MR. CHAIRMAN: Good afternoon. I would like to call the Subcommittee on Supply to order, please. We have the Minister of Finance before us. The resolution for the record is E7:
Resolution E7 - Resolved, that a sum not exceeding $12,867,000 be granted to the Lieutenant Governor to defray expenses in respect of the Department of Finance, pursuant to the Estimate and the business plans of the Nova Scotia Government Fund Limited and the Nova Scotia Power Finance Corporation be approved.
MR. CHAIRMAN: The honourable Minister of Finance.
HON. NEIL LEBLANC: Mr. Chairman, first of all, I would like to start off by introducing our staff. I have here with me the deputy minister, Bill Hogg. We have Joyce McDonald who is the Director of Finance for the department. We have numerous people with us here. Michael Rainer is the Director of Budgets. We also have Liz Cody who is, I always forget, the title is Executive Director of Fiscal and Economic Policy. We have Marie Mullally who is the President of the Nova Scotia Gaming Corporation. We also have Holly Fancy who is the IT Director and David MacNeil, who is the Director of Communications for the Department of Finance. We will have joining us Suzanne Wile who is Director of Government Accounting and also Doug Stratton will be joining us. He is the Executive Director of Investments and Pensions Treasury.
Mr. Chairman, I have just a few brief comments in opening here today. I would like to say, first of all, it is a pleasure to be here again. The Department of Finance has estimated its 2001-02 net program expenses to be $12.867 million. This amount is higher than the estimate for the previous year for a number of reasons. First of all, Finance has assumed the auditing function and staff on behalf of government. We have centralized it within our department. We are also facing higher costs to maintain the government's financial management system.
The Estimates Book also shows the debt servicing costs of just under $1.05 billion. This is the gross amount and it is important to distinguish between the gross and the net. Normally when we talk about debt servicing, we are speaking about the net amount which includes our sinking fund earnings. This brings our net debt servicing costs to the more familiar $909 million shown in the financial statements. However, during the estimates we will be speaking about the gross amount. We have a funded staff level of 191. Members should understand that funded staff levels do not always translate equally into the actual number of employees as there are always vacancies in the system.
I would like to point out some of the responsibilities of our department and which ones are carried out by the various branches in the department. One of the major branches is the critical area of Fiscal and Economic Policy. This branch covers taxes and tax policy and federal-provincial relations on these matters, economic analysis and also statistics. The people who work in this area do our modelling on revenues. They also develop new tax credit initiatives and do the negotiations at an official's level with the other provinces and also with Ottawa on fiscal arrangements such as equalization. It is through this branch that the government will be pushing Ottawa for more funding under the CHST or the Canada Health and Social Transfer.
I would also point out that my department plays a key role in the government's overall economic policy development and strategy. The more detailed development policies are, of course, the responsibility of departments such as Aquaculture, Natural Resources, Transportation and Economic Development itself. In Finance the concentration is more on economic analysis, the impact and assessment, with particular reference to making sure we understand how economic events and policy decisions will impact on our revenues.
Another key branch is Investments, Pensions and Treasury Services. This is the area where we manage our money, including the pension investments and debt management. This is a critical area for the long-term financial survival of the province. As some members would know, it is due to the very active management skills of our staff in this area that has kept our debt servicing costs relatively constant as the debt built up over the past five or six years. I would also note this is the same staff who have been able to reduce the foreign exposure from more than 72 per cent at the end of 1994 to 36 per cent a year ago, to 31 per cent today, and down to 20 per cent in the year 2004.
We also have a budget area which is overseen by an assistant deputy minister. This position plays a critical role in coordinating the government-wide budgeting process. I think it is important to point out that the final budget product is a result of a lot of work by people in my department and throughout the entire Public Service. The ADM's area now includes the controller's branch which is responsible for internal audit, government accounting and reporting as well as government services such as payroll and accounts payable.
This group has been very busy since our government took office. It was this group that implemented the move to Generally Accepted Accounting Principles and accounting for tangible capital assets. I think they have lost a lot of their hair and turned a lot greyer since that time as you will probably see from the staff coming in. They have also led the process to implement standardized accounting procedures beyond the government throughout the public sector, including school boards and also health boards.
As a department we are also home to the Finance Corporate Services Unit. This unit provides support and services to a number of other government departments and agencies in the area of finance, human resources and information technology. Collectively our most important role is as a central agency of the government providing support in a number of key areas, including the management of the budget process that we are now going through today.
The Department of Finance underwent some major changes during 2000. Procurement was moved to Transportation and Public Works. Pension regulation has moved to Environment and Labour, regulatory affairs and government auditing services is now centred in our department. Also, some of our budget personnel will be moving to Treasury and Policy Board. The Department of Finance continues to be a significant central agency of government. Our challenges are considerable as we continue with our plan to eliminate the deficit and reduce the tax burden on Nova Scotians.
Mr. Chairman, with just those very brief comments, I would be more than willing to take any of the questions that the members of the committee may have.
MR. CHAIRMAN: Thank you, Mr. Minister. I will start off with the NDP caucus.
The honourable member for Cole Harbour-Eastern Passage.
MR. KEVIN DEVEAUX: Mr. Chairman, I do have to be over for Education so I am going to split my time with the member for Halifax Chebucto. I wanted to start with some of the revenue projections, both last year's estimate and forecast and then this year's estimate.
The minister will know that the Auditor General had some comments about this in his report that came out this year and particularly in some of the - my term, low balling - his term, conservative estimate probably is more likely what he used, but where some of the
revenue numbers were quite low and then were brought up or were, as the forecast went on, and he said as an auditor he thought that that was a concern, that the government was somehow reducing estimates when they announced the budget and for whatever reason, maybe to inflate the deficit, at least at this stage, so that they could have rationale for not spending in certain areas and then in the end, you know, when we announce our new budget in April, in this case March 2001, we have higher numbers.
So I guess I will start off by saying, Mr. Minister, do you have any comments with regard to what the Auditor General had to say in his report generally?
MR. LEBLANC: I listened and I had read the comments by Mr. Salmon regarding the estimates and he had mentioned that perhaps they were on the conservative side. I would like to say that for ourselves the revenue estimates are prepared through Fiscal and Economic Policy, which is Liz Cody who is sitting alongside me here. The numbers are done, I think, on a consistent basis year to year. I guess you could ask, are we being overly optimistic, and some people say that perhaps we should - I think, as a government we should be consistent with whatever policy we put in place, but I would tend to think that we're probably more on the conservative side if you look historically. I think most people would feel that we should be prudent.
