HALIFAX, TUESDAY, APRIL 19, 2011

 

SUBCOMMITTEE OF THE WHOLE HOUSE ON SUPPLY

 

2:10 P.M.

 

CHAIRMAN

Mr. Clarrie MacKinnon

 

MR. CHAIRMAN: Minister, members, we will call the Subcommittee of the Whole House on Supply to order. We will be dealing with the Estimates of the Department of Finance, Resolution E8.

 

Resolution E8 - Resolved, that a sum not exceeding $36,007,000 be granted to the Lieutenant Governor to defray expenses in respect of the Department of Finance, pursuant to the Estimate, and the business plan of the Nova Scotia Power Finance Corporation be approved.

 

MR. CHAIRMAN: We appreciate having the minister and staff here this afternoon. Minister, perhaps you could begin by introducing staff and with your opening remarks.

 

HON. GRAHAM STEELE: Thank you very much, Mr. Chairman. It's my pleasure to be here today for the third time with the Estimates of the Department of Finance and related responsibilities. In fact, Mr. Chairman, I have considerably more resolutions than just Resolution E8 that you referred to, and that's going to be part of my opening statement, just to remind everyone on the committee what it is exactly that I'm responsible for in terms of estimates resolutions. I may have more of those than any other minister.

 

I'm joined today by Margaret MacDonald, the Deputy Minister of Finance, and although Margaret is a veteran civil servant holding increasingly senior positions, including Deputy Minister of the Treasury Board, this is her first time sitting at the table here as Deputy Minister of Finance during the estimates debate. So I sincerely hope she will not be disappointed. I've told her it's very, very exciting.

 

 

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I'm also joined by Joyce McDonald, the director of the Finance Corporate Services Unit. Joyce has been doing this far longer than I have, and is the veteran at the table today. I said this privately, and I'd like to say it publicly: the Estimates Books prepared by Joyce are works of art. If there was a hall of fame for Estimates Books, this would be in it. Every conceivable bit of information is beautifully and completely laid out. It's often a disappointment to Joyce that the questions don't come anywhere close to covering the material that she's prepared, so I really want to encourage all members to ask difficult, probing questions to make sure that we really challenge Joyce. There is an enormous amount of information within the binders that she has prepared.

 

So those are the two at the table with me, but I also want to introduce another novice to the process. Jean Myatt, behind me to my left, is a manager from the Finance Corporate Services Unit. This is part of Joyce's introduction to Jean of what this process looks like, what it feels like, because the day will come eventually when Jean will probably be sitting at a minister's left hand. Again, we don't want to disappoint her in terms of how the process unfolds.

 

Mr. Chairman, I do want to briefly review all of the units for which I'm responsible and also quickly go over the resolutions that I'm here to answer questions on. I do think it's important to go over them to provide a framework for the discussion that we're going to have amongst ourselves over the next few hours.

 

Although every government question at some level has a money element to it, I'm not here to defend every conceivable decision or program of the government, because that properly belongs to other ministers. I do want to go over the resolutions that I'm here with, because that will be the framework within which our discussion unfolds.

 

Of course, I'm responsible for the Department of Finance, which is Resolution E8, and the resolution asks for the sum of $36.007 million. There is a separate resolution for Debt Servicing Costs, which is a very large item in the provincial budget every year, regrettably - almost as large, though not quite, as the entire Department of Community Services. That is Resolution E9, and that is the sum of $885.485 million. That is the estimate for the next fiscal year.

 

I am also responsible for the resolution dealing with Government Contributions to Benefit Plans, and this year that is the sum of $8.719 million, Resolution E21. Next, I am responsible for the Nova Scotia Police Complaints Commissioner, Resolution E26, and this year that is the sum of $420,000. In case members are wondering why the Minister of Finance is responsible for that item, members will recall that that was transferred to me shortly after this government was sworn into office, as the Minister of Justice, who would normally be responsible for that, was involved as a witness at a matter before the board. Obviously it was felt to be more appropriate, with the Minister of Justice involved with that matter, that another minister be responsible. As soon as that matter is concluded, finally and completely, I anticipate that that particular responsibility will be transferred back to the Minister of Justice, where it properly belongs.

I'm also responsible for the Nova Scotia Securities Commission, which is an interesting story that we can get into later if it seems appropriate. We are in the midst now of a national discussion about the future of securities regulation, and it's an important discussion. Just last week an argument was heard before the Supreme Court of Canada on constitutional authority for securities regulation. Depending on that decision, when it comes out sometime in the next several months - or up to six or eight months, probably - that will decide whether in fact we continue at all with a provincial securities regulator. For the time being, I am responsible for it, and Resolution E27 requests the sum of $2.605 million in respect to the Nova Scotia Securities Commission.

 

I'm also responsible for the Nova Scotia Utility and Review Board, our premiere regulatory and decision-making tribunal. This year they are requesting the sum of $2.344 million under Resolution E28. In a few minutes I'm going to get into that a little bit more, because that is significantly less than they've asked for before and I want to explain why that is.

 

I'm also responsible for the budget item called Restructuring Costs, which is an interesting item. It's not allocated to any other ministry, so under the budget estimates it's the responsibility of the Minister of Finance. This year that is the sum of $111.019 million under Resolution E36. There is a separate resolution for tax credits and rebates for which I am responsible, and this year that amounts to $74.943 million. Resolution E38 is an amount for the so-called Pension Valuation Adjustment, which is quite possibly the most complex and difficult-to-explain line in the entire budget. I sincerely hope that no one will ask me about it. That is the sum of $31.761 million.

 

Resolution E39 is Capital Purchase Requirements. Of course, capital purchases are done by all the different departments, and the Department of Finance has really only a very, very small portion of the capital purchase requirements. We don't build things. We don't build roads and we don't build schools or hospitals or any of those things which people associate with capital purchase requirements, although we do have a number of government-wide computer systems that we run, and that does come under this. As Minister of Finance, I am responsible for the entire Capital Purchase Requirement in the estimates process, which this year is $477.895 million under Resolution E39.

 

There's another item, which I would be happy to explain if anyone is interested as part of the process, called Sinking Fund Instalments and Serial Retirements, and that is worth $61.923 million under Resolution E40. Finally, I would note that I have Resolution E42 for the business plan of the Halifax-Dartmouth Bridge Commission, for which I am the responsible minister, and Resolution E44 for the business plan of the Nova Scotia Liquor Corporation, for which I am also the responsible minister.

 

That's the framework of the estimates discussion we're going to have over the next number of hours. I now want to address some of these items in a little more detail. First of all, let me talk about the overall government budget. The important message, I think, is that we are on track. The plan that we laid down as part of last year's budget is working, and I'm very proud to say that a very important reason why it is working is because of the extensive public consultation process that we undertook both last year and this year. I don't need to go over the Back to Balance process that I undertook last year - the most extensive financial consultations in the province's history, and it has been discussed at some length - but even this year the pre-budget consultation was more extensive than any pre-budget consultation undertaken by any previous minister. I take this process very, very seriously.

 

We visited 13 communities. We had 15 separate stakeholder meetings. I believe the member for Kings West attended at least one of them; I can't remember if he attended two. I was very pleased to be able to go to places that I had never been before - sorry, I shouldn't say I've never before. Of course I had been before, but I had not been able to visit as part of the previous year's Back to Balance process. For example, in Berwick - did I do that right?

 

AN HON. MEMBER: Very well.

 

MR. STEELE: The member has been trying to teach me how to properly pronounce Berwick.

 

We had a joint meeting of three different Annapolis Valley chambers of commerce, which I thought was a great opportunity. Having the chance to have a dialogue with me brought them all together, which in itself is a good thing. I know the member for Kings North was there. The member for Kings South was there as well, and the member for Kings West. I thought it was a really good event at the large and beautiful Berwick Fire Hall.

 

Having a chance to meet other groups in the Annapolis Valley, to speak to a combined meeting of local rotary clubs, is not something that I had ever done before, and it was such a successful meeting. The Rotary Club is different from a chamber of commerce; there's some overlap, but really a different group of people, a really neat collection of people from different places and different walks of life. So that's an example of the kind of thing that we did this year.

 

We did 27 community media interviews, because it's very important to me to get out to talk to the smaller local radio stations and the smaller local newspapers, and I'm told we had more than 3,400 hits on the Back to Balance Web site. We are forecasting for the last fiscal year a surplus of $447 million, which I know has raised some discussion. I'd be happy to talk about that in the course of our debate this afternoon, because I think it has been a little difficult for people to understand how we could go from a projected deficit of $222 million when the budget was delivered on April 6, 2010, to a projected surplus of $447 million a year later. Of course, there are very good reasons. When you break it down and you look at each bit incrementally it makes perfect sense, but perhaps I can do more to explain that today.

 

The good news is that the size of the surplus means we don't have to borrow any money for our tangible capital assets. In fact, for only the seventh time in 50 years we have be able to reduce the absolute amount of net debt, and that, frankly, is good for everybody. The less debt we have, the less we pay in interest; the less we pay in interest, the more possibilities open up for doing good things.

 

Another example of how we know that our plan is working and that we are on track is that for the second time in a row departmental spending came in under the budget estimate. When we say that, it doesn't sound like much of an accomplishment, because when somebody is running a household budget or a business budget, you expect to come within budget, and if you go over budget, something is wrong, but the fact is this is the first time in 23 years that the government has spent within its budget - two years in a row.

 

I'm sure I don't have to remind people that that covers a lengthy period of Progressive Conservative Government, when they didn't do it, and a lengthy period of Liberal Government, when they didn't do it. In our first two years in office we did it, and I think it's because we have worked very hard at changing the mindset of government, particularly on the spending side.

 

Now, what the previous government had gotten into the unfortunate habit of doing, whenever they were running a surplus toward the end of the year, as they almost always were, was spending it - the so-called March madness. Sometimes there was an absolutely phenomenal amount of money spent in the last few weeks of the budget year. I think the total is - I have the information here, and we can get into it in some detail later if the members like - but something like, it averaged over the last 10 years $270 million in what's called additional appropriations - that is, spending over budget. One year it reached $408 million, whereas in 2010-11 it amounted to $28.6 million, and that is the grand total of all the departments that were over budget.

 

Now, of course, there were other departments that were under budget by more than that, so our overall spending was below the forecast, but this really is a sea change in the mindset within government: when budgets are underspent, they have to stay underspent. That is an important part of the reason why we were able to produce the results that we did.

 

In this budget, we're going to continue efforts to reduce and control government spending. I am fortunate enough to be a member of the Treasury Board, a committee of Cabinet which works very hard and meets very often, always behind the scenes. I don't think people know how often we meet or how long the meetings are or how difficult they sometimes are, but that is really the focal point of decision making within government about budgets, about the creation of budgets and spending authority. If I told you that there are at least some civil servants who refer to the Treasury Board as the "Dragon's Den," it gives you some idea of the mindset that we come to the table with and that we try to instill in the people coming in front of us: if they want to spend the people's money, they'd better be able to make a pretty good case to do it.

 

We're holding program spending to last year's levels. Program expenses are up in this budget, of course - $323 million - but that is entirely due to the reinstatement of university funding, which was absent from last year's budget - or almost absent, because I always have to point out the exception, which is the Nova Scotia Agricultural College. It is not a stand-alone institution, and therefore its budget is always part of the overall government budget.

 

Apart from funding for the Nova Scotia Agricultural College, funding for universities was entirely absent from the budget last year, so reinstating it explained entirely the increase in departmental spending. So as everybody knows, I think, the 2011-12 budget forecasts a deficit of $389.6 million, which is almost exactly where we thought we would be in the Back to Balance plan, which was $370 million.

 

I did want to point out to members - and I'm certainly happy to provide copies to any member who's interested - a report that came out from Standard & Poor's just last Friday. The title of the report is Canadian Provinces Face Tough Choices in Restoring Fiscal Balance. It's very good. Standard & Poor's, of course, is one of the well-known credit rating agencies. In fact, they caused a bit of market turmoil yesterday with a report on the U.S. budgetary problem, where they revised the outlook on U.S. debt from stable to negative. So when Standard & Poor's talk, people listen.

 

This report, I think, is a really good overall analysis of what is happening at the provincial level in Canada. The interesting thing is that what they describe applies to just about every province, with some exceptions, depending on the particular circumstances in the province. It is not correct to say that there is something unique about Nova Scotia's financial condition. It is not correct to say that the choices we have in front of us are different from other provinces. The fact is that almost all provinces are facing exactly the same difficulties and struggling with exactly the same choices as this government.

 

The economic highlights of the budget include the fact that we expect the economy to grow at a real rate of 1.9 per cent in 2011, and the same in 2012. Our population decline is more moderate than previously estimated. The Department of Finance has revised their population figures in line with more up-to-date data, and although there is still anticipated to be a climb, it's a little more moderate than previously estimated.

 

We still have an issue in the fact that there is an aging workforce that is expected to erode the labour supply in coming years, and that, as everyone knows, is one of our major challenges socially, financially, and economically. Canada's economic growth is forecast in our budget to grow in real terms by 2.6 per cent in 2011 and by 2.5 per cent in 2012. Most indicators on the national level have recovered to pre-recession levels. Canada is currently facing issues with low productivity and, as everybody knows, with a high currency.

 

It's one of the realities of our small, open economy that we are very subject to what happens elsewhere. One of the realities I've come to accept is that our economic performance depends very much on global conditions, particularly what is happening elsewhere in Canada, particularly Ontario. Ontario's economy depends on what is happening in the United States, and to a certain extent, the United States' economy depends on what is happening in other places, in emerging powers like China and India. Something like a change in the U.S. dollar exchange rate is entirely, 100 per cent, completely out of the control of the Nova Scotia Government, and yet a small change in the U.S. exchange rate can have a deeper impact on our economy than every single thing the government can do put together. That's simply the reality of who we are, where we are, the resources that we have, and what we do with them.

 

The same is also true of interest rates. A small change in interest rates will have more of an impact on the Nova Scotia economy than every single thing the Nova Scotia Government can do put together. For example, the housing market is fuelled at the moment by historically low interest rates. If those rates go up, there is nothing that the Nova Scotia Government can do to make much of a dent in the slowdown that would result. Fortunately, we do not anticipate interest rates going up very sharply, certainly in the short term, although inevitably they will go up in the medium term.

 

Believe it or not, we are also affected directly by global economic conditions. Sometimes some of these things that we see in the news may seem distant, but they're not. Things that are happening in Greece, Portugal, Spain, Ireland, all of these problems in the Eurozone, they do affect Nova Scotia because they affect our borrowing costs. We borrow a great deal of money and so the interest rates that we pay make a big difference in our bottom line, and problems on the world money markets do directly affect Nova Scotia and our cost of borrowing.

 

It can be positive or it can be negative. For example, if investors are looking for a safe haven, they might come to Canada or, conversely, they might go somewhere else. When people's confidence is shaken, these international investors who have a great deal of money that can flow easily from one place to another - if things are rough in Greece, say, or Spain, they might make the decision to flee to safety by buying U.S. Treasury bonds and leaving us. Oddly, even though we're a safe investment, our cost of borrowing goes up - or the opposite can happen, where they're looking for a place to invest, so they come to us because we have such a great record of repaying our bonds on time.

 

When I say "we," I don't mean just Nova Scotia. I mean all Canadian provinces. This is part of the reason why it matters so much to Nova Scotia what is happening even in the other Canadian provinces. Any problem with another Canadian province, any default, would have a devastating effect on our capacity to borrow, because international investors lump us all in together. If they see a problem in one province they'll say that means all Canadian provinces are risky, even though we may not be.

 

There are other things going on. We don't yet know the impact of the disasters in Japan and the impact on world financial markets. There is renewed demand from developing countries, which may be good depending on what products are being bought. The U.S. recovery appears to be solidifying, but the outlook is fragile. In fact, I referred already to the fact that Standard & Poor's - they didn't downgrade U.S. debt yesterday. We need to be precise about our language. What they did was revise the outlook from stable to negative, which is not the same thing as a downgrade. Even that caused some turmoil in the markets. S&P was simply saying out loud what has been said behind the scenes for a long time, which is that the U.S. national, state, and municipal financial system is unsustainable. It cannot continue as it presently is. They are running enormous deficits with no clear plan forward, and that simply cannot be sustained.

 

Those are some of the national and international issues that we're facing, which is what makes forecasting so difficult. As we come out of recession, we try to look ahead and say, what's in the year ahead? It's very difficult to do that, because there's a considerable amount of turmoil.

 

If you look even at today's inflation figures - which came up during Question Period today - as our folks did at the Department of Finance, there's one reason why Nova Scotia has a high inflation rate, and that is the cost of heating oil. Nova Scotia has a very high percentage of homes that are heated by oil. It's over 60 per cent. The only province with a higher percentage is Prince Edward Island. Out West it's almost all natural gas. I grew up in the West, and ever since I was little, my home was heated with natural gas. To me that was how you heated your home. Interestingly, at the same time that home heating oil is going up in price, natural gas is going down in price, so what province has the lowest inflation rate in the country? Alberta. Why? Because natural gas prices are going down.

 

Our people rely so much on heating fuel, and the price is going up. Once you take heating oil out of the inflation statistics, our inflation rate is exactly at the national average - it's lower than Ontario - but it's the heating oil that's driving it. Why is the price of heating oil going up? In indirect ways it has to do with the turmoil in the Middle East, the turmoil in Libya and in the other oil-producing countries in that area, and the uncertainty around the future in that area. Those events that we see in our news and we say, that seems very far away - but it affects us. It affects us in ways that are very difficult to predict.

 

No doubt when we get into the questions and answers we can talk a little bit about forecasting, but I think members have to be a little realistic about the fact that a budget is a prediction; a prediction is a forecast. None of us have the gift of seeing the future, so we do the best we can with the information we have. The only thing you know about a forecast is that it's going to be wrong. The question is, how wrong is it going to be and why is it going to be wrong?

 

There is no weather forecaster in the world who can tell you what the weather is going to be like every day for the next year. There is hardly anybody who would say who's going to win the Stanley Cup not just this year but next year, and who's going to be in the final, how many games is it going to go, what's the score going to be, who's going to score the goals, who's going to get the assists? It's crazy. Nobody can predict that stuff, and if you tried, you'd be wrong. The only question is, how wrong would you be?

