look at the difference in our debt servicing costs, the increase over our estimate, it is $71 million over and above what the forecast was. I can break that down for you, but your focus is that you want us to . . .
MR. DOWNE: In my comment, I rounded it off. It is around $70 million.
MR. LEBLANC: . . . that is correct.
MR. DOWNE: So the taxpayers of Nova Scotia are spending $70 million more servicing that $1.3 billion that you are responsible for?
MR. LEBLANC: Well, actually, there are some changes that are important for us to realize. Part of this is that NSRL's debt was brought on to the books of the province. So those interest charges that would have been paid in NSRL's operating statement now were paid out of debt services costs, so there was a transfer of expense from the line from Nova
Scotia Resources to the debt service charges of the province. That number was $13.9 million. There were accounting changes in regard to the leases and these would be P3 leases and also for schools that brought about changes. When you change from a lease to a capital purchase, then the interest shall be shown in debt service charges rather than lease payments. That is another $15.7 million, so we are up to $29.6 million. I am trying to give you a listing that will explain a lot of this $70 million.
MR. DOWNE: May I suggest to the minister that he could provide that information to me tomorrow so I can go on with the questioning.
MR. LEBLANC: I didn't hear your comment. I apologize.
MR. DOWNE: Can I suggest to the minister that maybe . . .
MR. LEBLANC: Okay, we will do that.
MR. DOWNE: Can you get that tomorrow and give me the breakdown of that then? I appreciate that and I can go on with some more questions.
MR. LEBLANC: Sure.
MR. DOWNE: You talked twice tonight about the P3. You mentioned six leases are put back on the books?
MR. LEBLANC: I know it is four or six. I am going to get the actual number. Staff are telling me that there are six that were originally considered to be operating leases, that, subsequently, through discussions with the Auditor General, had to be changed to a capital lease. That had an impact. I will ask the staff if I can get a listing of the schools so that maybe tomorrow when we get the reconciliation, I can give that too. It is no problem in getting that information.
MR. DOWNE: The same staff that worked on those leases, are those the early, early - I don't remember six that were in trouble. I remember the first one or two as problematic with the Auditor General and we had a verbal agreement from him that those were okay, but he later changed his mind and there were some questions about those, but the last four or five all met the requirements of the Auditor General. How come all of a sudden the Auditor General said they don't qualify? When I left the portfolio, they had all qualified.
MR. LEBLANC: They changed - PSAAB had brought in some new guidelines and that changed some of the criteria as to how they would be shown. That is what they are saying here.
MR. DOWNE: So you are telling me that PSAAB changes went retroactive to how he agreed to deal with these leases with the schools?
MR. LEBLANC: The answer is yes.
MR. DOWNE: What was his rationale for that?
MR. LEBLANC: It was basically PSAAB would come up with the criteria as to how an asset would be shown, whether it be shown as capital or whether it be shown as operating. There isn't a carte blanche that they give you ahead of time saying, can we be assured that this will be shown as a capital asset when we build it or shown as an operating lease when we build it? As such, when they were built, the Auditor General made the determination - we brought the information to him and this is the ruling that he gave us on how it should be shown. But I will get the list of schools for you.
MR. DOWNE: You are telling me that after the Auditor General had agreed, and in all the negotiations, in meetings with the Auditor General over these school leases that met all his criteria, that he is now saying that PSAAB came in, we are retroactively going back on those agreements and we are now going to be putting them in here in the debt of the province?
MR. LEBLANC: The staff is telling me that when the final numbers came in, the Auditor General looked at the information that was there, and said that under PSAAB, they would be considered to be capital. Actually, the deputy is telling me that the staff also agreed with that. The bottom line is this, whether or not it is a capital lease or an operating lease - and we could say that it doesn't show up on the net debt of the province - it is an obligation. The bottom line is, whether we don't show it here, it doesn't change the fact that the province owes the money. I go back to the point - disclosure is important and for ourselves, whatever leases that we have, it is important that people look at our province, understand not only the actual debt that we show on these statements, but also the other encumbrances are liabilities that we have entered into.