We had a very good year last year. All projections that we went by were basically in line with our projections that we put in place, taking into account that we were making government smaller. That was going to have an impact on the economy. We realize as a government we are a major employer, at the same time having the size of deficit we had was unacceptable and we made movements to move in that direction. So, for us, it was basically being consistent in how we projected it. We exceeded that and we're very pleased that that happened. However, I mean the opposite could be said, if we were optimistic in our projections and we didn't meet them, people were saying that we would have been trying to basically use the other argument, and I think for ourselves whatever we do, we should be consistent.
MR. DEVEAUX: You would argue then that it is better to be safe than sorry, better to be conservative - and I mean obviously small "c" conservative in this case - with your estimates and if by chance there's a windfall, then so be it. Better that than the other way around which is we predict too high a revenue and we end up having to deal with deficits?
MR. LEBLANC: I think if you look at what we had last year, we had used private sector forecasts. We were in line with those forecasts. We were a little bit lower, but we also had to take into account that we knew, as a government, that we were going to make government somewhat smaller. The people making those projections in the private sector are not part of the budgetary process and don't fully understand it. This year, even in our budget, we have included the projections of other indicators, or other private sector projectors. The Conference Board of Canada I think was one of the ones we had, also some of the banks, to
give people an understanding as to what they're saying and what our projections show. I think if you look at them, we are in line with what is going on and I think that's what we have to do. I, as minister, we, as a government, shouldn't have the latitude to try to change those numbers, we should be consistent.
MR. DEVEAUX: I think that's one of the points I would like to make and get your comment on. Last year - I am trying to remember the exact number - you said the economy would grow, I think it was 1.8 per cent or 1.5 per cent when the budget was first introduced.
MR. LEBLANC: The projection was 1.8 per cent.
MR. DEVEAUX: Okay, 1.8 per cent.
MR. LEBLANC: We ended up at 3 per cent.
MR. DEVEAUX: I don't have the exact figures, but CIBC or Scotiabank, in early 2000 had made some predictions with regard to where they thought the economy was going, they thought it was going to be much higher than 1.8 per cent. So there was a fairly wide gap between what the province was predicting and what the private sector outlook was. Is that correct?
MR. LEBLANC: Across the nation that was the case and I know that we have some numbers here, that almost every province exceeded their revenue projections considerably. I think that was basically the fact that we had put projections in for revenue forecasts which were basically in line with what was being shown at the time of the budget and the economy basically had performed, and that's something that is good, whether that is due to consumer confidence in the economy; once that gets rolling, I think all members realize that things can move along very well. For us, it did exceed it, but I think if you look at the other provinces, every other province in Canada did the same. Alberta did fantastically, but I don't think we can compare ourselves to Alberta, so I will leave that one alone.
MR. DEVEAUX: I don't know if you've answered my question. Let me back up. Do you have numbers there that sort of show in late 1999 or early 2000 what the banks and other private sector economic forecasters were saying they expected the Nova Scotia economy to be at, what their outlook was?
MR. LEBLANC: Projections for the last budget that we tabled?
MR. DEVEAUX: Yes, 1999-2000, what were the projections in the private sector?
MR. LEBLANC: Let me just clarify. It would be 2000-01 and you're saying 1999-2000.
MR. DEVEAUX: I am sorry, you're right, for the fiscal year 2000-01 what were their outlooks?
MR. LEBLANC: The answer is yes. There were projections that were readily available.
[5:00 p.m.]
MR. DEVEAUX: Do you have them there?
MR. LEBLANC: We can get that to you, that's no problem. That's all public information anyway.
MR. DEVEAUX: Okay, because my understanding is that last year the province forecasted, at one point, much lower than what the banks might have been saying. So I will be curious as to what the numbers are with regard to that.
MR. LEBLANC: I will get those numbers to you. The projections were showing about 2.2 per cent to 2.5 per cent. We projected 1.8 per cent. Then again, the staff are also reminding me that they were not aware of the fact of whether we would be reducing our spending as a government, which is something that we, as a government, did, but that's in line. I will make a notation to get that information to you.
MR. DEVEAUX: This year the banks are showing, even the most updated ones which only occurred a couple of weeks before your budget, that it still is around 2.2 per cent to 2.4 per cent, I think. Privately CIBC, Scotiabank, I think they were coming in around that number which would be bang on with where your prediction is under the assumptions you're making in this year's budget, is that right?
MR. LEBLANC: Pretty well exactly. The average overall is 2.6 per cent and we're estimating 2.3 per cent and that encompasses seven different indicators - APEC, Royal Bank, CIBC, Scotiabank, Conference Board, TD Bank, and Bank of Montreal.
MR. DEVEAUX: Some of those go back to the fall, I believe, when the economy still seemed to be a little higher. If you take the more recent ones that were - I don't know if they were updated forecasts given to the economy, they're much closer to what you're talking about though, right?
MR. LEBLANC: Two of those are in February, the other ones are in October, November, December. So if you put that in perspective, perhaps as they go further on, I think the updates probably would be reducing the numbers more in line with what we have projected.
MR. DEVEAUX: So that leads to another question which is, last year you were as much as 7 to 10 points behind what the outlook was being forecasted by the private sector. This year you're much closer, if not bang on with what some of them are predicting.
MR. LEBLANC: I disagree. We were not 7 to 10 per cent behind what the private sector was indicating. It was 2.2 to 2.5 that they were indicating would be the increase. I point out again that there are also things of the government that we would be moving out of; we knew that and I stress, again, for the people making those projections, they weren't privy to that information.
MR. DEVEAUX: So do you feel pretty comfortable with 2.2 per cent as an outlook for how much the economy is going to grow this year given the sort of global situation?
MR. LEBLANC: I only wish I was as comfortable in making my own investments as I was trying to make this one. Obviously, it is an educated guess at a point in time. As the forecasts keep getting reported we will have a better indication, but the indicators are still saying that we have the lack of consumer confidence, especially in the United States right now, that things will pick up in the latter part of the summer into the fall. That's why these numbers are still at the levels they are and we are hopeful we will maintain that.