 

When I hear members on the other side talking about a forecast error and saying, that's a mistake, it's a $0.5 billion mistake - come on, it's a forecast. It depends on things like the international price of oil a year from now. What's the price of gas going to be? What are interest rates going to be? What's the foreign exchange going to be? Nobody knows those things. You do your best, and sometimes you don't get it right. Take another thing, like prior years' adjustments from the federal government. I defy anyone to forecast what that's going to be in 2011-12. I defy anyone. You can throw out a number and it would be just a wild guess.

 

So from an accounting point of view, we put it down as zero. Is there likely to be a prior year's adjustment? Yes. Is it likely to be positive? Probably, but we don't know for sure. It could be negative; it has been negative in the past. What size is it going to be? Nobody has any idea. Then some people in the Opposition say, oh, it's a mistake.

 

It's a forecast and there's no way of knowing what it's going to be. It's no different than when the Progressive Conservatives were in government or the Liberals were in government. The NDP is in government - there is no way of knowing that in advance, what the prior year's adjustment is going to be. Anyway, we can get into that a little bit later.

 

Let's talk, then, about the Department of Finance. I, of course - as all people are when they become ministers, you get to know on the inside things that you only barely glimpsed when you were on the outside. I'm very impressed by a group of very talented and professional public servants. I'm not sure the public knows all the time just how much work there is. Sometimes some people in the public like to talk about a stereotype of the "fat cat" civil servant walking around downtown Halifax and how they get paid way too much and don't do very much. I'm sure they're out there; I just haven't met them yet.

 

I certainly haven't found them in the Department of Finance, because people just work their guts out there. You should see the Department of Finance around budget time: people working all the time, getting stuff ready, making sure everything is checked and as perfect as it can be. Many of them, of course, are also working, trying to follow professional standards - the accountants all have professional standards, the auditors have their professional standards. They're working hard for the people of the province, following professional standards. I'm really very proud to be associated with them.

 

The department's statement of mandate - what is it the department sees itself as doing? Well, we do the following things. This is in the statement of mandate - this hasn't changed since I became the minister, so the fundamentals are the same as they always were. It includes:

 

". . . administering the fiscal framework and financial controls of the Province, and providing meaningful, transparent reporting, including the provincial budget, forecasts and Public Accounts.

 

The Department assesses and delivers fiscal and economic policy advice on the strategic value of government initiatives, regulates select financial institutions and provides policy oversight to the securities sector. The Department also provides support to all of government through the delivery of statistics, centralized and corporate shared services."

 

The budget of the Department of Finance, narrowly speaking, is this year estimated to be $36.007 million. That compares to an estimate for last year of $33.870 million and the forecast for 2010-11 of $31.860 million. The difference between the estimate and the forecast in last year's budget was due to salary and operational savings and reduced amortization due to delayed project completion. This year the reason why the estimate is $2.1 million more than last year's estimate is due almost entirely to increased amortization on capital projects - which I can get into in more detail if the members wish - increased wages, and increased hardware maintenance costs.

 

We believe we in the Department of Finance are doing our part to bring the province back to balance: $193,000 was reduced from operational budgets, and the complement of full-time equivalent staff was reduced by 5.4.

 

Turning now to the Nova Scotia Liquor Corporation, I have to say it has been a real pleasure being associated with what I think is a very strong management team at the Liquor Corporation. This organization functions very, very well. It is not the organization that it was 10 or 20 years ago, a highly-politicized and relatively non-professional organization which delivered its services at the whim of government. This is an organization that has transformed itself over the last 10 years, and giving credit where credit is due - which I always try to do - this transformation started under the previous government. It was very well underway by the time I came in, so I can take hardly any credit for what's going on there, other than the fact that I think I made a particularly excellent appointment as the new chair of the board.

 

Of course, the previous chair is a lovely man, well known to everybody here, I think. Peter McCreath served diligently for 10 years, and we all thank him for that. I think it was a little funny, though, at his retirement party - he never anticipated when he started that the farewell would be given by an NDP minister. I just don't think he saw that coming. His congratulatory certificate is signed by an NDP Premier and an NDP Minister of Finance, but he took it all in good cheer. We thank Peter very, very much for his service, because it was under his chairing that the organization started its transformation.

 

I'd like to take credit for appointing a truly excellent chair to take Peter's place. Her name is Sherry Porter, and she's brought a tremendous amount of ability and experience to that table. She herself had a career at the national level in the retail industry. She has a wide network of contacts and is just a very, very strong chair, and I think is working wonderfully with the board. For the information of members, the Deputy Minister of Finance sits as an ex officio member of the board, so I have that window into the board as well. By all accounts Sherry is doing a fantastic job. She is the first female chair of the board, other than a civil servant who held the position on an interim basis when the corporation was first created. I think it's a wonderful thing.

 

Also there and particularly strong is the president and chief executive officer, Bret Mitchell, who has recently renewed his contract for another five-year term. Although Bret is a very modest fellow, I think a great deal of the credit for the transformation of the organization belongs to him. He is a professional retailer. Retail is his business; retail he knows extremely well, and he has brought his experience at other national retail organizations to the Liquor Corporation and has transformed it. One of the things that I love hearing is when people say to me, we love our store, the people in it are knowledgeable; they're helpful. Everybody really likes the way the Liquor Corporation works and feels these days, so it's a well-functioning organization.

 

The mandate of the organization is to manage the receipt, distribution, and control of beverage alcohol in Nova Scotia in a way that ensures safe and responsible consumption by Nova Scotians of legal drinking age. This is a very interesting part of their mandate. They have this dual mandate of, yes, selling liquor and of earning a good return for the province, but also of safe and responsible consumption. They have to always have those two things in mind at the same time, and that's not always easy.

 

The 2011-12 budget of the Liquor Corporation reflects an anticipated net operating income of $228.1 million. That is money that goes straight to the province's bottom line and helps to fund all of the important services that we provide in health, education, social services, and roads. Their key priorities for 2011-12 are enhancing personalized customer service, improving the efficiency and effectiveness of processes and controls, continuing support for an enthusiastic and engaged workforce, and building the Liquor Corporation's reputation as a leading corporate citizen by reducing energy consumption and enhancing responsible retailing programs.

 

To that I would add that our government has also asked them to explore in detail opportunities for efficiencies and co-operation with other liquor agencies in Atlantic Canada. When you get right down to it, the Atlantic Provinces are each fairly small and there is no reason why we should not be taking advantage of all opportunities for efficiency in order to improve service and lower costs.

 

I'm also responsible, as I mentioned before, for the Halifax-Dartmouth Bridge Commission, but I don't want to dwell on that too much. Their mandate is to operate and provide safe, efficient, and reliable transportation across the two Halifax Harbour bridges at a reasonable cost. There was, of course, recently a toll increase, which will provide this particular year an increase in revenue of $3.2 million, but really, all of that new revenue - all of it - is going to build up funds toward significant structural work on the Macdonald Bridge that is anticipated to start, if I remember correctly, in 2015. That bridge, which came into operation in - I believe it was 1956; it was either 1955 or 1956 - is now at the age where if it's going to last another 50-plus years, it simply needs to be extensively renewed. So there's going to be very significant work on the Macdonald Bridge starting in 2015, and they have to build up their reserves in order to pay for that.

 

Similarly, extensive work is anticipated for the MacKay Bridge, which I believe opened in either 1970 or 1971. That's not anticipated until 2025-26, but again, that's going to be very extensive and very expensive work. It is necessary work to keep the bridges safe and to make sure they can continue to function for another 50 years.

 

Another agency that I haven't mentioned yet because I don't have a specific resolution for it is the Nova Scotia Pension Agency, for which I'm also responsible. The mission is to provide independent pension administration and investment services to trustees of the Teachers' Pension Plan, the Public Service Superannuation Plan, the Members of the Legislative Assembly Pension Plan, and the Sydney Steel Corporation Superannuation Fund. Annual operating expenditures are funded by administrative recoveries from the pension plans, and therefore, have no direct impact on the provincial budget estimates, which is why there is no estimate for the Pension Agency per se.

 

The 2011-12 business plan of the Pension Agency has not yet been released, although I know that I've seen it and I believe I have approved it, but the business plan is expected to be published on the agency Web site in late April 2011. We're already at mid- to-late April, so that will be up and available anytime.

 

The Nova Scotia Securities Commission's mandate is to provide investors with protection from practices and activities that tend to undermine investor confidence in the fairness and efficiency of capital markets and, to the extent not inconsistent with an adequate level of investor protection, to foster the process of capital formation. The total revenues this year are $13.4 million - $3.8 million from registration fees and $9.6 million from filing fees. The total expenses are $2.6 million, consisting of $800,000 in operating expenses as well as $1.8 million in salaries for 21 full-time equivalent staff. So the net contribution to provincial revenue is $10.8 million.

 

Earlier I alluded to the fact that we were in a state of flux with respect to securities regulation. The federal government has proposed the establishment of a national securities regulator, we being the only country in the G7 without a national securities regulator, and there's some question whether this is, in fact, constitutional under the Canadian Constitution. Some provinces are vigorously opposing the federal government's attempt to establish a national securities regulator, in particular Alberta and Quebec. Other provinces are opposing it sometimes only because they believe that if the federal government is allowed to establish a national securities regulator, it will open the door to establish other things the provinces don't want to lose control of, and so they oppose it more because they see the whole thing as a bit of a Trojan Horse than because they're opposed to the idea of a national securities regulator in principle.

 

Nova Scotia's position, our government's position, is that we support the establishment of a national securities regulator. We have - and this is from before I was sworn in as minister - laid down five conditions which we think are reasonable conditions and which we hope will someday be met.

 

The five conditions are, first, that the federal government must recognize concurrent provincial jurisdiction - in other words, they must not assert exclusive federal jurisdiction. Second, the scheme must accommodate any non-participating province. Third, the scheme must accommodate small local initiatives like Nova Scotia's CEDIFs - Community Economic Development Investment Funds - which have been a remarkable success - the most prominent one in Nova Scotia being the Just Us! coffee roasters in the Valley.

 

We have asked - the fourth condition - that there be a local office of equivalent size and with equivalent employment as the Nova Scotia Securities Commission. And finally, compensation for lost revenue - because as I mentioned, the Nova Scotia Securities Commission represents revenue to us of $10.8 million a year. If we're going to give that up to the federal government, we expect to receive suitable compensation. The federal government has offered compensation to the province, but an amount so small we did not think it appropriate. We didn't think it was fair compensation for the loss of that jurisdiction.

 

Finally, I want to say a few words about the Utility and Review Board, which is another area of my responsibility. The primary role of the board is to conduct hearings and issue written decisions on matters affecting the public interest, including individual rights of appeal under the board's area of jurisdiction. The operating grant from the province is $2.344 million and their total revenue is $5.9 million.

 

The major change from last year is that the entire motor carrier division has been transferred from the Utility and Review Board to the Department of Transportation and Infrastructure Renewal. Why an operational department like motor vehicle inspection was ever made part of a regulatory tribunal is beyond me. It just doesn't belong there. It just doesn't fit, especially when TIR is already doing similar functions in a different context. That whole division, the motor vehicle inspection mechanics - for want of a better term I'll call them "mechanics" - are simply being transferred over to TIR. Same number of people, same terms of employment, but that means that the URB's budget is going down by $1.575 million this year. It's explained simply by the fact that it makes much more sense for those folks to be under TIR than under a regulatory tribunal.

 

One thing that I often have to point out to people is that it is not my role as minister to answer for the URB's decisions. As Minister responsible for the Utility and Review Board Act, I'm responsible for their budget, to make sure the board is properly administered, and that any process issues or administrative issues are brought to my attention. That does not make me the minister responsible for Nova Scotia Power rate increases, which is one of the jurisdictions of the board. That is an entirely separate matter, so all substantive questions go to the appropriate minister - say, Nova Scotia Power and rates would go to the Minister of Energy. As the Minister responsible for the Utility and Review Board Act, I'm really responsible only for administration.

 

With that overview of my resolutions, my areas of responsibility, and a few words on that, that concludes my opening statement.

 

MR. CHAIRMAN: Thank you very much, minister. The minister began his remarks at 2:13 p.m. and it is now 2:58 p.m. The Liberal caucus will begin at 2:58 p.m. and go until 3:58 p.m.

 

I would like to say that at the end of the process we're going to have to allow a bit of time for the resolutions, because it's my understanding that there are about a dozen of them. That's something we should keep in mind for later this evening or tomorrow.

 

The honourable member for Kings West.

 

MR. LEO GLAVINE: Thank you to the minister, and also to Margaret, Joyce, and Jean for being here as part of the process of questioning on the estimates. I also wish to thank the minister for occasions throughout the past year when he did brief and provide pertinent information on issues as they developed through the last year.

 

One of the areas that did receive a lot of public attention was the adjustments, when we take a look at prior years' adjustments. I had some questions around what actually made up the adjustments. Is it strictly transfers to the province from the federal government? Is it a delay process in providing funding on the social transfer? What is it that makes up the prior adjustments? I know that was one of the questions I received, and I actually couldn't give a full measure of information.

 

I was wondering if the minister could start there, because this year too, it was - and rightly so, as the minister has explained - very difficult to be able to give any kind of an estimate at all. However, it was considerable this year, so I was wondering if you would provide some basic information on that.

 

MR. STEELE: The prior years' adjustments are a part of the ongoing, constant evaluation process undertaken by the Canada Revenue Agency to ensure that provinces receive the correct amounts of money under the varied and complex federal-provincial fiscal relations. Also the fact that it's the Canada Revenue Agency that collects the money on our behalf - we don't, for example, collect income tax. It goes to CRA. We don't collect HST; it goes to CRA. The process by which they calculate how much money they've taken in and who it belongs to is a very, very, very complex process, and it actually goes on for a number of years.

 

The prior years' adjustments represent time-lagged reassessment by CRA based on new data that they've received about each province's share of the national revenue pool. The prior years' adjustments really have nothing whatsoever to do with the current fiscal years. For example, you receive a PYA in 2010-11, and by definition it has nothing to do with 2010-11. It has to do with CRA's recalculations under previous years as they get new data and new revenue, bearing in mind things like, unless you owe money to the federal government, there's no requirement that you actually file your income tax return by any particular time, so they're constantly getting new and revised income tax returns.

 

This leads to a dilemma, which is, how do you know in any given year what the PYA is going to be? This leads to lots of questions. Some of these I used to ask in Opposition, and believe me, I've asked them since becoming the minister. The first question is - and this is where I get in trouble with the accountants, because I start arguing with them and saying that doesn't make any sense. Then they pat me on the head and say, those are the rules, minister.

 

First question is, if it's attributable to a previous year, why don't you just change the results from the previous year? Why do you have to take this money from past years and apply it to the current year? The answer in a nutshell, as I understand it, is that once a year is closed and the accounts are done, the year is closed. You get the money, you receive the money, but you're not allowed to then redo the figures for the previous year. So you have to take it in the current year, even though it's got nothing to do with the current year. That's the first thing; that's the accounting rules.

 

I'm a lawyer. I understand legal rules and I know why lawyers do what they do, but then the accountants say, well, these are the rules; this is how accounting is done, and if we did it any other way we'd be breaking the accounting rules. Okay, I understand that. You don't want to violate the professional standards. Even though it has absolutely nothing to do with 2010-11, you have to take the revenue in 2010-11.

 

Second question is, all right, why can't you budget for it? Why does every year start at zero? This is a question I used to ask when I was in Opposition. I used to sit over there and I'd look at these PYAs, as they're called, and I'd say, but you get one of these every year. Maybe you don't know exactly how much it is, but you know it's going to be something, so why is it treated every year like manna from heaven, rescuing the government's books?

 

The answer I got then is the same answer I get now when I ask the same question as minister, because of course this concerns me. The answer is, you don't know for sure that you're going to get a PYA. You just don't know. You probably will, but you don't know for sure. From an accounting point of view you're not allowed to put an amount down as a prediction, a forecast, of what it's going to be, because you don't know if there's going to be one. There might not be one. It might be negative; occasionally it's negative.

 

When we did the forecast update in December - how far back does that go? I know we did 10 previous years. You don't happen to have that, do you, Joyce? No? It doesn't matter. (Interruption)

 

Anyway, you don't know for sure if there's going to be one; it might be negative; and even if you assume that you're going to get a PYA - and from an accounting point of view you have absolutely no basis for assuming you're going to get a PYA - you have no idea what it's going to be.

 

Now, the last few years have been relatively small, so when toward the end of the fiscal year the news came in that the PYAs were going to be - what was it, Joyce? Around $196 million, something like that? This came as a pleasant surprise, but from an accounting point of view there was absolutely no way of predicting that. CRA just says, here's the number. You take the number, and that's the way PYAs work. So when people say - as some people do - oh, you're cooking the books, you're making up numbers, it's like, what do you want me to do? That's the way PYAs work.

 

If I did it any other way, I would be breaking the accounting rules. The Auditor General wouldn't let me do it. In fact, it's worth reminding people that the Auditor General reviews the province's revenue forecast every year. Now, he says - as he's right to say - that's no guarantee that the forecast is going to turn out to be true, but he examines the assumptions for reasonableness, he makes sure that the estimates are based on the assumptions, and he says that the revenue forecast follows professional standards. It's like having somebody review a weather forecaster's forecast and say, yes, you followed all the principles of meteorology, but that's no guarantee that it's actually going to turn out that way.

 

So the only correct thing to do from an accounting point of view is to start the budget year at zero and wait to see what happens. If you said to me, do I expect a PYA in 2011-12, I would say, yes, probably. If you said to me, well, how much is it going to be? I would say I have no idea. That's why in the 2011-12 budget, once again, the forecast for PYAs is zero.

 

MR. GLAVINE: Thank you. That was, I guess, some degree of enlightenment as to how we arrive here. I appreciate, minister, that it is a complex issue in terms of what amount and so on is handed to the province each year - or not handed, as you mentioned - or in a couple of years.

 

Looking at a little bit of clarification on some numbers is where I'm starting out. The prior year's adjustment was just an intriguing part of the budget.