I think you would agree with me that no matter how you look at it, the bottom line is that the Province of Nova Scotia owes for those schools either one way or another. Either through an operating lease or they are going to owe it through showing it as a capital project and adding the debt directly to the province's debt.
MR. DOWNE: I am not arguing that point. Is this a cash flow issue? Does this take the $15 million away from the Department of Education's responsibility to fund that? Does that take away future liabilities to service the increased cost of P3 schools, whether it is P3 or private sector, through the tangible capital asset approach? Does that $15 million take pressure off a department or take the pressure off you in dealing with that?
MR. LEBLANC: No, it doesn't. What it does, it shows up as the debt rather than a lease which would show differently in the books. That is a differential that we are having here. It doesn't help the province have less expenditures, they are virtually the same whether they are an operating lease or whether or not they are a capital acquisition. The bottom line on the debt, they would show up as adding to it. Before they would not.
MR. DOWNE: Mr. Minister, as I understand that $15 million, it is really cash flow. We are talking cash flow here. You are talking about the difference between having a department come up with the cash flow requirements to service that, or it goes to the debt. Am I right on that?
MR. LEBLANC: No, Mr. Chairman, when you are looking at it, you had the lease payments basically including both principal and interest. Now what you are showing here is that you are having amortization and you are having the interest being shown in the service charges of the province. Before, that expenditure would have shown in the Department of Education as lease payments all together. The bottom line impact on the financial statements is not that different, but when you go to debt, it does change because the whole amount of these schools will be added to the debt of the province. Before, that number would not have been there. That is a differential.
MR. DOWNE: Mr. Minister, I bow to your background. Just for a little chicken farmer here, this just means that the cash flow capability is better for the department to not have to worry about that $15 million over their heads. You are just putting it directly to debt. I agree with you - it is all debt. I am not arguing that point. The issue here is cash flow. Am I mistaken? Is this a difference in how the cash flow requirements of a department will be managed?
Let's boil it down another way. Of those six schools, the Department of Education would have had to require additional money to service the payments on the leases. Am I right?
MR. LEBLANC: That is right.
MR. DOWNE: And now who services the payments on those leases?
MR. LEBLANC: The leases are being paid from government overall through the management of the debt, through cash flow. Through cash flow, but the cash flow was there, no matter what.
MR. DOWNE: It is being paid through borrowings by the government.
MR. LEBLANC: That is correct. It was being paid before by the borrowings of the government.
MR. DOWNE: But it is being paid by the borrowings of the government to add to the debt. In other words, in the Department of Education's budget. In the Department of Education's budget, there was a line that said debt servicing, P3 schools servicing.
MR. LEBLANC: I don't think it said it had lease payments prior to us taking government, I believe that is how it showed.
MR. DOWNE: Lease payments. Whatever you want to call it. That is not there anymore.
MR. LEBLANC: But if you look at Page 8.14, I don't know if you have all your books here, it talks about School Capital - Amortization. In here, this is on Page 8.14, Provision of amortization costs for schools and buses. If you notice here, the estimate was - do you have it there?
MR. DOWNE: No.
MR. LEBLANC: I can give you a copy of this.
MR. DOWNE: All I can find in here is John Hamm's picture about the new course of government - simpler, more open and more accountable blue book promises that I am finding disintegrating in front of my eyes as I listen to you.
MR. LEBLANC: But, in this you see where the amortization has increased. This is because of the fact that the leases are now shown as capital and they are being amortized in the Department of Education. This changes from where we were before, that we are showing lease payments for schools. They were very small in the first budget that I took because a lot of them were just being completed and the payments really hadn't started, I think you are aware of that. Really, it was just getting underway.
MR. DOWNE: I ran the numbers out. I know what the numbers are going to look like in three years from now, in five years from now. It is a huge number. You are going to have the same problem when they change it from capital assets. Wait until everybody figures out, the Minister of Transportation can figure out, gee, I can spend $100 million and only have to declare $10 million of that. (Interruptions) Well, how many years is the life cycle of asphalt? Is it ten years?
MR. LEBLANC: I am not sure. Anyway we are getting off on rabbit tracks here.
MR. DOWNE: Yes. You shouldn't do that to me. Anyway, you are going to have to deal with that issue.