I point out again that Nova Scotia is in a little bit of a different situation than in the past. We have a much more diversified economy, but we also have a lot of exploration going on offshore. If you look at the TD report that came down I think two or three weeks ago, it mentioned that overall their projections were down but that the oil and gas provinces, they felt would weather this relatively well because of the fact that there is still demand. I think that's an appropriate comment that we have to take into consideration.
MR. DEVEAUX: Around personal income tax specifically; I don't have the exact percentage increase here calculating, at least not in front of me, but last year, and maybe since this is my first time as a Finance Critic you might be able to sort of explain to me, if it is possible, briefly, how you come about the number for increases in personal tax. Is it just based on increases in personal income or if there's a percentage increase in personal income, therefore, you correlate that into the same level of increase in personal income tax, or is it based on other factors as well?
MR. LEBLANC: I can't remember the question again, I apologize. You're talking about how it is factored? Obviously, the information, as we do our calculations is provided from Ottawa through CCRA, the old Revenue Canada agency, and for us, in this year, the increase that we are seeing is relatively small in this one area, this one fiscal year, especially when you look at it in perspective from what we have seen from the previous year.
Some of the changes that have happened federally, we have indicated that we are not initiating provisions to protect ourselves from bracket creep. I think you are already well aware of that. There are other issues though that the federal government has put into place that will also have an impact on our revenues. I go back to the capital gains changes they have put in place, where they reduce it to two-thirds and subsequently to 50 per cent. Those are things which define taxable income which we don't have control over. The national government still has that. In essence, we are still going to be losing revenue in giving a tax break to Nova Scotians because we are not keeping our definition of taxable income constant. So there are some tax losses, you could call it leakages, whatever you want to say, that if the changes in Ottawa would not have been in place that probably would have increased our personal income taxes that we didn't see here. But the numbers are all plugged in nationally. It is based on what is coming out of the taxation at the national level because they do that on taxable income and the projections come forward to our shop here and are plugged into our numbers and that is how we come up with it.
Maybe if you have a very specific question, I will try to elaborate a bit more, but I am doing an overview here, if you could just bear with me.
MR. DEVEAUX: I know that Stats Canada produces monthly reports on income. I don't know how delayed it is because, on the Web page, December 2000 is the last one I remember seeing. Do you guys have more recent information with regard to personal income in Nova Scotia on a monthly basis since December 2000?
MR. LEBLANC: Did you say on an increase . . .
MR. DEVEAUX: Do you have reports in January, February or March with regard to personal income in Nova Scotia - average weekly is what I am thinking.
MR. LEBLANC: I am being told that it is quarterly releases coming out of Stats Canada. I do know that a lot of the numbers that we get for planning or estimating are both CIT, corporate income tax, and personal income taxes are given. Usually there are two updates a year, usually in the spring and fall, that's why there usually are not a whole lot of changes to those estimates. The first forecast usually comes down and there are no estimates to those numbers because we don't have anything coming from the federal government. This last year has been an anomaly that there isn't a spring budget and as such, that will probably defer us from getting some of the additional information that we get in the spring that we've had in the past. Usually when they are preparing their budgets, they are updating all their information and once they do that, that information is shared with the provinces.
MR. DEVEAUX: Let me then ask another specific question. Is it still your department's assumption that personal income in Nova Scotia will be increasing this year?
MR. LEBLANC: The estimate for increasing is approximately $22 million. That is what the estimate over forecasts . . .
MR. DEVEAUX: Not the tax, the actual income. Do you still expect Nova Scotians' average personal income to increase? If so, do you have a percentage that you are expecting?
MR. LEBLANC: It is in our forecast on Page A11 of my Budget Address. It mentions that the personal income increase this year will be 3.2 per cent. If you just look on Page A11, there is a graph that talks about the fact that for 2000 the increase - it is about the fifth or sixth line down - last year was 4.7 per cent, which is an exceptional increase, it is very good for Nova Scotians. The increase this year is 3.2 per cent with projections for the following year of 4 per cent.
I would just like to make a comment. Many times people have said that they look at national trends and say that we have room to increase our taxes and I think I have heard some of those debates in the House. What we also have to look at in Nova Scotia is that our average income is not as high as some of the other provinces. So when you take that into consideration - I have heard some comments from some think tanks who say we have room to increase our taxes. If we were to have the average income of some of the other provinces, basically our taxes would be in line, the rates would be. I think for us it is a consideration that is part of that whole debate as to whether our taxes are reasonable, whether they are too high. Of course, you are going to get people on all sides of this argument, depending on which side you are looking at.
MR. DEVEAUX: With regard to corporate income tax, there is quite a jump this year. Can you explain where that much larger number is coming from?
MR. LEBLANC: The good news is that the corporate sector is still doing reasonably well. We always get into the fact that they have used a lot of their loss carried forward as they get a few good years. After awhile, those losses carried forward are getting utilized. There has also been some change in the ITC for manufacturing and processing, which means that this year that credit that was being utilized will be diminished and that has a major impact on it. Those are three different factors, one of which the economy is better, the losses carried forward are being used up and not available. In the last issue I talked about the manufacturing and processing. Overall though, I just would like to comment, it is still going up I think $30 million, from $169 to approximately $200, - which is a good size. I would have said probably a year ago now that that would have been a bit surprising. It is a pleasant surprise and we are very pleased with it.
MR. DEVEAUX: Well, since 1997, according to your own documents, it has gone up a fair bit from $121,000 to almost $200,000. We are close to almost doubling the corporate income tax brought in over the past. Harmonized tax you see going up, I take it that
is because you see sales generally going up? I think you have 3.5 per cent for this year that sales going are up to. Is that the assumption behind the HST going up as well?
MR. LEBLANC: If I could just point to the same table that I referred you to before, you are also getting into consumer spending, retail sales are still going up 3.5 per cent. I think in Nova Scotia there is reasonable confidence still in the economy even though we are hearing a lot of the dreaded slowdown in the United States. I think a lot of it has to do with the offshore gas and oil, people know there will be activity here and that has had a positive impact.
MR. DEVEAUX: Then can you explain why tobacco, gaming and liquor are all - well, gaming is going up only slightly, but still down from last year's estimate. Liquor is up slightly over last year's forecast, but below last year's estimate, which is down. You overestimated on that. Those numbers seemed to have almost flattened out, or even lower than you had expected from last year's estimate and only slightly higher than last year's forecast. Can you explain why those numbers are flatter than the others? I am assuming tobacco is going to go up now because there is an increase in tobacco.