 

What was formerly reported in the last two publications of the Estimates Books, Payroll Processing Services, has been rolled into Government Accounting Services. So I'm wondering if you could provide FTE figures for the following to reflect the restructuring of the divisions or the units: senior management, associate deputy minister and controller, policy and planning, corporate services unit, and the fiscal economic policy. They've now gone into government accounting, so what will be the full-time equivalents to run those units?

 

MR. STEELE: I'm sorry, I'm having trouble following your question. I don't know what you mean by "it has been rolled into Government Accounting Services."

MR. GLAVINE: Well, these five were now moved into - as opposed to Payroll Processing Services, they come under a larger payroll, or Government Accounting Services.

 

MR. STEELE: The only change is that payroll clerks from around government have been consolidated in the Department of Finance for payroll processing. So I follow you that far, okay, but then you went from there to a bunch of other divisions which really have had no change.

 

MR. GLAVINE: No change.

 

MR. STEELE: No change, and have nothing to do with the changes in payroll.

 

MR. GLAVINE: Okay. That's my misunderstanding. Thank you. On the forecast of 2010 to estimate 2011 basis, Finance is projected to grow by a large amount compared to other departments - 13.01 per cent. Why is there such a growth estimate for this year, since that is based on plans and projects and some internal changes? I was wondering what that will reflect.

 

MR. STEELE: A most excellent question, which I am pleased to provide - although some of it gets a little technical. I want all members to remember as we're going through this that the FTE count in the Department of Finance is actually going down in 2011-12.

 

The difference between estimate to estimate is as follows. The main one, accounting for $1.3 million of the difference, is an increase in amortization on approved tangible capital asset projects. People listening might say, what did he just say? It has to do with the fact there have been significant upgrades to the government-wide SAP system. Most of the money in the Department of Finance is actually spent on these corporate computer systems. We run them, and we run them not just for the Province of Nova Scotia but for school boards and a number of municipalities. I think they're getting rolled out to district health authorities, if they haven't been already.

 

These are huge computer systems, and it provides standardized financial information, and a great deal more and better information than we've ever had before, but they cost money. Every time you upgrade these things, it costs. All of that falls under the Department of Finance. So although we're not increasing the head count, because we've spent some money on these computer systems, the amortization shows up on the books of the Department of Finance. That's $1.3 million of the change.

 

There is $828,000 that is the 1 per cent pay increases for 2010-11 and 2011-12; $600,000 is an increase in hardware maintenance costs from Oracle. This is an annoyance, but one of our service providers that basically has a stranglehold on us said, sorry, but our prices are going up. Although there was a fair amount of handwringing in the Department of Finance, we concluded that we really didn't have an alternative. There was nowhere else to go. Oracle essentially has a captive audience. They're having financial troubles of their own, so they decided to wring more money out of their customers. They're charging us $600,000 more than they did the previous year.

 

The rest are all very minor things. The deleted positions are worth a savings of $508,000, the decrease in operating costs for approved capital projects is $209,000, and further operating cost reductions of $193,000. When you put all of those things together you get the difference to which you referred.

 

MR. GLAVINE: I was asking the question because there may be a bit of confusion around 10 per cent overall, which obviously would include the full-time equivalents, and you say they are going down. Have you expanded the services? I thought there was a directive to cut spending by 10 per cent, yet this department could go up as high as a 13 per cent increase.

 

MR. STEELE: There was no directive to cut budgets by 10 per cent. Every department was asked to develop a scenario for a 5 per cent reduction in operating spending and a 10 per cent reduction in operating spending, except for the Department of Health and Wellness. All units did that, but off the top of my head I can't think of even one where the 10 per cent scenario was accepted.

 

So you started with a base that was reduced by 5 per cent, but then things would get added on top of that. Essentially, what happened was each department started with a new base and then had to justify any increases. By far, the biggest cost increase in the Department of Finance isn't a cash cost at all; it's an amortization expense, which is not literally like the paying out of $1.3 million, but if you're going to spend this money on tangible capital assets, it goes without saying you've got to take the amortization on the books, so this was one of the add-backs. That's how the Department of Finance ends up with a bigger budget, but it is emphatically not as a result of having more people.

 

MR. GLAVINE: Thank you for that explanation. One of the biggest increases will still be in salaries and benefits. In last year's budget, you were forecasting to come in under an estimate of 12 per cent, yet salaries are still estimated to grow in this year. On a forecast 2010 to estimate 2011 basis, this growth looks like it's projected to be 18.34 per cent. That is growth in salaries and benefits of $3.291 million over what was spent in last year's budget. Is that the degree of increase as projected from forecast to estimate?

 

MR. STEELE: I don't quite follow you now. You gave a number - 18.3 per cent. Maybe you could just explain how you arrived at that.

 

MR. GLAVINE: Yes. Looking at the forecast 2011 to estimate 2011 basis, the growth is projected to be 18.34 per cent. That's salaries and benefits.

 

MR. STEELE: We get into this question that's come out. It's not really a fair comparison. It's really kind of apples and oranges to compare forecast to estimate. The better comparison is estimate to estimate, and I'll tell you why, if I could just find the stuff on FTEs.

 

Something the member has to bear in mind is that the net estimate of FTEs for 2010-11 was 243. The net estimate for FTEs in 2011-12 is 238, so 5.4 positions have been deleted. Now, it so happens that in the snapshot taken at the end of 2010-11 there were 292 people actually working, but that's not at all the same as authorized positions. The difference is entirely due to turnover - normal staff turnover throughout the department. Some people stay there for a very long time. There are other units where there is turnover; particularly in the computer area and the payroll area, there's just a lot of turnover. It's not really a fair comparison to take the number, the snapshot at the end of the year, and say, okay, that's the new base. That's not the base.

 

I knew this question would come up, and I was trying to think of a good analogy, but it's really hard to think of one. Maybe because the NHL playoffs are on, the only one I could think of was a hockey analogy. Let's suppose there are 20 players allowed on a team. That's the league's maximum number of players on a team. If you take a snapshot of a team at any given time, some people will be out on injury, some people will have been traded and their replacement hasn't come back; there are all kinds of reasons why there's not literally a person in that slot, but the permitted limit hasn't changed. If the league says, okay, we're going to change so that the permitted limit is now 19 or 18, then you've got a real change in staffing, but it's not really fair for anyone to compare the authorized and funded limit to the number of people actually in the building on a given day, because there are a lot of reasons why there's somebody not in the building on that day.

 

Correspondingly, that's why it's not particularly helpful for any of us to compare the salary and employee benefits under the forecast line with the estimate, for exactly that reason. Probably the better comparison is the estimate to estimate, and I already explained why that has gone up. Again, it's not because there are more people. It's just that the people who are there are getting paid a little bit more.

 

MR. GLAVINE: Thank you for taking a look and drilling down a little bit further on full-time equivalents and the forecast and, as you cautioned, taking a comparison on the estimate.

 

With that being said, over the three budgets presented by the NDP, salaries and benefits have grown by over 30 per cent to $5.833 million, based on the 2009 forecast to a current estimate. Is the Department of Finance taking on additional work? You had mentioned the payroll of district health authorities and possibly now moving to school boards. Has some of that picked up considerable costs, if not measured in full-time equivalents, but in terms of requirements to actually execute that additional work?

 

MR. STEELE: No, and for the reasons I just finished outlining, it's not reasonable to compare the forecast to the estimate and then produce a figure like 30 per cent and say, under the NDP the costs have gone up by 30 per cent. You can compare apples to oranges if you want to, but it doesn't get us very far.

 

Here are precisely the changes in the complement at the Department of Finance. There has been a reduction of a senior policy analyst, 1.0 FTE in the Economics and Statistics Division. There has been the reduction of one payroll consultant, 1.0 FTE in Payroll and Client Relations. We have cut a human resources development consultant, 1.0 FTE in Policy and Planning. We have cut a Secretary II position, 1.0 FTE in Government Accounting. Also in Government Accounting, we have dropped a program analyst position, 1.0 FTE. Finally, in the division called Advisory Services, we have dropped a 0.4 FTE senior policy analyst.

 

There has been a further 1.0 FTE reduction in a tangible capital asset operating position, a computer services officer, and against that there have been two transfers in. One full-time equivalent transferred from the Public Service Commission to Internal Audit and one full-time equivalent transferred from the Speaker's Office to Payroll Client Relations. When you add all of those together, you get the totals that I referred to. So those are the true, actual changes in the complement, and it is less than the year before.

 

MR. GLAVINE: Taking a look at taxation and fiscal policy, which is expected to increase by 14.37 per cent this year based on the estimate, and if we compare it to last year's 2010 actual forecast, and if, as you suggest, moving it from estimate to estimate basis - there's an increase of nearly 7 per cent from 2010 to 2011 - 6.48 per cent, actually. What would account for that particular increase?

 

MR. STEELE: Just before I attempt an answer, you were using some numbers and I wasn't on the right page. I wonder if you - just to make sure we're talking about the same page . . .

 

MR. GLAVINE: Taxation and Fiscal Policy.

 

MR. STEELE: What page are you on?

 

MR. GLAVINE: I'm sorry, I haven't put a page on this particular item.

 

MR. STEELE: Okay, what two numbers are you comparing?

 

MR. GLAVINE: We're comparing from estimate to estimate - actually, there's an increase of 6.48 per cent from 2010 to 2011.

 

MR. STEELE: Do you know which numbers you're comparing to get that?

 

MR. GLAVINE: I was looking at some of the percentage increases, so I didn't put in actual numbers, which is a good reminder.

 

MR. STEELE: I think I know which ones you're referring to. For other members who are avidly following along, I think we're on Page 11.5 of the supplementary estimates. I think we're looking at the 2010-11 estimate at $1,928,000 and the 2011-12 estimate of $2.053 million. Just doing the math in my head, it looks like it's probably around - okay, those are the numbers that you're talking about. The percentage works out exactly.

 

Now that I'm sure that I know what we're referring to, the reason for the increase - $75,000 of the increase is due to the 1 per cent pay increases for 2010-11 and 2011-12. It is actually two years of increases, because there wasn't an increase the year before. It wasn't implemented in time to be on last year's books, and so it's essentially two years of increase in one, which makes it look twice as large as it actually is. Then $50,000 was an increase in the administration fee payable to Canada Revenue Agency for processing personal federal tax returns and tax credits. Regrettably, CRA does not work for nothing. They asked us for more money this year, and that happens to be the budget line where it's added.

 

MR. GLAVINE: Moving in a different direction, with regard to taking off the provincial portion of the tax paid by seniors on GIS, I'm wondering why it was organized this way, since seniors are still paying their taxes in full and then they'll wait for a cheque from the province.

 

MR. STEELE: That's a really good question. I'm not sure I have the entire answer, but let me tell you what I know. When we introduced our budget on April 6, 2010, we had in place the concept that it's not reasonable, in our view, that a senior whose income is low enough to be receiving the Guaranteed Income Supplement should also be paying provincial income tax. So the concept was that we would simply ensure that those people did not pay any provincial income tax.

 

We began our discussions with the Canada Revenue Agency, which actually administers this on our behalf, and there is a tax collection agreement with CRA - a very lengthy and complicated tax collection agreement where we agree with them on what they'll do on our behalf. Of course, they have some rules and policies of their own, and for reasons that have never been entirely clear to me, CRA said they would not administer this change on our behalf.

 

Now, we didn't know that on Budget Day. We only found that out afterward. In fact, the correspondence on this went right up to minister-to-minister correspondence between myself and the federal Finance Minister, which essentially amounted to us saying, "Come on, what's the problem? It's fair, it's reasonable - why won't you do this?"

 

At the end of the day it was the federal government that refused to do it, so we were left with a problem, which is that we had the concept, which we were still totally committed to, but the easiest, most efficient way of delivering it was not open to us. So we say, okay, the next best thing - not the ideal, not the best, but the next best next thing - would be for us to issue refund cheques.

 

CRA did agree to give us the information on who fit in this category so that we would have the names, the addresses, and the amounts. The information will be supplied to us by CRA, and when we get that information we will issue refund cheques, so at the end of the day every senior receiving the GIS who pays provincial income tax will get a full refund of their provincial income tax. Unfortunately, they will have to pay their tax first and then wait a little while for that administrative process to happen behind the scenes, and in due course they will get a refund cheque. It's not the way I wanted this to happen; it's not ideal, it's not best, and it's inefficient, but nevertheless CRA runs our income tax system and they refused to do it. So this is the method that we've adopted in order to accomplish the policy objective.

 

MR. GLAVINE: Thank you. I'm wondering if this will be the process and a practice that will go beyond this year, and in terms of, as you suggested yourself, inefficient - what is an estimated cost of doing it this way versus the way you would have preferred?

 

MR. STEELE: This is the way that it will have to proceed until CRA changes its mind. It certainly is something worth thinking about, that maybe by simply nagging them to death we might get them to change their mind sometime in the future. It's just better for seniors if they don't have to pay the tax in the first place.

 

As far as cost, I have not seen, and neither have my staff here - we have not heard anything about an additional cost. Just speculating, as I know I shouldn't - there will be a bit of staff time involved because we'll have to receive the information from CRA and we'll have to do a cheque run, but running cheques is something the Department of Finance does hundreds of thousands of times a year. I'm not sure what the total is, but it's a very large number, so this is something that can be done quickly and easily. But there will be a little bit of staff time, so in that sense there will be a cost.

 

MR. GLAVINE: I think perhaps most MLAs may have had some calls to their office - I know I had a few from accountants on this who do a lot of seniors' tax forms. Was there an individual directive that this was happening? After what I think was an important announcement that no senior receiving the GIS would be paying taxes in Nova Scotia - that was certainly applauded - was there a communication to H&R Block, to accountants, beforehand? Some had started their taxes, and certainly individuals didn't seem to know too much about this.

 

MR. STEELE: I know there was a general news release. There wasn't a targeted mailing, no. Let me think of the timeline. The last letter between myself and the federal Finance Minister, when the federal Finance Minister said definitively no, we will not do this for you - something tells me that was in November or December. Then we got busy developing the process, and perhaps we should have and could have done a communication.

 

It's the sort of thing where we got a little bit of feedback and not much. As soon as we became aware that there was some confusion or some question, we put out information on the Web site. We did a general news release. I think it got some pickup in the media. Perhaps we could have thought about other ways of communicating it, but I think at the end of the day, the people who need to know do know.

 

MR. GLAVINE: Yes. Thank you. In the future, I will identify the page numbers, but looking at the item for executive director of Fiscal and Economic Policy, there was an increase here of 17.67 per cent since the forecast was reported in the 2009 budget. Last year's forecast over the estimate shows an increase of 13.75 per cent. What does this item encompass? Those increases definitely seem significant. Could you outline what this item does encompass and why it seems to have some significant increases?

 

MR. STEELE: You're going to have to help me. You're throwing out percentages that I can't follow just off the top of my head.

 

MR. GLAVINE: The executive director of Fiscal and Economic Policy - that line item increased by 17.67 per cent since the forecast.

 

MR. STEELE: Do you know what numbers you're comparing?

 

MR. GLAVINE: As I said, I didn't identify - and then last year's forecast was again an increase of 13.75 per cent, so I'm wondering what it encompasses. Sorry to have to put you through that work detail.

 

MR. STEELE: Sorry, during the next break I'm going to have to check into that. Just off the top of my head, it's not entirely clear to me. Let me get back to you.

 

MR. GLAVINE: That's okay, minister. I could come back to that in the next hour.

 

MR. STEELE: Okay.

 

MR. GLAVINE: That's what I'll do. I'll work with the actual numbers.

 

MR. STEELE: By the time you get back, I should have a better answer for you.

 

MR. GLAVINE: Yes, sure, that's okay.

 

MR. STEELE: Okay, thanks.

 

MR. GLAVINE: Just taking a look, again along the same idea, but even if I could just know what it encompasses: the payroll client relations, again, does have a really significant increase, and I'm wondering what this item encompasses when we're talking about payroll client relations.

 

MR. STEELE: Once again, which numbers are you comparing now?

 

MR. GLAVINE: I'll have to go back. We're looking at the 2010 forecast and the estimate for 2011 is a pretty considerable increase, so that's why I'm wondering what this item would encompass.

 

MR. STEELE: You're really giving Joyce a workout here and that's good. I really appreciate that.

 

MR. GLAVINE: I know she's capable.

 

MR. STEELE: Yes. It's all here. It's just a matter of her pointing out to me where the information is.

 

MR. GLAVINE: Sure.

 

MR. STEELE: So first of all, the numbers that you were citing - you're doing that apples to oranges thing here, forecast to estimate. The reason why it looks large is because it just so happened that at the snapshot in time in the forecast there was a reduction of $214,000, due entirely to the fact that certain positions were vacant at that moment in time. Of course, that doesn't tell you anything about what the base of that particular unit is.

 

So from estimate to estimate - which is the more proper comparison - $137,000 was due to those 1 per cent pay increases for two years that I spoke about earlier; $56,000 is due to the fact that a person with a Clerk IV position was transferred from Payroll Services in Government Accounting - $56,000 was due to the pay consultant's salary and operating funds transferred from the Speaker's Office. The member will recall that.

 

MR. GLAVINE: Yes.

 

MR. STEELE: Then there was a $49,000 saving, which represented deletion of the position of a payroll consultant. When you add those up together, that explains the difference between estimate and estimate.

 

MR. GLAVINE: From looking at the Estimates Books this year and comparing to previous years, there was a restructuring of Finance in terms of the role of the Controller and a realignment of various divisions. Could you expand on what took place in that regard and why it happened?

 

MR. STEELE: Really, the answer on one level is very simple. The former Associate Deputy Minister of Finance, Liz Cody, moved over permanently to the Expenditure Management Initiative, and because she was gone, there was an internal reorganization. Some things for which she was responsible became stand-alone units with direct reports to the deputy minister. Others reported to the controller, who was in due course named associate deputy minister, but it really had to do with taking the opportunity of Liz's departure to reorganize the department in a more sensible way. Really, it's just that simple.

 

MR. GLAVINE: I guess that's the road I was going down with what were the benefits to the department, if there was that kind of realignment that took place.