In your numbers, if I recall in looking at the books, there is about $85 million more spent in capital. I forget the page. There is one page that shows the total capital spent and the other page shows what you are going to declare because of tangible capital assets. In other words, the depreciated value of what you spent. There is an $85 million differential if I am not mistaken, just going by recall. It is not exact - it could be $84 million, could be $85 million or $86 million, somewhere in that vicinity.
MR. CHAIRMAN: I wish to advise the committee - we have about five minutes left for tonight's allotment.
MR. LEBLANC: I don't see the number that you are referring to.
MR. DOWNE: If you subtract the two, minister. If you subtract the two you will find there is an $85 million differential. That $85 million differential is the actual capital that you spent versus the amount of capital that you declared.
MR. LEBLANC: All right, I see it now.
MR. DOWNE: I don't mind giving you lessons in this stuff.
MR. LEBLANC: It is good. Co-operation is better for all involved.
MR. DOWNE: You are doing all right for an old guy. You are catching on. You spent $85 million more, where does that show up again? That $85 million extra you spent? In the old accounting procedure, that would have showed that you would have had an operating deficit of $176 million - is that right? The answer is yes.
MR. LEBLANC: The answer is yes.
MR. DOWNE: But it does show up on the debt of the Province of Nova Scotia, that extra $85 million?
MR. LEBLANC: But it also shows up on the assets, but the answer is yes. These assets are now being carried on the province, that will be amortized, but the answer - it is an increase in borrowing.
MR. DOWNE: We have gone from off the book P3 leases and now because of PSAAB, we have dissolved that, crystallized it and rolled it directly to the debt, the payment structure on that per year. So, each and every year under the P3 leases, they are going to increase incrementally every year - right? Some were under construction, some were finalized construction, but they are going to increase every year?
MR. LEBLANC: I am pretty well done with the P3 leases, there is only one more lease in the next . . .
MR. DOWNE: One more lease and that lease will go on to the debt of the province? The cost of servicing that lease will go to the debt of the province?
MR. LEBLANC: It will depend on how that will be viewed by the Auditor General as to whether or not it is an operating lease or . . .
MR. DOWNE: Well, jeepers creepers, if he has already agreed that PSAAB had to change everything else . . .
MR. LEBLANC: It will go to capital.
MR. DOWNE: It will go to capital?
MR. LEBLANC: Yes.
MR. DOWNE: So, under the P3 leases, those are going now directly to debt, the payment structure on those leases are going directly to debt?
MR. LEBLANC: Yes.
MR. DOWNE: Under the capital, under the new way of dealing with capital, how is the differential of that being dealt with? In other words, you spent $185 million and you declared $100 million, but $85 million is not declared in the balance sheet of the province. Is the $85 million going directly to debt? Is that part of your debt growth?
MR. LEBLANC: Yes, it is. You look on Page A58, it shows that the $84.7 million is being added to debt.
MR. DOWNE: Your projections over the next two or three years show your debt growing each and every year. Are you planning even more expenditure in capital than what you really can afford?
MR. LEBLANC: Our projections are over a four year period. For ourselves, we have made some investments, especially with regard to both infrastructure and roads, we also have in schools. Those are two issues - they are the bulk, by far, of our capital construction. Two issues that we feel have to be made because of the consequences of not doing so.
MR. DOWNE: As I see it, the fact that we had to deal with those on a daily basis, as part of the balance sheet, it is a lot easier to wait, but you have yourself in a situation now where you can spend a fair amount of capital that doesn't show up in the balance sheet but
it goes directly to debt. That gives you a great window of going out and spending all you want on projects that the average Nova Scotian doesn't realize what is going on.
MR. CHAIRMAN: I would like to bring to the attention of the committee that the time has expired for today. We will reconvene tomorrow at approximately 1:45 p.m., shortly after Question Period. We will continue with the estimates of the Minister of Finance. If we should conclude with him tomorrow, I believe the next person up for the discussion will be the honourable Minister of Service Nova Scotia and Municipal Relations. Until that time, we stand adjourned.
[8:53 p.m. The subcommittee rose.]