MR. LEBLANC: I think the Liquor Commission, for a long time the volumes have not changed. That has been consistent over quite a bit of time, I think trends have changed, consumption is basically stabilized. The efficiencies that have happened within that corporation, to a great extent, have done it by streamlining their expenses and trying to keep within their budgets, and I think they have done a good job of that. Maybe that is one of the biggest reasons that when we made the decision to continue operating that, that was probably one of the reasons why the comparison showed that we should keep it in operation.
The Gaming Corporation, this year, part of the problem we are having there is some of our ticket sales have basically not gone as well as we expected them to. Mr. Chairman, maybe on this question, since he had to shift, maybe I will just shift- if you want me to continue on this line of questioning, I can, maybe I can pick it up when he comes back, whatever the . . .
MR. CHAIRMAN: Just finish the question for Hansard and if he wishes to respond to it, he can do so later.
MR. LEBLANC: Those are two major issues that I would like to point out. I think I have answered the one regarding liquor. The Gaming Corporation, overall this year, there seems to be a saturation in that point and I think that is one of the reasons why we haven't seen the growth in that aspect. But it comes to the point where there is a saturation of any market and I think we are starting to see it in gaming.
MR. CHAIRMAN: The honourable member for Halifax Chebucto. Your time is 5:15 p.m. and you have the floor.
MR. HOWARD EPSTEIN: I would like to examine a couple of other aspects of the minister's departmental estimates and some aspects of the economy. I am wondering if we can talk for a minute about the proposed sale of Nova Scotia Resources Limited. Am I right to understand that it's your government's hope or plan to have sold the company sometime during this fiscal year?
MR. LEBLANC: The announcement for the sale of NSRL was in the last fiscal year. That is the year ended March 31, 2001.
MR. EPSTEIN: That is the announcement of an intention to sell.
MR. LEBLANC: Beyond that. It is basically an offer which if acted upon by the parties and we overcome all the barriers - they are obviously waiting for approvals and so forth which I could relate in great detail here, but the bottom line is, what I am saying is that if this sale becomes final the gain will show in the fiscal year, March 31, 2001. We indicated when we announced the budget that the gain had not been shown in the financial statements but that information was disclosed because this transcends the fiscal year in waiting for the information to come in. If it is sold, it will be shown on our financial statements for the year ended March 31, 2001.
MR. EPSTEIN: Just to go back, I take it the minister was referring to the various rights of first refusal and so on, is that right?
MR. LEBLANC: The deputy was just pointing out that there was an agreement of purchase and sale in February 2001. I will try to go into this in some depth here. That agreement basically talked about two different aspects, one of which was the asset sale that was being sold to Emera in conjunction with Pengrowth, which will be their partner if that clears. The second side of it was the sale of the remaining parts of the Nova Scotia resources outside of SOEI, which would mean the significant discovery licences and the company itself, that is being sold to PanCanadian.
The share was structured whereby the assets were offered first. That means that ExxonMobil and Shell had a right of first refusal on either shares or assets, whichever one is offered first. The first thing that was offered was the assets. That was the ROFR that they had to exercise. They did not exercise that option on that. Then, it went beyond that, it is in the process of getting approval from the SOEI consortium as to whether or not they will accept them as an alternate as to the province in regard to the project and, of course, tier two, which is in the process of doing it. That is where we are waiting right now for an answer, and that has not yet been determined.
MR. EPSTEIN: We are now into a new fiscal year. I gather what you are saying is that any revenue flow to the province from the sale has not actually occurred, you are not in receipt of cash because of any sale. But, you are saying that because you had signed the documents or essentially concluded the agreement in last year's fiscal year, at some point you expect to go back and re-state the financial position of the province for last year.
MR. LEBLANC: That is correct. That is if the sale becomes final as it is.
MR. EPSTEIN: And if it does not?
MR. LEBLANC: Then basically we, as a government, will sit down and decide whether we will begin the process over again. Then, of course, it will be in this fiscal year.
MR. EPSTEIN: What I am actually wondering about, in the end, is what you intend to do with the proceeds from the sale. Is it the intention of the government to use it completely to pay down debt?
MR. LEBLANC: Our intention, of course, is to lower our borrowing. On this asset we would also have a gain on sale, which will be shown last year in the year ended March 31, 2001. It is a one-time item, it is not a repeating item. Too bad, we would like to sell it more than once, however that is not going to be the case, we know that. (Interruptions) (Laughter) I want to get the cash for it at the same time. Mr. Chairman, a bit of humour is always good in these debates.
I would like to say that for ourselves, it is to use that to reduce the borrowing of the province. We have a lot of short-term borrowing, obviously, that will help us. Even beside the whole sale of NSRL, this year we have a huge borrowing program, we have a lot of debt that is becoming due. We also have some short-term borrowing. The proceeds of this will be used to lower our borrowing in this fiscal year.
I would point you to Page A56, in the third column of our Budget Address and the estimates for 2001-02, whereby the proceeds of the sale of Nova Scotia Resources Limited of $420 million calculated into that, that is for our borrowing program.
MR. EPSTEIN: I take it then, in a shorthand term, what you are anticipating is although you are calling it reducing borrowing needs that in the end you expect that there will be a debt reduction with the proceeds, or do you expect to continue to use this for reducing borrowing needs?
MR. LEBLANC: The bottom line for us is, we will be reducing the net direct debt of the province. I have no argument with you there. For ourselves, especially in the borrowing program that we have, this will allow us - it will not be dollar for dollar against the net direct debt of the province, that is obvious, but it will also reduce our borrowing
requirements. I think that is very important for the province, that we are able to use those funds for it.
MR. EPSTEIN: Again, just to be clear, you are not proposing to treat any of it as revenue?
MR. LEBLANC: No. The gain on the sale of NSRL, if it becomes final, will be shown in the fiscal year 2001. It is approximately, if I took a ballpark figure, we haven't got the final number, about $180 million to $200 million, in that range, in that fiscal year. We haven't done the final accounting. No matter what happens, it is a one-time event, and I have stated clearly that for ourselves, I don't plan to use this as a Messiah that we have balanced the budget or whatever because it is not going to repeat.