 

MR. STEELE: The benefits, I think, were efficiency and more sensible organization. Liz had been at the Department of Finance for a very long time, and so somebody with her long experience and time in the department - the organization of the department, to a certain extent, really reflected her skills and her experience. When she departed, it just made sense to reorganize things. Some of the units that reported to her now report to the provincial Controller, who kept the same position but really had more people reporting to him. It was just generally felt that it was a more efficient arrangement of departmental staff.

 

With the departure of somebody of Liz's calibre, experience, and skills, once she was gone, it didn't really make as much sense for the department to be organized exactly the same way. The organization at the senior management level reflected the skill sets of the people who were left behind. We also happened to save the cost of Liz's salary in last year's budget.

 

MR. GLAVINE: This area is, again, a little bit problematic around estimate versus forecast. The Liability Management and Treasury Services - it looks like a decrease there, if we take a look at the period of time. One of the things that we did take a look at through research was the period of the start of your government to now. There is definitely a decrease there from 2009 to this year. Again, I was wondering what accounted for this decrease.

 

MR. STEELE: I can't really explain much beyond saying these were a variety of operating cost reductions. All units in the Department of Finance were asked to contribute to the overall reductions, so each unit pitched in in different ways. This was the contribution suggested by the executive director, but the grand total of a number of smaller savings equal $41,000. I really don't have the information to say, well, what are the smaller things that go up to make $41,000? It could be things like travel, conferences, paper clips; I don't know. You have to understand that there are a number of items that together collectively make the $41,000. When you're dealing with a $9 billion budget, that's a pretty small level of detail. I can't go beyond that to say exactly what those operating cost reductions are.

 

I will say that I am a great admirer of this particular unit of the Department of Finance. Not to say I don't admire the other units, but this is the unit that manages literally billions of dollars on behalf of the people of Nova Scotia, and they do a fabulous job. Small decisions that they make can save the province millions, tens of millions of dollars in debt-servicing costs. If the people of the province realized how good they are at what they do, how professional and expert at what they do, they would be amazed. Remember, one of the reasons we were able to turn a projected deficit into a surplus last year was because we had an $80 million reduction in debt-servicing costs - $80 million. That doesn't happen by accident. That's the people in this unit.

 

MR. GLAVINE: Thank you, minister, for that global picture of what does go on in the department.

 

Just in drilling down on Liability Management and Treasury Services, the next one I was going to go to was Capital Markets Administration. Is there cross-work in terms of when we add up those, what's in that line item - is there actually cross-work inside the department that would make for some of that accounting?

 

MR. STEELE: I'm sorry, I can't follow your question. I'm not sure. If you use the word "cross-work," I don't know what that means.

 

MR. GLAVINE: If we have people assigned - for example, Liability Management and Treasury Services - then we take a look at, where I'm going, Capital Markets Administration, would people in the department do work in both of those areas? Would they have assigned work in each of those areas? What I'm getting at is, when you take a look at full-time equivalents - and you said that's a better way of looking at the department - I'm wondering, is there some of this work that may be assigned to two segments of the department's work?

 

MR. STEELE: I think we're all having a little bit of a hard time understanding the question. For budgeting purposes, the lines are very strict. These people all happen to be on the same floor, the same side of the same floor; they're just down the hall from my office. Is there some interaction? Well, yes.

 

MR. GLAVINE: I guess probably for other departments, then maybe . . .

 

MR. STEELE: But of course for budgeting purposes there wouldn't be any crossover.

 

MR. CHAIRMAN: Just as a note for the member for Kings West, there are exactly 10 minutes remaining in your time.

 

MR. GLAVINE: Thank you very much. Looking at the office of the minister and the deputy minister came in under budget in 2010, estimate 2010 compared to forecast 2010 by 9.21 per cent, yet in the 2011 estimates that doesn't seem to have had an effect on budget projections. The item is set to, again, grow from 2010 to 2011. Why not in the case of that budget projections are not based on the actuals and are instead based on what the project was in the previous year?

 

MR. STEELE: It's essentially the same principle that we've talked about before. The forecast is a snapshot in time, and there may be non-repeatable reasons why it happened to be under budget in a particular year. For example, the deputy pointed out to me that this was a year when there was crossover at the deputy minister's level, so that has an impact on budget both for salaries and things like travel. As best as I can tell, the main reason we were under budget was simply because we travelled less than budgeted and generally - I'm very frugal when I'm on the road; I want you to know that. When I travel, I travel for a reason and I don't spend a lot of money, so maybe I underspent what was there. I've never actually asked what's there. It's just when I need to travel for my work I travel, and I've never asked what the overall budget is, because it's not the case that I try to spend the entire budget. That's not really the way it works at this level.

 

There were $65,000 of savings, estimate to forecast, of which $20,000 is attributable to lower-than-budgeted travel cost of the minister and deputy minister, and $45,000 of miscellaneous other savings. There was also an increase of $21 million, which was due at least in part to a vacation payout to the departing deputy minister. As you can see, these things are not repeatable.

 

As I was trying to explain before, really the only sensible way to compare apples to apples is to go estimate to estimate. I take your point: if there was something about the reason why you were under budget that was permanent and could be repeated, well then, you probably should take that as your new base, but that's not what was going on here.

 

MR. GLAVINE: In looking at the Expenditure Management Initiative and in the Subcommittee on Supply during the 2009 budget, the associate deputy minister of that time, Liz Cody, was leading the Expenditure Management Initiative. I'm wondering who the public servant doing this review is.

 

MR. STEELE: Doing what review?

 

MR. GLAVINE: In the subcommittee, there was going to be an Expenditure Management Initiative and a review. Is there somebody still in charge of that review?

 

MR. STEELE: I don't know what review you're referring to. The Expenditure Management Initiative is a review initiative; it reviews other things. I'm not sure what review you're talking about.

 

MR. GLAVINE: Well, at that time they said there was a review of the Expenditure Management Initiative. It was stated there in the Subcommittee on Supply that Liz Cody was leading the Expenditure Management Initiative.

 

MR. STEELE: That's correct, and it's still the case.

 

MR. GLAVINE: Okay, that's still the case. Are there other staff assigned to that initiative, or is that a sole effort of hers?

 

MR. STEELE: Oh no, gosh, no. It's not just Liz, but really I don't have the details. They don't report to me. It's not part of my department. It's not part of my estimates, so I just don't have the information in front of me. When the Treasury Board Minister comes up, he's the one you should direct that kind of detailed question to.

 

MR. GLAVINE: Also then, in terms of any timeline on that initiative as well, that would be . . .

 

MR. STEELE: That would be the Treasury Board Minister.

 

MR. GLAVINE: That would be where we would go there. Will that be posted publicly, or is that again another . . .

 

MR. STEELE: When you say, "will that," what is "that"? You seem to be under the impression that there is some kind of document being created.

 

MR. GLAVINE: I guess that's what the interpretation from the subcommittee was at the time.

 

MR. STEELE: I think there's a misunderstanding. I'm not aware of any such document, so I can't say when it's going to be released. I think that portion of last year's estimates has been misunderstood.

 

MR. GLAVINE: I'm wondering, in terms of Finance, not including estimates of all revenues of the consolidated entity in the budget currently - specifically, third-party revenues are outlined by the Auditor General on many occasions. Will the minister be including these revenues in future budgets?

 

MR. STEELE: Well, that's an interesting question. I want to point out or remind the member - maybe he doesn't need reminding - that this is a long-standing reservation of the Auditor General's Report. It has been in his reports for years; it is not a new issue. It's certainly not an issue that we created. It refers generally to the fact that we don't consolidate, because it's very difficult to account for funds received by school boards, particularly in cash, like school-based funds and also certain cash funds received by district health authorities.

 

In accounting theory, because these are consolidated entities with the province, we should be including something for that, but it's a very complex issue. In fact, it was dealt with in the second Deloitte report, where the consultants from Deloitte looked at this issue. In an ideal world you wouldn't have this reservation on the Auditor General's opinion on the revenues, but it's very complex.

 

The Deloitte report goes into considerable detail about why this happens and what the options are for dealing with it, and at the end of the day, I think the decision of the government has been that correcting this issue, which is a highly technical accounting issue, would actually take more time and effort and potentially cost more money than it is worth. Therefore, there is no move afoot to change the way these funds are currently accounted for. It's just one of those things where we think it's not worth the very considerable effort. If the member is interested in exploring this issue in more detail, I would refer him to the second part of the Deloitte report, where, as I say, this issue is looked at in considerable and mind-numbing detail.

 

MR. CHAIRMAN: That concludes the Liberal caucus time. Would the minister and staff like a five- or 10-minute break, or just keep on going?

 

At this point we will turn the time over to the Progressive Conservative caucus and the member for Inverness. You have one hour, member.

 

MR. ALLAN MACMASTER: Thank you, Mr. Chairman, and I'd like to thank the minister and the department for the opportunity this afternoon to ask a few questions. My first question - and I know that we didn't see it in this budget, but the issue of bracket creep has been discussed. There were a couple of numbers thrown about, and I'll let the minister comment - I'll just make a few points about it and let the minister comment.

 

First of all, the cost of bracket creep - I've heard a figure of about $20 million. If inflation is about 2 per cent and the income tax that comes in is getting close to $2 billion, I figure the cost might be closer to $40 million, but I do know that when you get into those figures you are talking about different tax rates for different individuals. I know that might have some impact.

 

I guess one thing I'm trying to get a handle on is what the cost to government would be to offer Nova Scotians indexed tax rates, so that we don't have what's referred to as bracket creep. It essentially adds about - it's good for government, because it gives government the protection of inflation for revenues and it gives government a little extra revenue, but it does mean that some people get pushed into higher tax brackets because of inflation and they pay a little bit more income tax.

 

So I guess the first question would be to clarify the actual cost of bracket creep, and the second question would be, do we see this as a future possibility? If the minister would like to expand on that and suggest when we may see that in Nova Scotia, that's what I would like to start out with asking, Mr. Chairman. Thank you.

 

MR. STEELE: Thank you very much. That's a very good question, a very interesting subject, and I hope that before I'm done I'll answer each part of your question. I can't resist being a little mischievous, just because that's my nature.

 

I'd just remind members on the committee why and when bracket creep started. It actually started under the previous Progressive Conservative Government. The previous Progressive Conservative Government brought in the largest income tax increase in Nova Scotia's history, but they did it in a very subtle way that most people didn't notice. What they did, simply, was detach Nova Scotia income tax from federal income tax. It sounds simple, but I'm old enough and most members here are old enough to remember when provincial tax was simply a percentage of federal tax. Whatever your federal tax was, you paid a certain percentage and that was your provincial tax.

 

The problem was, though, that as the federal government's finances improved and they got into the business of reducing taxes, it meant that automatically provincial income tax would go down as well. When the Progressive Conservative Government came in in 1999, they looked at this situation and said we can't have that. We're in a different financial situation from the federal government; we can't have automatic reductions of our income tax just because the federal Finance Minister lays down a budget that impacts us.

 

They brought in a system called TONI - "tax on income" - which completely reformed the way Nova Scotia tax was calculated. Then they didn't index the brackets or the credits. So very subtly, year after year after year, the gap between federal taxes and provincial taxes grew. If you look at it now, today, it represents a quite substantial increase in income tax but done in a very subtle way. That's where it started.

 

Then the question comes up, is that fair? Is that reasonable? All other things being equal, in a perfect world, all of these things - the credits, the refundable and non-refundable credits, and the brackets - would all be indexed to inflation because then in real terms, what economists call "real terms," that is adjusted for inflation, everything would be the same.

 

The previous government never did this. They had the opportunity, if it was such a great idea, they had almost 10 years to do it and they never did it. (Interruptions)

 

MR. CHAIRMAN: Order, please. "Shame" will not be tolerated in here.

 

MR. STEELE: So in 2006, the government of the day did something else. What they did was they announced that in five years they would fully index the brackets. It's very easy to do, it's very easy for anybody to say, here's what I'm going to do in five years. They all know it's past an election, maybe two. Who knows what the finances of the province will be? They try to deal with a difficult issue by saying I'll deal with it eventually.

 

So in 2006, the previous government announced that in 2011 everything would be indexed. But what did they actually do? They didn't actually do that. They could have written that right into legislation but they didn't. What they did, they said for the first four years - 2007, 2008, 2009, and 2010 - they would increase the basic personal exemption by $250. That's fine, that's roughly equivalent to indexing; it's not identical but roughly equivalent. Of course, they left some of the credits alone, and that's another story. When you talk indexing, it's not just brackets, it's also the credits. Every year I would get some feedback from taxpayers saying why is the federal medical expense credit, for example, so much higher than the provincial one? It's because of tax on net income and the detachment by the previous government of federal tax.

They increased the basic personal exemption for four years and then they said in the fifth year they would index. But that's not the law that they passed. In the Financial Measures (2006) Act, they added Section 22A to the Income Tax Act. All it said was, essentially - leaving out the legal technicalities - in 2011 it's up to the minister to decide at what rate, if any, brackets and credits would be indexed. That's what they actually wrote.

 

I read in one media report that our Party supported that. I wanted to remind people what actually happened. Something else happened in 2006 and that was there was an election. The Progressive Conservative Government brought in a budget in May 2006 and then a few days later called an election. The budget was never debated, never voted upon but it included this plan over four years of a $250 increase in the basic exemption and then a fifth year - well, they never got around to introducing the Financial Measures (2006) Act.

 

After the election the Legislature met again in July and the government basically introduced the same budget and because it was almost literally within weeks of an election, our Party said okay, we respect the results, we're not going to try to pretend the results were different than they were, so we will vote in favour of the budget. But that's a long, long gap between saying in those circumstances, we voted for the budget and saying, okay, the NDP supported full indexation in 2011. That's not what happened. Those are not the facts.

 

So the question becomes, well, can we do it someday and the answer is, yes, I would like to. In principle, it's a great thing to do, it's a good thing to do, it's the right thing to do, but it costs. The figure that I have from my staff is that full indexation would cost $21 million. So we said, okay, we don't think we can afford $21 million this year but we can go partway. So what we're doing is indexing not the brackets but the credits - let me make sure I get this right, the non-refundable - so we essentially index all the non-refundable credits and that package is worth $11 million. So basically we went halfway to full indexation and I said on Budget Day - and I'll say it again - you don't get everything on your Christmas list. You can't just say whatever it costs, we'll do. It's just when we can afford it, it's something that I would like to get to, but it's just this year, in our view, it isn't affordable. So I hope in that answer I answered all the different parts of your question.

 

MR. MACMASTER: Mr. Chairman, I appreciate the minister's comments. I guess, and maybe the minister can offer some clarification - and I'm glad he mentioned that the previous government was planning to introduce measures to eliminate bracket creep in this year, had they still been in office, and there were reasons why they didn't do it right away. There were 10 years, but when that government took office the deficit was 10 per cent of the budget and within three years, through fiscal restraint, they managed to balance the budget. At that point, I think they went into a minority government and there are all kinds of pressures in a minority government, but at the end of the day a government has to stand by what they did and so I wouldn't make any argument on that basis.

 

One of the things that I would like to bring up, I believe in this year's budget there's a measure coming up in the FMA around the dividend tax credit. I believe the province is removing the linkage to the federal credit because the province wants to eliminate any effects the federal government is having on our provincial taxes, and that's basically the same argument the minister just made to me here that the previous government de-linked the provincial tax brackets from the federal ones so they could get around the issue of having to give a break in income tax. I may be wrong but I just bring that up as a question and I'll let the minister comment on that?

 

MR. STEELE: There were two things that the member said that, if I understand them correctly, are inaccurate. The first thing was that the previous government did not have any plans to index brackets and rates in 2011. That's not what I said. What I did say was that the Financial Measures Act that they passed left it at the discretion of the minister. So, on the one hand they said everything will be fully indexed in 2011, that was their public story, but the law they actually passed didn't say that. I don't know whether they had a plan to do that or not because the law they passed in 2011 said it's within the minister's discretion as to what rate, if any, brackets and credits will be indexed. That's what they actually wrote, which is different from the story they told publicly.

 

The second thing about the dividend tax credit, now, I'm not sure that I followed, exactly, the member's line of thinking but the reason that the dividend tax credit is being de-linked is not in order to lessen the benefit, which is what the previous government did by going to tax on that income, it is to increase the benefit to make sure that Nova Scotians keep the benefit that they had at the old federal rate whereas if we did nothing, the provincial dividend tax credit would actually be worth less.

 

Now, that's a cost item. It happens to be worth $1.5 million. So however you look at it, you've got to add up the costs of these things, and that is relatively affordable compared to $21 million of full indexing. But that reminds me of something else that I forgot to say in my previous answer. Everybody has to remember that with full indexing, all that means is indexing from this year forward. That doesn't deal with the fact that since tax on that income came in - I think it was 2001, it was either 2000 or 2001 - an enormous gap has developed between federal tax and provincial tax. If we index it, all we're doing is making sure the gap doesn't get any wider, but the gap itself, that's the largest income tax increase in Nova Scotia's history that I refer to and that now - I haven't seen a number on it but I imagine that number is well over $100 million.

 

Nobody is talking seriously about trying to close that gap, we just can't afford it. We have to have frank conversations about what it is we can afford and even if something is desirable, the purpose of taxation, the purpose of revenue is to pay for public services and if we're going to cut our revenue, as the Opposition incessantly urges us to do, then we have to have a conversation about what services we're going to cut because we will have less revenue.

 

Although there are things like full indexation that in an ideal world I would like to do, the fact is we can't afford it if we want to continue to deliver important public services like health and education.

MR. MACMASTER: I'd like to thank the minister for clarifying the dividend tax credit piece. We did have a technical briefing on that the other day and this helps to clarify that. I do know that at the time it was a question I had and that was the gist of the response but this is a more detailed response, so that's good.

 

I'm happy to see government is trying to preserve that tax credit for people because a lot of people who benefit from that credit are retired Nova Scotians who might be earning dividends from stocks that they own. I think anytime government can do something to reward savers is important too. I know this measure is costing the province $1.5 million, which I suppose is not a lot in the grand scheme of things, but I think it's important that the government is showing savers, people who have dividend-bearing stocks and securities, that they are conscious of government trying to make sure those people are not having to pay more tax on those earnings.