MR. EPSTEIN: I am certainly not arguing that you should do anything else with that money, let's be clear about that. I just want to check on this. One of the things that I do wonder is, has the analysis that led your government to conclude that this was a reasonable sale price ever been released?
MR. LEBLANC: No, it hasn't.
MR. EPSTEIN: I take it you have studied this analysis.
MR. LEBLANC: Yes, we have.
MR. EPSTEIN: Okay. Can you just remind us when that study was done?
MR. LEBLANC: I believe that study was done sometime in June 2000, if I recall, in that range. Don't quote me, I think that is ballpark.
MR. EPSTEIN: That was the study that suggested that this was an appropriate price? You see, my concern is simply this, that the market price for natural gas has changed quite a bit since the time of that study. Something that has always concerned me about Nova Scotia Resources Limited and the whole question of valuation of it is how to tie that to the market price of gas.
MR. LEBLANC: . . . was updated in January of this year. Just so you know that before you go any further, but continue. Price is a factor that changes, I don't argue that.
MR. EPSTEIN: It fluctuates, although it has mostly been going up, that has been the trend. If you say that the study from the consultants has been updated, are you saying now that they are suggesting a different sale price to you?
MR. LEBLANC: No.
MR. EPSTEIN: They say to you, the price of gas is going up but let's sell the company for the same price that we estimated last summer?
MR. LEBLANC: You are asking me two questions. One, whether there was a process to initiate the sale of NSRL. There was a valuation done last year in regard to NSRL as to what the net present value of the company would be. It was also updated earlier in this year, because I think it would be wise for us to do that before we make a final determination, and we did so. We have also talked about the fact that when and if - I guess we have to wait to see what will happen - this sale becomes final, we release all that information. I think it is important for Nova Scotians to have that. Clearly, the recommendation is substantiated by the data that is there.
MR. EPSTEIN: Again, they are saying to you there is no difference now, in their opinion, as to the appropriate market price?
MR. LEBLANC: For ourselves, the changes there, as to whether or not it changed our mind in regard to it, the answer is no, but I am not going to get into the specifics of it because until it is finalized, for us to be talking about the numbers that are included in the report or releasing the report, I don't think it is appropriate; which I have been asking whether we should do so, and for ourselves - Excuse me for a second. I shouldn't be eating at the same time, I apologize.
MR. EPSTEIN: It keeps your strength up, it is fine with me.
MR. LEBLANC: I had a cold last week and here we go again, and the week before.
MR. EPSTEIN: Feed a cold, go ahead.
MR. LEBLANC: In this instance, for us to release information before the sale is final I don't think is appropriate because we would basically be giving the position of the province for people who would want to bid on the assets.
MR. EPSTEIN: All right, well, let me tell you my worry and my concern.
MR. LEBLANC: Sure.
MR. EPSTEIN: It is this. We all know that Nova Scotia Resources Limited lost a lot of money in the process of exploration and for oil and extraction of that, and that this is the debt that the company carried and has not yet been offset, of course, by revenues from the profitable side of the business which has been the extraction and sale of gas. I have asked NSRL for projections in the past, which they told me they had done internally at NSRL which looked at their debt position and their projected revenues from the sale of gas and they
looked to see if at some point they would be able to cover off the losses from oil from the revenue from gas.
Now, they have never given me these documents although they told me that they did such studies, and this was about three years ago that I asked for these studies which they said they had done. It seems to me that although they didn't give me the studies, they were saying to me at the time that under no scenario that they could see for the price of gas were they going to be able to cover off their losses, but this was three years ago when the price of gas was about one-third of what it is now. What seems to me absolutely crucial here is the same question again. Given the spectacular rise in the price of gas, how is the health of the company in terms of revenues from gas compared with the losses from oil? Is it still the case that given that rise, that we won't be able to deal with the debt that was accumulated? Because the key question is, shouldn't we hold onto the company for a number of years if there is enough revenue to pay off that accumulated debt, because the situation at the moment is that we've already rolled their debt onto the debt of the province and this is worrisome. Whether you can answer it now or you answer it when you make the consultant study public, that question surely will be central.
MR. LEBLANC: I think if you look at what Mr. Parker said at the Public Accounts Committee some weeks ago, I am not sure when he came forward, that even with the changes, there is no way that Nova Scotia Power - no, I am sorry, Nova Scotia Resources Limited . . .
MR. EPSTEIN: That was your last privatization.
MR. LEBLANC: Let's start another one here.
MR. EPSTEIN: I remember that one well, too. That's exactly why I am worried about this one.
MR. LEBLANC: Well, that was the right decision then and we have a difference of opinion on that issue, but I think sometimes we agree to differ and that's fine, but on this one here, even with the changes that we have, it is still basically not a situation that we will be able to pay off our debt anywhere close to it.
MR. EPSTEIN: All right, even if we are not able to pay it off, are we able to pay it down and recover at least part of it because, again, the question has to be asked that way. Does it make sense to sell it five years in the future after we've had the benefit of some profitable flow of gas revenues?
MR. LEBLANC: I am in a difficult situation of trying to talk about what's in the consultant's reports and the appraisals because that's basically the gist of it, when you're asking the question, is it beneficial for us to hold it or to sell it. I can tell you that it is
beneficial for us to sell it. A lot of the data and the projections that you're talking about are included in the work that has been done.
MR. EPSTEIN: This goes into the calculation of net present value?
MR. LEBLANC: That's correct. So we're getting into the projections and I know that the member is asking a question that's a good one, but I am in a situation of basically not being able to provide the numbers without releasing the consultant's report and I am committed not only to you, but I am also committed to the press, for us it is paramount if the sale becomes final that the information all be shared. Nova Scotians have the right to have that information and we will be making it public and maybe at that time, with your indulgence, we will have this debate. It will be after the estimates, I realize that, but even if we can do it on the floor, or just one to one, I will go over it with you in detail.
MR. EPSTEIN: I take it the report will have made long-term projections for the price of gas in the marketplace and the price and so on?
MR. LEBLANC: Yes, that's correct.
[5:30 p.m.]
MR. EPSTEIN: Yes, okay. That's probably as far as we can get, as you say, given that you're not prepared to go into it in any more detail in terms of the result but I do have to say to you, of course, this will be a central question in terms of major public policy decision here and I am sure the minister can anticipate that it will be looked at in a lot of detail when it comes out.
MR. LEBLANC: I think there are two issues, one of which is that when we look at where we're going long term in regard to NSRL, is it the right thing to move out of. We have the projections of what it is of whether we keep it or whether we are to sell it. The other issue is that there is a lot of risk factor involved in staying in the offshore and I know a lot of people feel that government should be involved in such enterprises, just the experience of government, I haven't seen very many projections going forward in the business case scenario that we have put forward that government has met its objective. I am not proud to say that and Nova Scotia is not alone in that practice.
If you look across Canada, most things that governments have got involved in, we probably haven't met our objectives, whether we are bad businessmen or whatever criticism we can give ourselves, it hasn't happened and that's one of the things that (Interruptions) Well, that happens in all stripes, all colours, and you can look across Canada, we can sit here and talk about all kinds of examples. I think that for ourselves, we get a quantifiable amount for what we have sold, we limit our exposure to it, but the other thing is that I really believe that this is a sector that the private sector should be in and when government stays in it, there
is also a lot of time, focus and energy that has to be put into it. Those are all factors which should also be considered, too. I know that you heard me making these statements before, but I still believe them very strongly.
MR. EPSTEIN: It is a fair statement that you made. There are factors like that involved. What I was focusing the discussion on was the question of the timing of the sale. We might agree or disagree on whether to sell it all, but certainly this question of timing is one that we could have a hard-nosed look at.
Can I just go back to another side of it, not the financial side but maybe the contractual side. Can you just give us a quick look at what the procedural steps are or decision-making steps are in terms of the potential purchasers' decision making that has to be made before the government will know whether there's a sale or there isn't and what kind of timetable you're contemplating?
MR. LEBLANC: The timetable, basically we haven't set a firm timetable in the sense of exact number of days. The people who are involved, the companies that are involved, have asked for some extensions and we haven't any problem; it isn't something that has to be done today. If they want some more time, if we can be co-operative, then we are prepared to do so and we have done that. As for where we are now, there are two issues, one of which is that they are looking to get approvals from the partners in the SOEI project, I referred to that before, and that's what they're waiting for at the present. How quickly they'll get their response or how that process will go, basically it is for them; it isn't the government's direction, we're not in the middle of these discussions, they are the ones actually going to deal with the other partners. So it is a process that is outside of government. Once they get their answer, then they'll come back to us and that's really where we are in it.
Could I just point out, you mentioned things about the prices and everything else and I think it is important that we do mention this. When we began the sale of NSRL, the prices were lower than they are now but during the year prices go up and prices go down and we've already seen some changes in those prices. If you look at the last year, if you look at a graph, there is quite a bit of volatility to it, when most of these prices came in, the bids that are coming in are coming in when the prices are high and, for ourselves, we think we've picked a good time to deal with NSRL. I would much rather deal with it now when prices are in the high range versus when they were $2.25 or $1.85. So, this gives some added value to the company. I always say I would much rather be selling an asset when the market is strong than when it is weak. When it is weak, no one wants to buy it. When it is strong, people see the potential, and that's the same thing, this isn't new to government. If you're involved in business, there are times to sell and there are times to hold. Right now I think is the time to sell.
MR. EPSTEIN: Except, of course, I think I have just heard you again say that a strong gas price gives some added value to the company, but at the same time you're saying there is no added value to the company over last summer's estimate, so I am a little worried about that.
MR. LEBLANC: There are two things. When we look at projections, we look at the long term. You're looking at the price today. Will it stay that way forever? Some people look at a situation and say gas prices are going to stay high forever. People look at oil prices. Oil prices are going to stay high forever. If you look at the timing of both gas and oil, they go up and down. If you look at history, it seems to repeat itself whether we agree with it or not. People who are involved in this industry probably look at the past history and don't look at the very highs as being where it is going to end and don't look at the very lows as being where it is going to end either, they probably use a medium.
MR. EPSTEIN: Well, I don't think anybody is talking about forever. In any event, just one footnote, though I have to say, I mean you mentioned the risk of staying in the business while the offshore is under development. Mr. Minister, it is one thing to suggest that there is risk, but on the other hand, I keep seeing in documents that your government generates, including the draft energy strategy that was just released, very optimistic projections about the capacity of the offshore to generate commercially exploitable gas and the figures are no longer the three trillion cubic feet of the six wells we have under development right now - the projections range all the way up to 40 trillion cubic feet in those documents and they're being stated in terms that are very optimistic. So I am not sure whether there's a huge amount of risk there of staying in that business.
Maybe we will move to another interesting and happy topic. Do you have anything to say to us about the value of the Canadian dollar this year?
MR. LEBLANC: Buy low, sell high. For ourselves, obviously, it has been very volatile. We look at the situation, everybody is predicting the Canadian dollar to do better. We have heard that for how many years now? It is getting to be repetitive. We think the estimates that we have put forward are based on forecasts that we see for the year. You tell me whether it is going to be accurate, but we have to make an estimate as best we can. Only time will be able to tell us whether it will be exceeded or met, or whether we will go the other way, but we will have a better idea.
If we look at the situation that we've put into place, we've estimated $1.5712 which translates to 63.64 U.S. versus Canadian. It has been very volatile and as much as I can, I try to listen to the forecasts because every time they forecast something, it doesn't seem to be accurate, but the good thing though is that we have lowered our exposure, especially to foreign exchange, and it has been very good. We have had a very good year in reducing that. We are down to 30.8 per cent when we tabled the budget, of foreign exchange, the vast majority of that is all in U.S. dollars. If we just follow the Act that we've put in place which
mandates that we shall repatriate some of that U.S. debt when it comes due and change into Canadian, by the year 2004 we will be down to 20 per cent and so, you know, we're in the right direction.
This year we've made a major reduction. We have taken advantage of different areas when they came forward and so for ourselves we're very pleased that there is less exposure which is very positive for the province.
MR. EPSTEIN: In fact, this is the only reason I am asking. I am certainly not asking your opinion for purposes of making investments. What I am asking about is this question of our exposure in terms of our debt and I think the department has made great strides in patriating the debt. This has been exactly the right thing to do. I approve entirely. I think the pace is very good. What I am really wondering is whether there's any opportunity to accelerate the pace or is it just a question of converting as some of the obligations in American dollars become due?