 

My next question has to do with the HST. One of the things I noticed when the HST was raised, there didn't seem to be a very high projection for the increase because the HST was raised 25 per cent. I had down here in my notes at one point it looked like there was a 9 per cent increase projected. If we raise the tax by 25 per cent, all things being equal, we should expect to see a 25 per cent increase in the revenue. I think that's pretty much what we ultimately did see at the end of the day, and when I say "the end of the day" I will refer to recently where the government had announced it actually had a surplus last year not a deficit. One of the first things I thought of was that makes sense now because the projection for HST had been quite low, based on the increase of the actual tax on Nova Scotians, and it turned out that it was about $400 million or about 25 per cent higher, which is more in line than what I expected.

 

My question to the minister first, what caused the low projection, if there was one, as I believe I saw it through the past numbers that we've been seeing through forecast for the year and from the last budget? Secondly, if it was properly projected, it probably would have been difficult to show a projected deficit last year, so would the minister like to offer some comments on that?

 

MR. STEELE: All right, that's a fairly complex question. I think there is a subtext to it or there's an analysis at the bottom of that, which of course I reject. Let me try to deal with this in pieces.

 

First of all, where does the forecast come from? Well, I want to remind the member that every part of the province's revenue forecast is reviewed for reasonableness by the Auditor General, so the Opposition can go on and on and on all it wants about low-balling revenue but the fact is the province's revenues are forecast by the same people, following the same methods, and following the same professional standards as were used under the Progressive Conservative Government.

 

Frankly, it's insulting to the staff of the Department of Finance to suggest that either they're deliberately low-balling numbers, it's insulting to me to suggest that I go in and tell them what the numbers ought to be, and that somehow I have this grand political scheme to fake up the numbers and I command the department against their better judgment to report numbers that they don't believe in - all with the scheme of trying to pull the wool over the eyes of the people of Nova Scotia and pretend there's a deficit when there isn't one. And not only that, but the Auditor General is in on it too, because he reviews the estimates for reasonableness but somehow misses the fact that everybody is in this grand conspiracy to under-report revenues.

 

Okay, that's one possibility I grant you. The other possibility, of course, is that everybody is doing their best with the best information they can, following their professional standards and using the best forecasting methodology they have, to try to predict what is inherently difficult to predict - that is the future. I would remind the member that, among other things, the HST increase came in partway through a year. That explains a good part of the fact that there's not just a 25 per cent increase. I would remind the member that regardless of that, the reports from CRA considerably lag actual events so that we're barely getting into reports from CRA about post-July 1, 2010 increases.

 

It's not like somebody goes spending at the store on July 10, 2010, and CRA has the data a week later. That's just not the way it works. So we're still working with incomplete data from CRA. We won't know the full picture of what our revenue is from HST in 2010-11 for a considerable period of time.

 

I could talk at length about the economic modelling that the province does. I mean we have an economic model in the Department of Finance that has been in use for a number of years, in use by the previous Progressive Conservative Government, the same people using the same model, the same inputs and the same product, and so the forecasted revenue was produced out of this by that process, which includes meetings with academic economists, with private sector economists, all of whom compare notes and try to predict the future, something which is, of course, inherently impossible. Then once they have the data, they pass all of their working papers over to the Auditor General who then reviews all the assumptions for reasonableness. He verifies that the revenue projections are actually based on those assumptions and he verifies that all professional standards have been met. So this is how the government produced the forecast that it did for HST revenue.

 

Now, I don't know if the member wants to try to forecast what the weather is going to be like on March 31, 2012 - probably not. If he did, he would be wrong. I don't know if the member wants to try to forecast who's going to win the Stanley Cup next year.

 

MR. MACMASTER: Boston Bruins.

 

MR. STEELE: Next year, you know, not this year but next year. There are a lot of variables and you can know as much about hockey as you want. But the fact is that if I said to you I not only want you to predict who's going to win the Stanley Cup, I want you to tell me who their opponent is, how many games it's going to go, what the score is in each game, and who is going to score the goals, that's not so easy to do; that is essentially what our staff are doing with the economy. They're trying to predict things like U.S. dollar exchange rates, interest rates, gasoline prices, tobacco usage, industrial output, employment. They're trying to take all of this stuff and come up with a forecast. It's not easy and, as I said earlier today, the only thing you know for sure about a forecast is it's going to be wrong.

 

So let me talk about the other part of this which is how - because the subtext of the question is, oh well, this is all fakery, we all knew that the revenue was going to be much higher than it actually was. But if we reported that on budget day, it would have been a different story.

 

Let me go over the reason why we moved from a deficit to a surplus. Of course, I have to say, on the way there that there were two signposts over the course of the 2010-11 year that I think the Opposition missed. We put out reports and we hope that it's read by the Opposition and understood, but apparently it's not. The first signpost was when we released the Public Accounts in August. At that point, in terms of moving from deficit to surplus, you had the first signpost, which was that the final audited financial statements for the previous year showed we were some $240 million ahead of forecast. Already we were $240 million; I'm talking about debt here.

 

The second signpost was in December when we did our forecast update for 2010-11, and we already announced - this was in December 2010 - we were forecasting a surplus of $97 million. Halfway through the year we were halfway to where we eventually ended up. That would have been the first signpost that things were changing from what they were on budget day.

 

There are six things, six individual items that together contribute to the move from a deficit to a surplus. I'm going to go over them because I think there's pretty wide misunderstanding, certainly among the Opposition, about these items.

 

First of all, there was $133.5 million in reduced departmental spending. Frankly, I think that's a good thing. Once we laid down our budget we didn't stop showing sustained discipline on the spending side and we kept working at it through the year. Unlike the previous government, we didn't indulge in March madness and that produced unbudgeted savings of $133.5 million.

 

There was a reduction in debt-servicing costs of $80 million. When you're dealing with debt-servicing costs of close to $1 billion, that's pretty substantial and that's related to the work I was talking about earlier of the Liability Management and Treasury Services folks. There was another $39.4 million in miscellaneous savings, $211.4 million in other revenue increases. I don't have the breakdown here, but a good portion of that is related to income tax, both personal and corporate, and only a small portion of that is related to HST. Even then, it's related to HST revenues from before when the increase came in because of the lag.

 

I'm not sure that the members totally understand the lags we're dealing with when we're talking about CRA data. To even take that number, the HST increase revenue, and try to relate it to our 2 per cent increase on July 1, 2010, is a mistake. It's just wrong. It does not relate to that period. What it is a sign of is that the economy was going better in the period before that. There was $196.1 million, by far the largest of all the six categories in prior year revenue adjustments which I talked about in discussion with the member for Kings West. That was unexpected and unusually large number. Finally, there was an $8.9 million increase in revenue from government enterprises.

 

When you take all of those things together, it moves the deficit from $222 million to, as projected, a surplus of $447 million. I want to remind members that even that $447 million is itself just a forecast and we know it will change by the time the Public Accounts comes out this July or August. That explains moving from one to the other. Just the idea that somehow we deliberately under-forecast the HST revenue, fooled the Auditor General, ordered the Department of Finance staff to go against their better judgment to their professional standards and report a number they didn't believe was correct and that they would accept that or that I would do it is, frankly, insulting. You need to stop doing that.

 

MR. MACMASTER: I think it's ridiculous that the minister has taken this approach today. I didn't say anything about faking the numbers. He's using very strong language. I do have respect for the departments and their staff. But I think it's fair to say that when you go from a variance of being in a deficit that was originally $400 million and you're on the plus side, there's a variance of about $600-and-some million, that's a significant variance and I think it's a fair question, because we are in Budget Estimates, that that be asked. Maybe we should all go home and not bother asking any questions and just assume, minister, that you know everything because it appears you do think that way.

 

I'm going to resume with my questions. I can understand if reports are delayed from Canada Revenue Agency but it stands to reason that the department can make its own projects on that information. We have economists in Nova Scotia here who would do an analysis if we're going to make a change in our taxes, to increase taxes, what that's going to mean for provincial revenues. I know I do it myself. I consider that part of my job in Opposition to keep an eye on the government and it is not to accuse the Department of Finance of using fake numbers; it's to provide accountability for Nova Scotians. I don't think there's anything wrong with that and I don't think I should stop doing that.

 

Mr. Chairman, I do take exception to the minister's tone on this matter. I could see a budget being out 1 or 2 per cent, but if it's out 4 or 5 per cent that is quite significant. We know from inflation, the government makes projections on inflation every year, inflation this past year is about 2 per cent. It stands to reason that income taxes would rise by about the same amount. I don't think we're going to get any further on this one so I'm going to leave this particular subject. We'll move to another question.

 

Next I'd like to know what the minister's feeling is on the government's role with respect to the economy. We do know and we congratulate the minister and the government for reducing the small business income tax. That's a positive measure which is no doubt welcomed by the many people of this province who take a risk to go to work every day to employ people in our province. We think that's a good thing.

 

But we also saw the government set up an elaborate economic development plan this year, which may spend somewhere upwards of $200 million in developing strategies. I'd like to know what the minister's feeling is on government's role with respect to either creating the conditions for business and the economy to thrive, versus creating the economy, because it seems with this kind of economic development strategy the notion with this government is that we will use your tax dollars to create an economy for you, versus we will try to control spending, limit taxes, so we can create an environment where the business community can create its own economy. I'll let the minister comment.

 

MR. STEELE: Let me say first of all that on the previous question, all the provinces were in the same boat. One of the things that I think the Opposition misses is that sense of the national overview about taking things that happened here in Nova Scotia and acting as if it's happening only in Nova Scotia, and somehow our government is making choices or facing challenges unique to Nova Scotia.

 

Ontario's budget forecast was off by $3 billion. Maybe the member could call the Ontario Minister of Finance and make the same argument to him. The Newfoundland and Labrador forecast was off by hundreds of millions of dollars. It was substantially better than forecast, just like Nova Scotia. So why doesn't the member call the Progressive Conservative Finance Minister in Newfoundland and Labrador and tell him the same nonsense that I hear from the Progressive Conservative Party about this stuff?

 

I've explained in detail how we went from a deficit of $222 million to a surplus of $447 million. The member knows very well, he started his question with something about HST revenue and about how he had done a calculation of what it ought to be and he knows very well that the subtext of that question was somehow the government had presented figures that it knew to be untrue. He knows very well. He can deny it, but he knows that very well.

 

All I'm saying is that is not going to get this province anywhere, that kind of talk. I just presented a $9 billion budget. This province desperately needs a good, vigorous debate, but it has to be based on facts, and accusing the government of fudging figures doesn't get anybody anywhere.

 

As far as the other question goes, I'm here to defend my estimates. I have 13 resolutions, none of which have the remotest thing to do with the question the member asked. If the member wants to talk generally about the jobsHere program or the government's economic development strategy, I'll just have to say that's for another forum, that's not for the estimates and the Department of Finance.

MR. MACMASTER: I think this is an important question because this department, the Department of Finance, controls the purse strings for all of government and it makes decisions when it approves departmental budgets about the direction that this province is going to go in. It has the option to, in this case, expend money through the Department of Economic and Rural Development and Tourism and trying to stimulate the economy. It also has the ability to present a tax strategy that proves Nova Scotia to be competitive. I believe this department has a responsibility because it is the department of government that sets tax rates and provides tax credits to create an environment that is competitive for Nova Scotia business.

 

I think the question is relevant and I'm going to pose it again. If the minister doesn't want to answer it specifically, perhaps he could at least offer some comment on what he sees for his vision in the future of some measures this government might take to try to make the economy here more competitive because there are other provinces, there are other countries, other states that are always looking for ways to make life easier for the business owner. Perhaps the minister can share with us some of his vision for that here in Nova Scotia.

 

MR. STEELE: I think it's a common misunderstanding of the Department of Finance, the sort of thing that the member has just said, saying that Finance controls the purse strings of government. It's just not true. It's just not the case. The member says, well, the Department of Finance tells the Department of Economic and Rural Development and Tourism what it can spend, or words to that effect, but that's not what the Department of Finance does. That's not what it's here for. The body that tells the Department of Economic and Rural Development and Tourism what it can spend is the House of Assembly in the budget that it approves. Within government, as we're developing the budget, it's done primarily by the department itself, subject to the approval of the Treasury Board.

 

I guess I should like it when people believe that the Minister of Finance has untrammelled power to tell other units of government what to spend, it just doesn't. It's not our role; it's not what we do. I'm certainly not going to purport to comment on what the Department of Economic and Rural Development and Tourism is going to do with the budget. Those, of course, are questions for another day, in another place, to the minister of that particular department.

 

The tax strategy is interesting though, but again, the Department of Finance doesn't set the taxation regime of the province; the House does. The fundamental role of the House of Assembly, of any representative Assembly in a democracy, is to figure out how much to tax the people, who it is, who is going to pay those taxes, and then what's done with the revenue raised from those taxes. That's what a House of Assembly does and there is no tax that is not approved by the House. There's no spending that is not approved by the House. It's not the Minister of Finance who decides what taxation is going to be.

 

I'm not sure how far the member thinks that I can or should go. I'm here defending the estimates of the Department of Finance and a number of ancillary organizations. The tax strategy of this government is laid out in the budget. That's what a budget is. That is our view of what is going to happen over the next year in Nova Scotia with respect to taxation and expenditure, which are two sides of the same coin and one can never be separated from the other. That's what I am prepared to talk about today but I'm not interested or willing to be pulled into a hypothetical discussion about what tax might be, that's really not - I mean it's an important question, it's just not for the estimates today.

 

MR. MACMASTER: Mr. Chairman, I think vision is so important, especially in government. I respect the minister's answer. I thought it would be an opportunity to share a vision on what Nova Scotians might expect for future tax policy but if there's none to share to date, that's fine.

 

The next question I have is one of the measures in the budget this year was a change in the MOU with universities. It is a significant expenditure of government and I was pleased to see this government trying to address the cost of education for students. I know they are reducing the amount that is going to the universities but they are increasing the amount going to the students, to give them more discretion.

 

We did see that the amount to universities has gone up quite significantly in the last few years and I know the minister will say, well, that was the previous government. Yes, but one of the measures that was in place that caused that expenditure to rise was an effort by the government to try to maintain the tuition at the national average for Nova Scotian students. I think one of the challenges with university education is that people need it, and the government has been funding it, but there doesn't seem to be really strong connections back to what value students are getting for their money.

 

It's a significant expenditure of government. It has been probably upwards of 3 per cent or 4 per cent of the budget and I'd like the minister to comment on his thoughts on this expenditure and what it means for going forward, as far as keeping universities accountable for the amount that is being transmitted to them because it is a significant amount. I guess to ensure that it doesn't continue to grow, we have to make sure there's some - and maybe this is going to be the new MOU - but we need to make sure there is some protection for Nova Scotians, that the tax dollars that their government is investing are being invested in a university system that is competitive, not just as far as the quality of education that is being provided but from the perspective of it being a good investment. I'll let the minister comment.

 

MR. STEELE: I'm here to talk about 13 specific resolutions that fall under my domain as the Minister of Finance. Although the question the member raises is very important, it does not in any way fit within the four walls of those 13 resolutions and I'm just not willing to talk in a theoretical way about a sector that is better addressed by a different minister in a different part of the estimates process.

 

MR. MACMASTER: It's too bad. It's an opportunity to provide insight and if we're not going to do it, there's nothing I can do about that. I do think if I were Finance Minister that would be one on the top of my list because it is an expense that has grown in government significantly over the last number of years, and I think it's important for Finance Ministers to keep an eye on those things and to share insight about his or her feelings on that matter.

 

I'm going to move into another area, Mr. Chairman, and hopefully this will be in an area that's suitable for the answering period here that we have. This is certainly a question we could ask of the Public Service Commission about FTEs but FTEs is also part of the budget, it forms a significant portion. As we know, salaries in this province form probably somewhere between 70 per cent and 80 per cent of expenses for government so when the Department of Finance is preparing its budget, it's a significant expenditure.

 

We've highlighted it as an area. We support the government's move to try to reduce the number of employees by 1,000. We also know from the Public Service Commission that about 600 people leave government every year on their own volition, which means they're not being hurt, they're actually leaving because they may be taking a job elsewhere or they're retiring. At the end of the day, here's an area - and as somebody in Opposition, I like to try to bring forward solutions for government and not just be critical all the time - but this is an area that we support.

 

We know the government is committed to reducing the number of FTEs within the Public Service by 1,000. We've not seen evidence of progress on that but we trust that the government will be achieving that commitment. But looking throughout the budget, we saw numbers of FTEs, and I know we've heard some response on this, you can't just simply count people. There are people in and out and there's some transition. I can buy into that but if we look at the 2011 estimate, it was 10,800 people; the forecast for the end of the year just past is actually about 650 people less. It's a significant number. I guess what I would like to ask is, are we making any progress towards reducing that number of FTE count by 1,000?

 

MR. STEELE: My goodness, Mr. Chairman, I'm not sure what I have to say to reinforce with the member I am not here to address the entire $9 billion budget of government and address any question that could be addressed to any minister. I am here - as every minister is in every portion of estimates - to deal with the resolutions for which I am responsible. I don't know what I have to say. I'm not going to go down the road of purporting to answer general questions on behalf of the entire government. If the member wants to ask me about FTEs in the Department of Finance, I'm here, I have any level of detail that he wants, but I'm not going to answer that kind of general question on behalf of the whole government, which I would suggest is better addressed to the Minister of the Public Service Commission when his estimates come up.

 

MR. MACMASTER: Mr. Chairman, well, let's ask a question about the Department of Finance. Now, I think, because I've heard that this may have to do with SAP, but there has been some variance in the Department of Finance budget. Could the minister confirm if this is due to the department investing more in tracking costs throughout government to improve cost control?

 

MR. STEELE: So you mentioned a variance but I'm not sure which variance you're talking about. I wonder if you could let me know what page number you're looking at, what figures you're looking at.

 

MR. MACMASTER: I just have it in my notes here, but it looks like the budget has risen. Actually, I'll see if I can find some numbers here.

 

MR. STEELE: Are you talking about the budget for the whole Department of Finance?