MR. LEBLANC: If you look at what we had planned last year, we didn't plan to be as low as we are today. A lot of that happens when circumstances present themselves during the year whereby we as a province can take advantage of that. We have mentioned here today that if we do nothing, then we will be down to 20 per cent by the year 2004. That is if we do nothing. We will weigh basically the situation into the year, whether it becomes an advantage for ourselves to either swap or to hedge some of our debt and reduce it. I am not making any commitments that it will happen, but at the same time we will remain, I guess, open to the possibility that it could occur again because that's exactly what happened last year when the circumstances presented itself. We did take advantage but, Mr. Epstein, I am not prepared to predict that it will happen, but we will look for opportunities.
MR. EPSTEIN: That sounds fine to me, but can I just ask about this 20 per cent figure because I think I have heard you or others from perhaps your government mention this from time to time and it sounds to me, if I understand it correctly, that 20 per cent is about where the department seems to think it wants to stop the patriation. Can you explain, is that your intention or do you intend to move to 100 per cent?
MR. LEBLANC: The Act as it is says that we have to reduce it to 20 per cent. It is mandated by law that that's what we will go towards. Once we get to that, there are other factors which will play into it. We also have royalties which will be coming in, a lot of which will be in U.S. dollars and right now we're receiving very minimal royalties. Within a few years that, hopefully, will change, especially after we get past the first three years where we're working 1 per cent of the gross royalties, our gross revenues, and then we'll be changing into 2 per cent or 5 per cent. Then once we go by that, then we get into the 30 per cent of net. It will depend on how much of the capital investment they've made that will be moving through those different levels of royalties that we will receive, will have a better understanding.
For ourselves we have been taking advice also from our staff as to what is the appropriate amount of foreign debt, should it be zero, should it be 20 per cent. Once we get to that level, I think as a government, we will sit down and take a look at it, should we be reducing it even further or is that the proper balance taking into consideration the amount of U.S. dollars coming in. We will be receiving U.S. dollars at that time, that we could basically deal with our debt management in another way that we don't have available to us today, but those are options that we're going to look at. Right now we're by law mandated to reducing to 20 per cent, but we're not sitting here today and saying that it shall not be reduced further than that, that we're going to say we will look at a strategy when we get closer to the 20 per cent.
MR. EPSTEIN: That sounds right. The argument in favour of holding your debt in your own currency is, of course, you don't have to worry about fluctuations in the exchange rate. The argument for holding debt in foreign currency is that sometimes there's a better interest rate. So you're suggesting that that's what you will be looking at?
MR. LEBLANC: I think for ourselves we are going to be looking at staff recommendations, as I mentioned before, Doug Stratton, who heads our Investment and Debt Management section. We are in a process right now of moving towards 20 per cent. We know at the bare minimum we will be there by 2004 and we may get there faster by the discussion of what I outlined before.
MR. EPSTEIN: I am not sure I understood the point about some of the royalties being paid in American dollars. You're saying that you might judge the timing of conversion of that money to Canadian currency according to fluctuations in the market? I am not sure what you're saying.
MR. LEBLANC: The revenues that we will receive will be in U.S. dollars. That in itself provides a natural hedge against the fluctuations that we have. So that is an option that we did not have before. So when we get closer to that amount, we will look at what kind of revenues we will be receiving in making a decision, is it in our interests to bring that down or to leave it roughly there and use the revenues coming in as a natural hedge. That's what I am saying. It gives us options that we did not have in the past, but we do have today.
MR. EPSTEIN: I am actually quite interested in the question of royalties that might accrue to the province from the offshore, but before I turn to that, can I look at one other matter that worried me, or interested me I guess, about the province's finances for a long time and it has to do with the pension plans that are public sector pension plans and the position of the province with respect to covering the pensions of teachers and public sector employees. At the moment there is a huge amount of money that the province has generally under administration, or that the province participates in administering, I think up around $30 billion total at the moment. Is that wrong? I am sorry.
MR. LEBLANC: It is about $6.8 billion in pension funds. Maybe I didn't understand the question. You were saying, was it $30 billion you were referring to?
MR. EPSTEIN: Well, I have to say I don't have my copy of the Auditor General's Report in front of me at the moment, but my recollection was that there was an array of various pension plans that added up to around $30 billion, but I better go back and check. I can see, although you're getting some advice from your deputy, maybe that helps. (Interruption)
MR. LEBLANC: The deputy is mentioning that supposedly he read the same comment in the report. I don't see this as being anywhere close to it. Just bear with me for a second.
MR. EPSTEIN: Sure.
MR. LEBLANC: It is assets and liabilities so you're getting sinking funds, pension funds, liabilities. So it is along those lines and . . .
MR. EPSTEIN: Let's not worry about the exact amount because that wasn't the focus of my question. Really what I was wondering about was the current state of play as to the health of the funds and let's start first with the Public Service Superannuation Fund and can you just bring us up-to-date with respect to how that is doing?
MR. LEBLANC: Sorry about that, I just wanted to make sure I had it right. As of March 31, 2000, it was at 106 per cent. Now we are in the process of doing another evaluation. We still have some concerns. We have a lot of older workers who are going to be retiring and, of course, like some of us, who are getting a little older, we all have a little bit of grey, it makes you look very distinguished by the way. (Laughter) Actually, so those are concerns that it is going to increase the cost, as we have a turnover in government and have younger workers, obviously that will help. That is where it was as of March 31, 2000, at 106 per cent, so our Public Service Superannuation Fund is doing very well. We are very pleased with that.
MR. EPSTEIN: Are the evaluations done annually? I see your deputy nodding yes, so I guess the answer is yes, that they are done annually. There will be another one being done around this time - is that right? - so we might hear the results of that soon, is that correct?
MR. LEBLANC: We are doing it now, actually. It will be part of the financial statements that will be reported for the fiscal year ended March 31, 2001.
MR. EPSTEIN: I guess really what I am wondering about is lines of public reporting on this, because it seems to be an important but generally obscure corner of government administration, that is I don't think there is any requirement to lay these results in front of the Legislature. I am not sure. Is there an obligation?