 

MR. MACMASTER: Yes, if we look at the Department of Finance in 2009-10, the Department of Finance, the actual was $27 million. Now, that would have been reported last September when the final numbers were confirmed for the year. The budget we see projected for this year is $36 million, so there's an increase of about $9 million there.

 

MR. STEELE: Yes, as I was explaining at some length to the member for Kings West, the more appropriate comparison is estimate to estimate because there are all kinds of reasons why the forecast number is less than the budgetary, but it doesn't really tell you anything about what's going on. Here are the reasons why the overall budget for the Department of Finance has gone up from last year to this year. The main reason, the largest by some distance in terms of dollars, is $1.3 million - to be precise, $1.326 million - which is an increase in amortization on approved tangible-capital-asset projects and that is a reflection of capital spending on components of the SAP system. Once the capital is spent, of course, it appears in the departmental budget as amortization. This is not a cash cost, it doesn't tell us anything about staffing, but it does show up as an increase in the budget of the department.

 

The next largest item is increase in wages. The 1 per cent settlement, which is worth a total of $828,000, that actually covers two years because there wasn't an increase in 2010-11. It wasn't put in place until later so the increase here appears larger than it actually is because it covers two years, $828,000. There was a $600,000 increase in hardware maintenance costs from Oracle. Unfortunately, Oracle is one of our service providers that pretty much have a captive audience and they indicated to us that they were increasing their fees across the board. There was really no practical alternative when they did that so we had to find another $600,000.

 

The $94,000 is due to the transfer of one full-time equivalent person from operating costs and salary from the Public Service Commission to the Internal Audit Centre. There was also the transfer of another full-time equivalent operating cost of salary from the Office of the Speaker to payroll client relations, since all payroll matters relating to MLAs are now being handled through the Payroll Client Relations Division of the Department of Finance - however, still under the direction of the Office of the Speaker, which I think is an important point to make, but nevertheless housed within the Department of Finance. Of course there should be a corresponding reduction in the costs of the Office of the Speaker.

 

Also, there was a $50,000 increase in the administration fees payable to the Canada Revenue Agency for processing personal federal tax returns and tax credits. They do all this processing on our behalf and they don't do it for free, so there was an increase in costs there of $50,000.

 

Set off against all of that there was a $508,000 saving and 5.4 full-time equivalent deleted positions; a $209,000 decrease in operating costs for approved capital projects; and a $193,000 reduction in miscellaneous operating costs. If you add them all up together, that equals the difference between last year's budget and this year's budget.

 

MR. CHAIRMAN: Member for Inverness, I would like to advise you that you have about 10 minutes left.

 

MR. MACMASTER: Thank you, Mr. Chairman. I can see the minister likes answering those questions because they're very to the point and I expected nothing more and nothing less, but I will ask this question in case this one might be suitable to be answered, in his opinion. One of the biggest sources of revenue for this government, for every government, every provincial government in the country, is federal transfer payments. We know that in 2014, equalization in transfer agreements expires and we could see lower federal revenue transfers to Nova Scotia. Could the minister give us some sense of what the province is doing, what the department is doing over the coming year on that issue and if we're taking any measures today to protect against the risk of those transfers being decreased by 2014?

 

MR. STEELE: It's a really good question; it's a really important question. It's not a question for here in the estimates. I'm here to defend the Department of Finance's estimates for the 2011-12 calendar year and talk about what we may or may not do out into 2014 - it's a really good question, just not for the estimates debate.

 

Now, having said that, there has been a change in the way we do things at the Department of Finance, although it's not reflected in the budget because the funding comes from elsewhere, and that is we have added a full-time, very senior person to take charge of the federal-provincial transfer file in a way that - everybody else's attention was divided, but we give so much importance to this particular matter and it's of such fundamental importance to the province's future finances that we have a dedicated senior person working out of the Department of Finance.

 

Although I don't believe her salary is actually in our budget, it's Alison Scott, the former Secretary to the Executive Council, and former Deputy Minister of Energy and Deputy Minister of Intergovernmental Affairs. She has just come back to Nova Scotia from a secondment with the federal government and we're really pleased to have someone of her calibre working on this file on her behalf. That's really the only thing that fits within the four corners of the estimates debate.

 

MR. MACMASTER: Mr. Chairman, I know from our time we spent here today that there are a lot of questions that won't be answered. The minister certainly has that right but at some point he will have to answer Nova Scotians and the government will have to answer Nova Scotians because they are going to get to vote again in the next provincial election and they're going to get to decide whether or not their concerns are taken seriously and if they don't feel they have been listened to by government, if they don't feel that their government has had the humility to answer questions and the desire to try to gain people's buy-in, they might decide that they're not going to bother voting the government back in.

 

The questions I'm asking here today, I think they're very relevant to the future of the province. When you have federal transfers to the tune of about 36 per cent of the budget, that's significant and that's something we need to be watching for, as a province. I know there is dialogue between governments but I think we have to be doing something ourselves to try to put cushions in, in case things happen that are out of our control. Nova Scotians do this themselves. Most people put away three or four months' worth of income for their household so that if they fall on hard times, they have an ability to recover or to sustain that period. I think that as a province we should be talking about that here today in estimates.

 

For the next coming year maybe there are some things we should be doing to prepare for 2014. If there's any change, that number is so big that we depend on from the federal government that even a small change is going to have a significant impact here.

 

In Nova Scotia we don't have a lot of natural resources. I think we have - I think previously - I think it's even less this year, but we've had only about 2 per cent of our income from royalties on natural resources. If we look at a province like Alberta, where a couple of years back 25 per cent of their royalties were from oil and gas, so a province like that is more insulated from federal transfers and the impact - in fact, they don't get any transfers in Alberta, they don't need them. They've got good, stable sources of provincial revenues.

 

We do need them. Our offshore oil and gas industry is in decline right now. We hope that turns around at some point but at the end of the day, if companies aren't finding what they like to see under our ocean floor and they don't want to take the risk to go after it, it means lower revenues for us.

 

I know Lake Ainslie is one area in my constituency where they have looked at drilling onshore, they've even talked about hydraulic fracturing; there are a lot of people concerned about that. Even if they did get permission to do that, Mr. Chairman, I don't see that as a significant revenue generator for the province, so I think these questions are important and they shouldn't just be passed off.

 

If we look at something else this government has done recently is the agreement with municipalities. People can say, well, we're going to just stop the progress of increased funding for municipalities, for justice and housing costs, but it stands to reason that governments are always communicating and negotiating about how they're going to pay for services. There's one taxpayer and when governments come to agreements as to who is going to provide what service, it's only fair if they come to those agreements that they try to stick to them.

 

I know if I were in the province's shoes, that the federal government was going to change the amount of transfers we're getting, come 2014 and on, I'd be concerned about that and I might try to negotiate having the federal government pay for more services here in the province if we're going to get less money from the federal government. Likewise, in this sitting of the Legislature we saw municipalities - 63 councillors, mayors and wardens - here last week, in person, parading in the Legislature. They were voicing their displeasure with the breaking of the memorandum of understanding from 2007. This is an example of the provincial government changing its agreement with the municipalities and putting pressure on municipalities.

 

I think that is a very relevant question to be talking about, equalization and the health and social transfers. We know that the health transfer is legislated to grow at 6 per cent a year and the social transfer at 3 per cent a year, but things can change. We saw that with the MOU, the provincial government changed its mind about how it was going to provide funding for judicial services and housing services and now the municipalities are left dealing with that. The question I've asked today is, what would the province do if it was left to deal with changes in 2014 and on?

 

Mr. Chairman, I appreciate having the chance to ask some questions today and I recognize that some of them weren't answered and that's the minister's prerogative but I do think it's important to try to offer at least some response because these are matters that are not going to go away and I wouldn't be wasting my time here asking the questions if I didn't think they were going to get answered.

 

I think we'd all be making better use of our time if we were more forthcoming with answers. It's something I'll remember if I am sitting on the government side, to respect questions that are asked and if they might not be right to the exact decimal point or number referenced in the budget estimates, I think I will rise above that and recognize that maybe there's something more to those questions. It's important for government to be open to questions as a sign of humility and respect for the people we represent.

 

With that, Mr. Chairman, because I think we have almost run out of time anyway, I'll let the minister have the last word.

 

MR. CHAIRMAN: Thank you very much. Minister, there is just a minute or so left in the PC time frame.

 

MR. STEELE: Thank you very much. The member is doing that thing again, where he is purporting to summarize what I said. Of course what I really said was that there is a better person, a more appropriate forum. There are rules around the estimates' process and if the member's questions don't fit within that, it's not my fault, it's his fault.

 

The questions on the university MOU, they are great questions for the Minister of Labour and Advanced Education. The stuff about FTEs - really good, important questions for the Minister of the Public Service Commission. The stuff about what is going to happen in 2014 with federal-provincial transfers, really good, important questions, but that's a question for Question Period in the Legislature or some other forum. Those are not the estimates resolutions that are in front of us here and it is because they are important questions that they deserve to be dealt with by the proper person, in the proper forum.

 

MR. CHAIRMAN: Thank you very much and the chairman has no control over the questions or the responses, we just fill in the hours.

 

Would the minister like a five- or 10-minute break? Okay, we'll try to keep it to about five minutes and hopefully the Liberal caucus members will show up. If not, I'm sure there are some NDP questions. Thank you, we will break for five minutes.

 

[5:00 p.m. The committee recessed.]

 

[5:08 p.m. The subcommittee reconvened.]

 

MR. CHAIRMAN: We have had a 10-minute break. It is now time to resume the Subcommittee on Supply - Department of Finance. The time is 5:08 p.m. We have the Liberal caucus for one hour.

 

The honourable member for Bedford-Birch Cove.

 

MS. KELLY REGAN: Mr. Chairman, first off I would like to start from the November 2010 Auditor General's Report. There were a number of recommendations that were made at that time, including Recommendation 5.1: "The Department of Finance should include estimates of all revenues of the consolidated entity in the Provincial budget, including all agencies' third-party revenues, to ensure the budget is prepared and presented fully in accordance with Canadian generally accepted accounting principles."

 

So my first question is, why does Finance not include estimates of all revenues of a consolidated entity in the budget currently, specifically third-party revenues as outlined by the Auditor General on many occasions?

 

MR. STEELE: What an excellent question and you asked that as if you were born to be a Finance Critic. I did answer that question in a previous round but I don't mind answering that again.

 

The Auditor General has reserved opinion - not reserved opinion, that's not the right word - he has added a qualification to his opinion for the past number of years on the revenue estimates prepared by the Department of Finance, so it's not something that's new. It's not something unique to this government, but it relates to a very arcane and complex accounting issue about how exactly we are to account for certain funds held by certain entities and, in particular, as I recall, it involves things like cash funds held by schools and also similar cash funds having to do a little bit with fundraising, but I may I have that wrong - in any event, funds collected outside the normal course of the work of a district health authority. These authorities are part of the consolidated entity but they collect funds, particularly cash funds, in ways that are really difficult to account for.

 

For many years now the Auditor General has pointed out that according to Generally Accepted Accounting Principles, the province should make an attempt to estimate these funds and include them within the consolidated statements. The province has been quite perplexed about how to do it. It doesn't mean it's not a matter of some concern and, in fact, when this government came into office and we commissioned Deloitte to do a two-part consulting report, everybody is familiar with the famous Phase 1, the projected $1.3 billion deficit. It was the other group, I think, that said $1.4 billion.

 

There was a Phase 2 of the Deloitte report dealing with certain accounting issues and this was one of them because we said to Deloitte, help us figure out how to deal with this qualification. I would refer the member to that particular report, which is available on-line on the Department of Finance Web site, for an exhaustive and exhausting discussion about how to deal with this issue and what the various options are. At the end of the day government accounting staff are advising us, the government, that when you consider how much work it would require to remove this qualification for the very minimal benefit received that it's probably not worth it, so we do not have any current plans to take the steps that would be necessary to have this qualification removed. Just like the previous government we believe that the effort required far outweighs the corresponding benefit.

 

MS. REGAN: So am I correct in assuming that one of the instances of this kind of funding would have come to our attention when we were discussing the plan by your government to cut a certain amount from school board budgets, whether it was 22 per cent or whatever it was? At that time it became clear that school boards were in surplus and when the Minister of Education indicated that this money was, in fact, a proof that school boards didn't need the kind of funding they had, then the school boards came back and said, well, wait a second, this money is money that kids are raising for trips, there are chocolate bar sales and all of these kinds of things - that includes that kind of money. So is this what we're talking about here?

 

MR. STEELE: You started the question by saying did this come to light as a result of that - I'm not sure if that's exactly what you meant. If that is what you meant the answer is absolutely not, this has been in reservation for many, many years. Is it in the same ball park? I believe that school-based cash funds are one example of the kind of things that the Auditor General is talking about, but in order to be completely sure, I would have to review that chapter of the second part of the Deloitte report. But I believe the answer is yes; that is the kind of fund that is being discussed here.

 

MS. REGAN: The Auditor General is saying that by not including all revenues, including all the agencies' third-party revenues, the budget is not fully in accordance with Canadian Generally Accepted Accounting Principles.

 

MR. STEELE: That's right, that's what the Auditor General is saying now. I'm way out of my depth here when I'm getting into the arcana of accounting principles, but if I'm right, you can just imagine. What the Auditor General is saying is school boards are part of the government reporting entity; therefore, any funds at their disposal should be accounted for in the financial statements. Then it works its way up in the provincial financial statements from the school board. You can just imagine, including in the province's $9.3 billion budget, little Joey's chocolate sales from a school out in Bedford, and the Auditor General says - and I hope I'm not caricaturing what he's saying - we ought to find a way to include that because those are funds belonging to the school board and, therefore, to the province.

 

That's why when we say, well, you know, there's a great deal of effort here for not an awful lot of corresponding benefit other than it removes the qualification. That's why, essentially, I think our government has made the same decision as the previous government which is, all things considered, we'll take this qualification rather than trying to solve the problem. Again, I would refer the member, if the member is interested, to that chapter of the Deloitte report, because Deloitte lays out what the options are and what the pros and cons are of the various options in terms of how we might deal with this particular issue.

 

MS. REGAN: I would think it would be very difficult to forecast or estimate how much little Joey's chocolate bar sales are going to be in a given year or whether X high school is going to have a trip that they're raising money for or something and it's something over which the government has few controls.

 

MR. STEELE: You really were born to be a Finance Critic because you have just taken a really difficult subject and you've hit the nail on the head. That's exactly why the government isn't doing it because it would be extraordinarily difficult. It would take a great deal of effort and when you consider the global amount of money involved, compared to the size of the government's overall budget, the effort is probably not worth the results. You're exactly right.

 

MS. REGAN: Maybe we'll move along to Recommendation 5.2: "The Department of Finance should implement the recommendations of the Deloitte LLP report, previously accepted by the Government, to disclose agencies' third-party gross revenues in the revenue estimates, for the preparation of the next estimates.

 

So we come back to the third-party gross revenues in the revenue estimates, if the minister could speak to that.

MR. STEELE: I'm sorry, I'm going to have to consider that and see if I can get an answer back to the member before the time is up, because just off the top of our heads, it's not clear to us what the correct response to the question is. We came prepared to answer just about anything, except maybe we hadn't reviewed in advance the contents of the Auditor General's Report. So we'll just have to take that under advisement, if we can, to get an answer to the member.

 

MS. REGAN: Thank you, minister. I can't believe I actually won at "stump the Finance Minister". I don't know what I would get for that but perhaps we could just go back to look at a few things, clarification on numbers. Just for comparison purposes, could the minister confirm a few facts from the budget, that what was formerly reported in the last two publications of the Estimates Books as Payroll Processing Services has, in fact, been rolled into Government Accounting?

 

MR. STEELE: That is correct. Just by way of a brief explanation, the payroll function was one that used to reside in the individual departments and so each department had their payroll staff. We felt it was more efficient and more effective for all payroll functions to be housed in one place and the home for that function has become the Department of Finance, so that function and all the FTEs associated with it have been moved over to the Department of Finance.

 

MS. REGAN: Could you provide the full-time employment figures for the following to reflect the restructuring of the divisions' units: senior management, associate deputy minister and controller, policy and planning, corporate services unit, and fiscal and economic policy? Or would you prefer I do those individually, would it be easier?

 

MR. STEELE: I'm smiling a little bit because the member for Kings West asked exactly the same question and we all agreed that we couldn't understand what the question meant. I would have the same response to the honourable member. Either we were confused or there was a misunderstanding. The only reorganization within the Department of Finance of any substance has to do with the payroll function, but the question as I understand it is to explain the FTEs associated with the reorganization of all these other units. There hasn't really been a reorganization of those other units, so we're not quite sure that we can follow the question.

 

MS. REGAN: Maybe we'll just look at Comprehensive Tax Review instead. Exactly how many revenue measures are derived through various forms of taxation?

 

MR. STEELE: I really have no idea what that question means.

 

MS. REGAN: How many different places are we getting taxation from?

 

MR. STEELE: I've never counted them, so off the top of my head I can't say oh, there are 147. What I can do though - let me think now whether there is one place - I'm pleased to say on Budget Day we published two documents about taxation that have never been published before and I imagine that the answer to the question is in those documents in one form or another. Nobody has ever really asked the question inside or outside the department that way, how many different taxation measures there are. I suppose it depends to a certain extent on how you count them. For example, if you have a certain kind of taxation and then you have a rebate or a deduction of some kind, is that two tax measures or is that one? Now for the economists at Finance, they would consider that to be two different measures.

 

Anyway, the point being, we published two documents and they are available on the Department of Finance Web site, and I'll explain briefly what the two documents are. The previous government commissioned something that they called a tax review. It was always a bit of a puzzle to me because when I came into office in June 2009, there was no tax review going on. People said, where's the tax review? Why did you kill the tax review? I said, what tax review? There's no tax review going on. Really, truly there was nothing going on with respect to the review of taxes, but people said, well, the previous government said they had a tax review, where's the tax review? I had to throw up my hands and say, I don't know what you're talking about.

 

What the previous government did do, under the cloak of some secrecy, was have some consultations with some people and they produced a document which was not widely distributed. It was some time before, even as minister, I had in my hands a document that the previous government had produced. It was like an internal secret document which is the closest thing the previous government ever produced to any documentation around this so-called tax review. Now I say "so-called" because the document really just lays out in a purely factual manner how taxation works. The previous government gave no direction about what was to be evaluated, what criteria, what the ultimate objectives were, but as a description of how the taxation system works, it's pretty good. So that's the first document. It was dated January 2009, so before this government came into office.

 

The second document is a document compiled by staff of the Department of Finance, which is a really good, thorough examination of all the different tax measures, associated credits and rebates; how much they're worth; how they work, all that kind of thing. That document, I'm told, was something that just circulated within the Department of Finance to help the Department of Finance staff understand what was going on in the taxation system. I was there for a very considerable time before I even learned about this document because it wasn't anything that was ever public before. It wasn't something that had ever been prepared for publication. In fact, they considered it so much of an internal document they didn't show it to me, the minister. They didn't even tell me it existed until a very considerable time into my tenure as minister.

 

Once I found out about it, I said, well, we have to publish this document. That document, which should be seen as a continuous work in progress, has been published and is also available on the Department of Finance Web site. I suspect that somewhere between these documents you might be able to find an answer to the question, which is a question, as I said, that has never been asked quite that way, like how many different taxation measures there are. These two documents are a pretty comprehensive overview of the Nova Scotia provincial taxation system.

 

MS. REGAN: I'm just wondering, bearing that in mind that there some sort of secret, slightly shadowy review going on (Interruption) Yes, I know, ultra secret - sounds like something from a movie. Has your department looked at having a comprehensive tax review so we do know how many tax measures are taking in income, for example?

 

MR. STEELE: It's a really difficult question to answer because . . .

 

MS. REGAN: I'm sorry I keep asking difficult questions.

 

MR. STEELE: I'll tell you the reason it's a difficult question to answer. The phrase "comprehensive tax review" doesn't mean just one thing, and to a certain extent a budget, and the budget process, is a comprehensive tax review because that is a statement by the government of the taxation measures it is going to take over the next fiscal year in order to raise the revenue to deliver the important public services that the government delivers. In that extent, there is a constant and ongoing comprehensive tax review, because we're looking all the time at how we raise revenue. Before I answer the question about have we considered a comprehensive tax review, I think you'll have to explain what exactly that means to you.

 

MS. REGAN: It seems to me that sometimes we may have things working against each other - tax measures or whatever. For example, we've talked a bit about bracket creep and we've talked about the minimum wage. We raised minimum wage, but because that puts people who are earning minimum wage into a new tax bracket or because we don't index our tax brackets, it seems to me that works against Nova Scotians; that works against a fair tax system here in this province.

 

I remember when I was knocking on doors in 2009, I knocked on one door and it was a gentleman who was an accountant and he had been preparing taxes for a client. He said they decided they would just see what the taxes would have been if the client lived in Alberta and he said it was a $9,000 difference. Now, I understand they're in a different financial situation than we are, et cetera, but it does seem to me that we want to make sure that various parts of our tax system are not working at cross purposes.

 

MR. STEELE: To a certain extent we do that all the time. If we thought for a second there were things working at cross purposes, we'd correct them and we do. To me, a budget is a comprehensive review of taxes and services: how do we raise our money and how are we going to spend it?

 

Let me talk for a second about two different tax reviews. This is why I think it's really important that if we're going to talk about something called a comprehensive tax review, whatever that is, we have to be clear on what it is that we're asking for. I'm going to give two examples of something that some people might call comprehensive tax reviews that turned out to be, in my view, quite disastrous. The first one happened in New Brunswick under the previous Liberal Government. They did what they called a tax review, but the government gave them one instruction and that was the whole thing had to be revenue neutral. If there were any recommendations for tax reductions it would have to be offset by recommendations for an equal amount of tax increase. It's really important, if you're going to start a tax review that you start with a definite position about what you want the end result to be as far as revenue.

 

I will say very gently to you that the Nova Scotia Liberal Party has never stated what their objective is and that's why it's really difficult to know what it is they want. It sounds great except the thing goes nowhere unless you start by saying, is this revenue neutral? Is it supposed to raise more revenue? Is it supposed to raise less revenue? Until you have that framework, it is impossible to talk about what the tax review is supposed to accomplish or how you accomplish it.

 

The New Brunswick Liberal Government gave instructions; it was supposed to be revenue neutral. I have read the report, it's a good report and at the first half of the document it says, here are the taxes that we think you should cut. The second half of the document was, here are the taxes we think you should increase. By the by, the ones that they recommended they were going to increase were the HST and the carbon tax. On the flip side they recommended a cut in personal and corporate income tax.

 

Okay, that's all very well and they said if you do it this way it will all be revenue neutral, but it will be more efficient, more effective; it will accomplish public policy objectives that we think the government wants. Then you got into the problem which was the government implemented the first half of the report and forgot about the second half, driving New Brunswick's finances straight into the toilet because they cut the revenue with predictable results, which was revenue went down. They didn't adopt the offsetting measures which would increase revenue, so New Brunswick's finances are in a mess. They are dismal; they are a disaster. Those aren't my words; those are the words of the Government of New Brunswick, the current Government of New Brunswick.

 

You can't do a tax review that is only about reducing your revenue if you're not willing to have a serious discussion about a corresponding reduction in services because the taxes pay for services. All I would say to anyone advocating a comprehensive tax review is that's all very well, but it has to start with some direction about what the ultimate revenue objective is.

 

The second one I'm going to refer to is the one that was done here in the Halifax Regional Municipality. They also undertook what some people might call a comprehensive tax review. I read that report and it's a really good report and it's a report that would work really well if we were going to create a brand-new city somewhere with no history.

 

What they did was they took a very theoretical approach and said in theory your taxes should be proportionate to the services you receive. Right now, of course, with taxes being based on value of property, there is no necessary connection between services and taxation. The problem was that since they started from this theoretical place, as soon as the HRM councillors had it in hand all they said was, do my residents pay more or do they pay less? The councillors whose residents were going to pay less were for it and the councillors whose residents were going to pay more said no way. We're not adopting this, so the thing is dead, dead, dead.

 

It took years of effort, tons of public consultation and they may as well not have bothered. It was a complete waste of everybody's time and money because it started from some theoretical place that was going to fundamentally change the way property was taxed in HRM. Both of those so-called comprehensive tax reviews, I think, were disastrous.

 

If we're going to review taxes in a way differently than we do normally all the time as part of the budget process, we have to have some frank debate about what that will look like and not pretend that some theoretical thing called a comprehensive tax review is an answer to our problems because we, the elected people, have to give that tax review some direction if it's going to have any meaning.

 

MS. REGAN: Mr. Chairman, I would like to share my time with the member for Kings West.

 

MR. CHAIRMAN: We are almost at the halfway mark. There are 33 minutes remaining.

 

The honourable member for Kings West.

 

MR. LEO GLAVINE: Mr. Chairman, you can work out the logistics around 6:00 p.m. because at 6:00 p.m. I have to be first up on the late debate, so I'm juggling here as if I'm in a circus.

 

One of the areas to continue - there were a few other questions that unfortunately I'm not sure they got asked in the first part of what I wanted to be dealing with, but anyway, I'll come back to that.

 

The area that I wanted to go to immediately was the auto insurance review and I wanted to know what kind of consultation process, who you've been consulting with and what kind of timeline is anticipated for that review.

 

MR. STEELE: Too bad she left, I wanted to congratulate the member for Bedford-Birch Cove, she did an excellent job. I told her that she sounded like she was born to be the Finance Critic; I didn't mean that to be any reflection on the current Finance Critic.

 

A really good question, thank you very much. So the auto insurance review was a campaign commitment of this government and I'm pleased to say that we have followed through on that commitment. The process started in the Fall of 2010 and it took us a little while to find the right person to lead the review because our sense was that the way to do this was to have a project leader and it had to be somebody who was very familiar with consultations, very well respected, knowledgeable, perhaps not intimately knowledgeable with auto insurance, because it's difficult to find somebody who really knows auto insurance well but yet would not be perceived to be biased by some stakeholder group. If you hire somebody who spent their life in the industry, the brokers and the consumers may not be happy. If you hire a career, plaintiff-side lawyer, well the industry is not going to be happy, and so on and so on.

 

We were really pleased to find somebody of the calibre of Ron L'Esperance, the former deputy minister of many things in government and a person of the highest ability and integrity. I can't say enough good things about Ron. Ron, through his consulting company, undertook process under the direction of the government. The one thing that we said to him was that we wanted there to be an advisory committee representing the major stakeholder groups.

 

Ron worked with an advisory committee and the members of that advisory committee included representatives of the Insurance Bureau of Canada, the industry lobby group; the Insurance Brokers Association of Nova Scotia, which does a great job representing brokers throughout Nova Scotia; representatives of the car-rental industry, because they had particular and unique issues and I felt that it would be really useful for all of us to hear from them on the advisory committee; also, people representing plaintiffs injured in automobile accidents and those were lawyers John McKiggan and Ray Wagner, who shared some time there; also, there was Doug Murphy, the Superintendent of Insurance.

 

So with Ron as the lead, and with the advisory committee making sure that everybody was consulted and the appropriate issues were flagged, we then opened the doors to a full, open public consultation process. There was a discussion paper that was issued. There was a government news release. Really, we made sure that everybody who was interested in the issue would be consulted, and that happened.

 

Ron was asked to submit to me, before the end of March 2011, a draft report which would then be subject to further public comment. Ron did that; he met his deadline and, frankly, the report is on my desk. Any delay in releasing it for another round of consultations is my fault. I anticipate that it will be released, as the saying in this House goes: soon, very soon. Certainly it won't be very long.

 

At any rate the concept here now is that we take Ron's draft recommendations, put them out for public comment, just to make sure he hasn't missed anything, and we've asked Ron to have his final report in, after another brief round of public consultation, by the end of May and I still think we can meet that deadline. After that we're going to put out his recommendations for actuarial analysis because we're very committed to the idea that no changes will be adopted that do not meet the threefold task of stability, affordability, and fairness. Typically, in order to figure out how much any change to the insurance laws is going to cost, we have to do an actuarial analysis. That's going to take place over the summer.

 

If there are any amendments being proposed to the Insurance Act - and I say "if" because we didn't go into this saying there has to be some, we just want to make sure the product is up to date - if there are amendments to the Insurance Act, we anticipate that those would be introduced in the Fall sitting of the House. That's the process, that's the timeline that we're working with.

 

MR. GLAVINE: Interestingly, the auto insurance cap review, as we know, was done and before the auto insurance review. I'm wondering why the order there in terms of going about that process.

 

MR. STEELE: Yes, a very good question. It simply had to do with the fact that we felt the review of the minor injury cap was urgent. It was something that we had opposed from the first day it came into force and we felt that we needed to move on it quickly and decisively. We knew that the broader auto insurance review was a bigger, longer project and we didn't want that bigger, longer project to get in the way of immediate corrective action on the minor injury cap so we did separate them out. You're quite right, essentially the minor injury cap was a piece of the broader review, which we'd just chosen to do first for those reasons, but that's why we did it in that order.

 

MR. GLAVINE: I was wondering also if it's a bit early to say what kind of impact the cap is having on the industry. Is that being monitored pretty regularly? Is there feedback coming in or are we in early days to be able to assess the kind of impact on the industry?

 

MR. STEELE: Yes, it is too early. The Utility and Review Board held a generic hearing in the Fall on this question and, as I think all members are aware, indicated that based on their analysis the minor injury cap could be implemented without any increase in premiums. In fact, the information I have is that premiums continue to fall even after the minor injury cap reforms were introduced and I think that's good news for all consumers.

 

As part of their decision, the Utility and Review Board did require that a further hearing be held - I don't have the information just off the top of my head - I believe they said two years later, two years after the introduction they want, themselves, to have a look because they believe two years is adequate time for a body of experience to be developed. In the insurance world, the time that has passed to date is not nearly enough to have a realistic sense of what the impact is going to be.

 

MR. GLAVINE: That's certainly an area I know the public has great interest in and pleased that the draft will be coming out in May. I wanted to go back - unless it sounded like you had something else to add.

 

MR. STEELE: I was just going to say soon, very soon.

 

MR. GLAVINE: I wanted to go back to the line of questioning where I had left off. I don't think my colleague went there, but again, looking at the recommendations of the Auditor General, there was one, Recommendation 5.2: "The Department of Finance should implement the recommendations of the Deloitte LLP report, previously accepted by the Government, to disclose agencies' third-party gross revenues in the revenue estimates, for the preparation of the next estimates." The government has accepted the recommendations of the Deloitte report, but I'm wondering why this area has not been implemented.

 

MR. STEELE: It is not my recollection - I stand to be corrected - that we said that we accepted all the recommendations of the report. In fact, in the Auditor General's Report itself, in the Department of Finance response, it says, ". . . government will consider the options presented as it moves forward with the next budget." At this point we do not believe that it is feasible, for reasons I discussed with the member for Bedford-Birch Cove, to implement those particular recommendations.

 

MR. GLAVINE: Does that mean, then, that this won't be up for consideration in the future? I guess that's what we would be asking the minister.

 

MR. STEELE: No, it doesn't mean that. It's a source of some concern to the government. In fact, that is the reason why, when we commissioned Deloitte to do their two-part report in 2009, this specific issue was on the agenda. In an ideal world, there would be no qualification on the Auditor General's opinion on anything that he does for us. When we looked at it, it just wasn't clear to us that the work involved in order to have the qualification removed was worth the relatively small benefit to be gained.

 

The Auditor General - as he does and as he should - continues to point out annually that this is something that under Generally Accepted Accounting Principles ought to happen. Part of our job as government is to say to him, well, that may be true, but in the circumstances it really is far more effort than merited by the benefit and so we're not doing it. I'm not saying we'll never do it or that we may not find a way to do it in future, but for the time being, that's not a recommendation that we have implemented.

 

MR. GLAVINE: I don't have much time remaining. One of the areas in looking at the budget for 2011-12 is the forecasting for a considerable deficit. I'm wondering what some of the reasons are that you would state, as the Minister of Finance, that we do have a troublesome year ahead with revenue generation versus the requirements of running all the departments and the programs associated with them. It is a projection of a pretty sizeable deficit. I'm wondering, what in particular is the troublesome part on the horizon for such an estimate?

 

MR. STEELE: The most troublesome thing, of course, is simply that expenses are rising faster than revenue. That's like saying, why did Montreal lose last night? Well, because Boston scored more goals than they did.

We have pretty much held the line on departmental expenses, except this year sees the addition of university funding, which was mostly absent from the budget last year apart from the Agricultural College. Therefore, that factor alone keeps us in a substantial deficit. This year's budget, the 2011-12 budget, really is what I would call back to normal. There is one year of funding for universities in one year's budget. Because of what the previous government had done - sort of doing two payments in a single year - that meant we had two budget years that were unusual because one year had one payment and the other year had none. That just distorts any time you're trying to compare year over year. That essentially means that there were three years in a row that are very difficult to compare. I'm pleased to say that we're back to normal accounting for university funding.

 

Really, it's the addition of that back into the province's books that increased expenditures far more than the revenue side. I'm not sure that people realize how historically unusual it is for the government to hold the line on expenses the way that we have, particularly on health care. I don't think there's any government in Nova Scotia that has ever accomplished this. This is a pretty ambitious undertaking, to hold the line on expenses the way that we are.

 

The challenge on the revenue side is simply that the economy is recovering but is still not back to normal. Much of our revenue depends on the state of the economy: personal income tax, corporate income tax, HST. Even things like corporate income tax are complicated, because if a company has suffered losses, as many of them did in the recession, they can carry those losses forward in future years, so it's many, many years until corporate income tax gets back to where it would be as a reflection of the state of the economy.

 

Our offshore royalties for oil and gas have just dropped through the floor; they've just dropped off a cliff. In 2008-09 the government had something like $300 million more in royalties than I have to work with. That's a huge hole in a $9 billion budget.

 

The other thing that most people don't realize is that we have suffered a steep decline in federal-provincial transfers. Now, there are all kinds of reasons for that, but only part of it is due to the end of federal stimulus spending. People talk, as a previous member did on that side, about the escalator clauses and the CHT and CST, but we don't get the full benefit of that, because our equalization is dropping. Although the federal government has said that they'll protect our equalization, they don't really. They're more playing with words when they say that, because what they're really protecting is our equalization plus CHT plus CST. It doesn't matter if the CHT and CST go up, because we lose an equal amount in equalization. We've suffered another drop in royalty revenue and we suffered a big drop in revenue from federal resources, and combined with the increase in expenditures on the university funding, that's what has produced the projected deficit of $389 million.

 

MR. GLAVINE: Thank you, minister. There was one other area that I wanted to touch on, and I think it eludes me here at the moment - something that I wanted to finish off with, but it does elude me. So I'll let the NDP - I guess I haven't eaten since breakfast, so I think I'm going to get a bite to eat before late debate. It's just that simple. Thank you very much, minister and staff.

 

MR. CHAIRMAN: Thank you very much, member, and we understand you're involved with late debate, as well, so we will turn the time over to the NDP caucus.

 

MR. STEELE: If I may ask a question, Mr. Chairman, at what time are today's estimates finished if we continue straight through?

 

MR. CHAIRMAN: At 6:23 p.m. we will have the full four hours in, so we are doing very well here. We did have a 10-minute break rather than five, so that has been added on.

 

The member for Halifax Chebucto has some questions.

 

MR. HOWARD EPSTEIN: Thank you, Mr. Chairman, and minister, how nice to see you. I wonder if I might start with a clarification of the GAAP issue. One point that wasn't clear to me was whether there are GAAP-related reservations for other provincial budgets - I don't mean other years for our province, but for other provinces - that are related to the same kind of hard-to-nail-down items such as the one that you mentioned, which is stray nickels, dimes, quarters, and toonies at the school level.

 

MR. STEELE: Thank you for a very good and challenging question. I just want to let the members on that side know that if questions are too tough I'm just going to go immediately into a rambling closing statement to take us to the end of the time.

 

I'm aware of one such reservation, member, but that's only because it's not a question that I have ever asked my staff before. There may be others, but over the course of my time as minister there is only one that's come to my attention. That is a massive reservation on the part of the Saskatchewan Auditor General, where the Saskatchewan Government simply does not report their books in accordance with Generally Accepted Accounting Principles.

 

It has to do largely with the very large government business enterprises that Saskatchewan has for historical reasons, and the Government of Saskatchewan simply does not consolidate those in the way that would be suggested by Generally Accepted Accounting Principles. When Saskatchewan brings in a budget it is always the case that there has to be a translation; there's one number that they report publicly, but then everybody who follows these things says, well, the real number is this. I'm told that the Saskatchewan Auditor General reserves opinion on the books of Saskatchewan every year for this reason.

 

MR. EPSTEIN: This sounds like a somewhat different situation than the one that led our Auditor General to identify a GAAP-related reservation.

 

MR. STEELE: I don't know what other provinces do on the specific issue of little Joey's chocolate bar sales.

 

MR. EPSTEIN: Yes, it sounds to me as if it's either something that our own Auditor General has focused on, for whatever reason, or there may be precedents elsewhere. I guess both of us have to admit to share ignorance on this point, but perhaps it will emerge at some point. Perhaps I could ask the Auditor General at some point in the future.

 

MR. STEELE: I don't think I would ever confess to share ignorance, but perhaps the member could review Part 2 of the Deloitte report again for me and see if there's some way forward on this. We've looked at it from every angle, and the professional staff say, look, it just would be far more effort than is justified by the amount of money involved.

 

The Auditor General is doing what he ought to do. He is auditing our books in accordance with - or in this particular case, not auditing. It's a review of the revenue assumptions.

 

Oh, sorry - something has just occurred to me, member, on that point. Nova Scotia is the only province that has the Auditor General review the revenue assumptions, and that goes back to the past where I think previous governments were criticized precisely for providing faked-up numbers on revenue. In order to deal with that issue, I believe it was the Buchanan Government that put a provision in the Auditor General Act that is unique to Nova Scotia, where the Auditor General every year comes in in advance and looks over the revenue estimates just to verify that they're reasonable.

 

Now, that ought to put an end to all discussion about whether the revenue estimates are high or low, because the Auditor General looked, but it doesn't seem to stop the Opposition from making this accusation of fudging the numbers. It's unfair; it's completely unfair, but perhaps the reason why I'm not aware of a similar reservation in other Auditor Generals' Reports on this particular issue is because no other Auditor General is required to do this revenue review.

 

MR. EPSTEIN: That's a good point. I had forgotten about that, and I should say that it certainly doesn't worry me. I don't find it a concern. I was mostly curious as to the situation in other provinces.

 

I wonder if I could move next to your own departmental estimates. I had a couple of questions that arose from my reading of it, and one is a little striking. Your estimate for this year is $4 million or $5 million more than last year, and I'm wondering if there's anything in particular that led to that. For example, I see the forecast year end is just shy of $32 million and the budget estimate for this year is just a little over $36 million. I'm wondering, what is it that has led us to that very small change?

 

MR. STEELE: Okay, I'm going to start with the lecture that I gave to one of the other Parties about comparing forecast to estimate, and that is that that's not really a fair comparison. The forecast is essentially a snapshot as of March 31^st, and there are all kinds of reasons why a department can be underspent. The analogy that I used was to a hockey team, where if you say, well, how many players are there on the team, you get one answer, which is usually the maximum the league allows. But on any given day, if you count the players on a specific team, they might be out on injury, they might be visiting their sick grandma, they might have been traded and their replacement hasn't come in, and so the forecast is not really a fair comparison to the estimate.

 

The better comparison is estimate to estimate, because that represents the baseline, but even there, as you point out, there's a fairly significant increase. There is one particular item which is unusually large, and that is that $1.326 million of the gap is accounted for by an increase in the amortization on approved tangible capital asset projects. That reflects some significant new aspects to the SAP system, the corporate-wide accounting system that the Department of Finance runs on behalf of the entire government, including some other entities not part of government, like some municipalities - not all, but some. This is an enormous computer system run by one of the largest such firms in the world, SAP.

 

It's quite expensive; any upgrades are expensive, and this represents amortization, which, as I pointed out to other members, is not a cash cost. It doesn't reflect in any way the number of people working in the Department of Finance, but nevertheless it shows up on our books as a $1.3 million amortization cost when really, truly it probably belongs to the government as a whole if there were a budget for the government as a whole. This computer system happens to be housed within the Department of Finance, so we take any amortization as a hit on our budget.

 

MR. EPSTEIN: One of the things I also wondered about was the consultation process that you've now been so elaborately involved with. I have to say I admire this. I think that this was a really excellent idea and that going out around the province and talking to people is exactly what a Minister of Finance ought to do as part of a pre-budget process, rather than conduct a very closely-held private consultation. I think this is good.

 

What I was wondering was whether you've given any thought to the possibility of institutionalizing this kind of practice; that is, whether it would make sense to require this in a regulation, that this should occur - perhaps not at the same level of intensity that would characterize the consultation you undertook this last year, but whether it might be useful to leave as a legacy to future Finance Ministers some kind of requirement that would shape both the existence and perhaps something of the nature of a consultation pre-budget.

 

MR. CHAIRMAN: I should point out that there are five minutes remaining in the Progressive Conservative time frame now being used by the NDP.

 

MR. STEELE: Not to argue with you, Mr. Chairman, but my understanding is that when one Party finishes, essentially the clock resets and a whole new hour starts. It's not necessarily the case that if they drop off their time then the other Party only gets what is remaining of their hour.

 

MR. CHAIRMAN: That is the norm, for sure, but I think the member when he was leaving and was giving that time to the NDP actually suggested that on his way out the door. I'm prepared to turn a full hour over to the NDP immediately following this.

 

MR. STEELE: I'm not really expecting to see any members of the Opposition back tonight.

 

MR. CHAIRMAN: If I could make a comment, the Progressive Conservative House Leader is waiting to see if his Leader wants to come back for questioning, so we may be going into tomorrow. However, we will be finishing at 6:23 p.m., regardless of what they decide.

 

MR. STEELE: Sure, I would be happy to do that.

 

I could wax eloquently for a considerable period of time about the consultation process. It has been very enriching for me, and very informative. I am always disappointed when I hear the Opposition denigrating this process, as they are wont to do because the results of it are not necessarily in keeping with the Opposition's message track. I think part of the reason we have been relatively successful in establishing a four-year plan and then sticking to it is precisely because of that consultative process, where it's clear to me that that is what folks are telling us to do.

 

There are times when I realize how much work it is and how tiring it is. There was one time, I think it was in late January, I was driving through a blinding snowstorm in the Annapolis Valley. I could barely see 10 feet in front of the car, but it was impossible to stop. If you stopped you were running the risk that somebody behind you was going to hit you, so you just had to keep going. It was whiteout conditions, and this would be between Greenwood and Annapolis Royal on the highway. You keep going, and you do it because you believe in it. It would have been a lot easier for me to be at home and warm that night with my family, but I was on this consultation tour and I was committed to it. I was heading for Digby; I told the people in Digby I would be there, and as it turned out, they cancelled the meeting. I got there, but the folks who were sponsoring it cancelled because they thought it was too rough a night to ask people to leave their homes. But I was there.

 

There are times when you say, okay, there has got to be an easier way to do this, but there's a lot of value in getting out and around. I get a tremendous amount of value in this. I'm not sure if there's value to institutionalizing and making the regulation, but I do think about this a lot, and I'm already thinking about what to do for next year.

 

One thing that I am convinced of is that we're not adequately using the technological capacities that are available, when you consider that most people have a computer, most people are very comfortable with their computer, and there are lots of ways of giving people opportunities for consultation through their computer - providing them with information, of course, but also just finding ways to gather feedback. It has got to be in a constructive way, because I think we all know - all of us who are in elected office know - that there are less-than-constructive neighbourhoods on the Internet. For example, you get places that allow anonymous posting, and it's ridiculous. It's mean-spirited, it's vindictive, it's awful, and it provides no value in terms of public debate.

 

The challenge, especially when it's being sponsored by the government, is to provide a site or a neighbourhood or some way where people can talk with each other safely in a constructive way. Nothing that I'm responsible for will ever be anonymous, because I've never seen an anonymous site yet that produces useful dialogue on public policy issues. Finding ways through video, the interactivity that's available on the Internet, all the wonderful tools that are available, and saying, let's make use of this, it's consultation - but at the end of the day, no matter what we do in that respect - and we're kicking around some ideas now already in the Department of Finance about what to do next year - there is no substitute for just getting out and seeing people face to face in their communities. I've been very gratified by the number of people, both last year and this year, who said, this is great, nobody has ever done this before, and we're really glad you're here.

 

My last word on it is this: there's a lot of partisan posturing in the House of Assembly. Not to say that I'm completely innocent of that at all times, but I think we can all lose our way in here a little bit in the sauna of downtown Halifax or Province House. The first stop on my consultation tour this year was a place that I had never been before - literally never been before, before or after I came into office, and didn't get to during Back to Balance - and that was the Town of Guysborough.

 

I had a meeting with the Guysborough Chamber of Commerce, which I'm told doesn't meet very often, but they got together for this event and it was fabulous. We met for an hour and a half in a room of the local school. There were 20 to 25 people, some retirees and some businesspeople - and of course, almost by definition up there, the businesspeople run small businesses. It was such a fantastic group, and there was more straight-up, feet-on-the-ground common sense in that hour and a half than I sometimes hear in the Legislature in a month. So that reassured me that I was on the right track. Consultation of that kind, face-to-face, is important no matter how much we end up using technology.

 

MR. CHAIRMAN: There is considerable time left in the NDP caucus time frame if the NDP wants to continue, or we could turn to the Progressive Conservative caucus since the caucus has returned to the table.

 

MR. EPSTEIN: I'm happy to yield if I can hear from the members opposite whether they are interested in using the next 13 minutes until we have to adjourn.

 

MR. CHAIRMAN: We have 13 minutes remaining. We certainly will be carrying over to tomorrow, because there are a dozen resolutions and the minister will have some closing remarks. We now turn the time over to the Progressive Conservative caucus for 13 minutes.

 

The honourable Leader of the Progressive Conservative Party.

 

HON. JAMIE BAILLIE: I don't intend to use - well, I will use the next 13 minutes for sure, so I want to say thank you to the member for Halifax Chebucto for allowing us to use this time. We may well need to continue at another time - tomorrow, I guess.

 

I wanted to start by asking the minister a question that we're asking all departments of government in the estimates, so I don't want him to feel singled out in this question. As all committee members know, the government is going down the track of living within its means, which we certainly appreciate and support. In some cases that has meant some difficult decisions and cuts to programs that are delivered to Nova Scotians - in other departments, I mean, when I say this.

 

In addition to that, the government set some targets for itself, for the departments of government, looking at expenditure contraction in a range of either minus 5 per cent or minus 10 per cent over a three-year period, using the lower threshold of 5 per cent, which has been established by the government's own target-setting to be minus 3 per cent this year and then minus 1 and minus 1 per cent.

 

I'm wondering if the minister could share with us how the Department of Finance has done at achieving these targets. From the Estimates Book itself it is hard to see how that was done, but I want to be open to a reconciliation of the department's estimates, which appear to be up as opposed to the target that it set for all departments, including itself, of minus 3 per cent for the current estimate year.

 

MR. STEELE: Thank you. I'm very pleased to answer this question for the third time this afternoon. We start with the base, which is the estimate for 2010-11, and the following increases and decreases together go to explain the estimate for 2011-12 and the variance between the two, which I believe is $2.137 million. The first and by far the largest is $1.326 million, which is an increase in the amortization on approved tangible capital asset projects, and that is related to some improvements in the SAP system, which of course was brought in by the previous government.

 

It's a very expensive system. It was described to me by one senior executive within government as being the Cadillac of all financial systems, and probably is more powerful and more expensive than other systems that might do equally well. Nevertheless, we've invested a great deal of time - I shouldn't say we have. The previous government invested a great deal of money and effort into acquiring the system, training people, staffing it. So that's the system we have, and there were a number of upgrades.

 

Because the Department of Finance delivers the SAP computer system for all units of government - and indeed, many units that are not part of government, like some municipalities; some universities are, of course, and they're not part of the consolidated entity - all of the costs associated with the SAP system end up being part of the budget of the Department of Finance. So as I say, by far the largest amount is that amount, amortization, which of course is not a cash cost. It doesn't say anything about how many people are working, but nevertheless, it shows up on the Finance Department's books.

 

The next-largest item, $828,000, represents pay increases - in some cases, believe it or not, going all the way back to 2008-09. Why that is happening is a very complex story, but the increases - this is the thing that is so hard to explain - on the surface it looks like a massive pay increase, but when you actually break it down and say, well, what's going on here, you realize it's not. It's the 1 and 1 per cent settlement that was reached with unionized and non-unionized staff, in some cases going back all the way to 2008-09. Anyway, that's $828,000.

 

An increase in hardware maintenance costs from Oracle was $600,000. Oracle was having financial troubles of its own. They decided to pass on very substantial cost increases to their customers, and the original amount, as I recall, was substantially higher than that. We beat them down to $600,000, but that was a non-negotiable item for them. Really, they have a captive audience in the Government of Nova Scotia, because once the system is in place, we really don't have a practical alternative when they propose fee increases. That was a system put in place by the previous government.

 

Transfer of one full-time equivalent, operating costs and salary from the Public Service Commission, the Internal Audit Centre, accounts for $94,000; transfer of one full-time equivalent, operating costs and salary from the Office of the Speaker - that, of course, relates to MLAs and associated expenses - to the Payroll Client Relations unit, which falls under the Department of Finance, $56,000; and $50,000 increases in administration fees payable to the Canada Revenue Agency for processing personal federal tax returns and tax credits. I wish CRA processed our income tax returns for free, but they don't, and every year they want just a little bit more money to do it.

 

Against those increases are the following decreases: a $508,000 decrease attributable to the deletion of 5.4 full-time equivalent positions; a further decrease of $209,000 representing a decrease in operating costs for approved capital projects; and finally, a decrease of $193,000 in operating cost reductions. All of those increases and decreases together explain the difference between last year's estimate and this year's estimate.

 

MR. CHAIRMAN: There are about five minutes remaining in the Subcommittee on Supply's time for today.

 

MR. BAILLIE: Thank you, I appreciate that detailed answer. I'm wondering if the minister or the department would be prepared to provide us with that reconciliation which the minister has just provided verbally. I'm taking the nod of his head as a "yes," so when that is possible, I would appreciate that.

I'm wondering if I could ask the minister this: how many people work for the Government of Nova Scotia as of now, or the most recent fiscal year end?

 

MR. STEELE: You'll have to direct the question to the Minister of the Public Service Commission. That's not within my department and my estimates. I don't have the answer at hand.

 

MR. BAILLIE: I'm just a little surprised by that answer, Mr. Chairman, as I am under the impression, as the Estimates Book itself says, that the Department of Finance does the payroll transaction processing for all government departments. That is on Page 11.4 of the Estimates Book. So since the department provides that service, perhaps I'll rephrase the question. How many paycheques does the department process currently?

 

MR. STEELE: I'm sorry, I don't know the answer to that question.

 

MR. BAILLIE: I realize that's a detailed question, and so I would appreciate if perhaps the minister, through his officials, could provide us with that answer when they have it.

 

I'm wondering if we could then reconcile the number of paycheques to the FTE total provided in the estimates. I know it's not an exact comparison and probably requires a little work, but if we could get some sense of how the number of paycheques cut - say, within a normal pay period or a current pay period - relates to the FTEs provided to us in the Estimates Book, that would be helpful. I'm wondering if the minister could ask staff to provide that to us.

 

MR. STEELE: No, I won't make that commitment. Look, what I'm here to do today is to defend the department's estimates. The question of how many paycheques we cut may be a very interesting question, and it may be a very important question, but it's got absolutely nothing to do with the Department of Finance's estimates. So no, I'm not going to make the commitment that I will obtain that figure for whatever purpose the member may have for it.

 

I'm prepared to answer any question about my estimates, but things like that, like how many paycheques do we cut - I'm having trouble seeing what that has to do with estimates.

 

MR. BAILLIE: I just want to point out that my original question was, how many people work for the government? The minister was not prepared to answer that question. It seems like a pretty innocent question. His job is to defend the department; our job is to ask these types of questions. He didn't want to answer that question, so I tried to frame it in a way that related to the work of the department. The work of the department is to process paycheques, so the next logical question would be, how many cheques do you process? I would like to see that.

 

I think the minister said we could do that. Never mind the FTEs for a moment, then; I would be interested to know how that number, the number of paycheques that the department processes as of today, equates to the same period in time a year ago. That is something that the department is responsible for, so I'm hoping we can see that.

 

I do want to point out that on Page 11.1 of the Estimates Book the department states as its mandate "providing meaningful, transparent reporting." I assume that means to Nova Scotians, and I assume that means to members of the Legislature, and through them to Nova Scotians, so I feel quite comfortable that this is an appropriate line of questioning for that reason.

 

I'll move on from paycheques, although I would like confirmation that we will see that at some point. I'm wondering about the correspondence between the department and the Auditor General related to the audit of the Public Accounts, and whether the department is in receipt of a management letter from the Auditor General and what progress it is making on working its way through any recommendations he may have.

 

MR. CHAIRMAN: A very quick answer, minister. We're just about out of time for today. Certainly we'll have the Progressive Conservative caucus tomorrow.

 

MR. STEELE: Yes, the Auditor General prepares a management letter every year, as the member knows.

 

MR. BAILLIE: I'm sorry, I wasn't asking if there was such a thing. I'm wondering if the department has a report on its progress in implementing the recommendations of the Auditor General, and/or which recommendations it is not planning to implement, that members of the committee could see.

 

MR. CHAIRMAN: That concludes our time for today. We will resume the Subcommittee on Supply tomorrow. We have completed our 240 minutes, or four hours. We thank the minister and the MLAs and the staff of the department for the input today.

 

That concludes the session for today. Thank you.

 

[The subcommittee adjourned at 6:22 p.m.]