MR. LEBLANC: It is being reported in Volume 2 of the Public Accounts, and it is also being put on the Web site for the members. This year, that is one of the things that we did, rather than have a huge mailout we did it by Web site. How much did we save on that? We have $10,000 or $15,000, that we saved. A lot of these issues, things that we mailed, we made copies, traditionally we have all done them. I know the member for Lunenburg West, when he was minister, would know. You keep doing all these reports that you mail, some of them collect dust either in the old warehouses or in somebody's home. More and more, we are trying to use the Web site to make that available. If people want it, they can get it. It makes a lot more sense than trying to mail it to everybody, because most people, to be perfectly honest, don't read it. As long as they get their cheque every year, that is what they care about. Other ones obviously have a distinct interest in it.
MR. EPSTEIN: That is fine with me. I may have to have a word with Mr. Salmon, because my recollection, again, is that I thought he had made a comment that there was no reporting obligation, that is that the line of reporting, I think he said, went to P & P rather than to the Legislature. But if you are making the information publicly available, that is fine.
MR. LEBLANC: I think maybe he is saying his comments or opinion should be tabled in the House, that may be the situation that we have. I will look into it, so at least I will be aware. I am not aware of all the details on that, but staff can tell me that.
MR. EPSTEIN: That is fine.
MR. CHAIRMAN: You have 5 minutes remaining in your time, sir.
MR. LEBLANC: The deputy says it may be some of the trust funds that we have had that maybe aren't being reporting. We will take a look at what he said in the report. I will keep an open mind.
MR. EPSTEIN: I will check in more detail, as well. This is useful. You may recall, of course, that a few years ago the province was in a position because of the performance of the plan to take a pension contribution holiday. I take it that this is not your anticipated situation at the moment?
MR. LEBLANC: If I could just answer that question, we are not close to the point whereby we would feel we would be giving a pension holiday. I mention, again, the fact of the older workers, how much they are going to be taking, is a concern. I think it wouldn't be
very prudent to be looking at pension holidays right now. We don't want to find ourselves in a situation of being . . .
MR. EPSTEIN: What about the teachers' pension plan?
MR. LEBLANC: The teachers' pension plan, about 90 per cent, as of March 31, 2000, again, that information is available on the Web site and you can probably find it there. We have done very well, we have been very pleased. We have the investment committee that works with Doug Stratton, who is to my right here, and I think many members of different sectors, I know Mr. Greg Blanchard sits on it, Mr. David Peters sits on it. The previous government did some good things on that, I will give them a lot of credit. I think it has been good. The people feel a part of the whole structure. It was a so-called closed domain before, I think it has really opened up, and I hear a lot of positive comments from people who sit on the committee, that they feel it is performing very well. Obviously, when you do well, it is great. This has been a very difficult year for the investment sector of it, but we have different types of investments, some in the fixed income, some in the equity markets, but overall they are doing very well.
MR. EPSTEIN: When it was realized a number of years ago that that particular plan was not being funded at the level it ought to have been, a statutory scheme and an agreement was put in place to change the contribution levels and to require the government to make some extra contributions. What I am wondering is, following the schedule of agreed-upon payments, do we anticipate that the plan will be 100 per cent funded by the time we finish with that schedule?
MR. LEBLANC: Always the cautious one, he says it depends on the markets, on the return. Obviously, we feel we have exceeded our projections up to now, so that is positive. When we had the investments plan, it was the intent to have the plan basically fully funded at the end of this investment. If you want to follow that, if things remain as rosy as they are, we should be able to do it, perhaps ahead, on time, but you have to put the caveat in there that it all depends on the returns, and we shouldn't be counting our chickens before they hatch. I am moving on to the next speaker, before he gets on.
MR. CHAIRMAN: The honourable member for Lunenburg West. The time is now 5:53 p.m.
MR. DONALD DOWNE: Mr. Minister, thank you for being here. I have the pleasure of taking the next hour of questioning. I want to say hello to the staff, many of whom I have worked with and know. You are fortunate to have quality staff.
I want to cover a number of areas. Obviously, the initial questions on net direct debt growing, and I want to cover some of the concerns about the fact that you have had - I wish I had had, in the 14 months I was Minister of Finance, I would have loved to have had - $512
million additional revenue from Ottawa, and why our debt is still growing and we still don't have it balanced. We will get into the detail of that a little later on.
I want to ask about issues on tax cuts. You mentioned before, and part of the blue book promises that you are going to, in your fourth year, reduce income tax by 10 per cent. Could you indicate just what that 10 per cent cut would look like? If at Nova Scotia middle rate income bracket of 14.9 per cent, what would that look like at the end of your 10 per cent tax reduction? How would it affect an individual at 14.9 per cent?
MR. LEBLANC: It is difficult to predict whether it will affect every individual. I do know that if you look at the costs of it, I think the estimate is about $136 million in tax cuts that we are projecting for the year four. There has been some tax reduction as I mentioned before. I am not sure whether or not you were here when I was talking about that. Some of the changes have happened in Ottawa already and they are changes that they have had in the definition of income. I refer specifically to items such as capital gains, whereby the definition has moved from two-thirds down to 50 per cent. That just in itself, was a reduction in tax of about $12 million in 2000 and a reduction in tax of $28 million in 2001. So there has been in a real sense some tax reduction for Nova Scotians, just the fact that some of the definitions have changed. Being in this portfolio before, you know what I am referring to.
The other issue is that you are asking how those tax cuts will look in 2001? For ourselves, the bottom line is that we want people to pay less provincial tax. As to how that will be formatted, that will be in our budget that we table at that time.
MR. DOWNE: You mentioned $136 million. I think in your blue book election promise you thought the actual tax cut would cost about $110 million. It is now at $136 million. What confidence do you have that by the year four in your mandate that it will not be in excess of $136 million? Or, do you know that?
MR. LEBLANC: Our projections that we have now are that. What confidence do we have? Well, I guess, the only thing you can look at is that basically the first two years have been on schedule. We believe that the economy will continue to perform. I think we are well positioned in the sense that our economy is relatively diversified and we also have the benefit of the offshore coming onstream. Those are things which are very positive, but I look at what is going on throughout Nova Scotia. I was in your area the other day speaking to the Chamber of Commerce and I know that you were there. A lot of rural Nova Scotia has really changed its economy quite a bit from what it has before. Those are all things which have proven to be very beneficial to our province. Because of that, we are in a much better position today than we were some years ago.
MR. DOWNE: Maybe you misunderstood the question. I will go back just a moment. You mentioned earlier that the federal capital gains reduction of 75 per cent down to 50 per cent is a saving to Nova Scotians. Are you telling me that the Conservative Government blue
book, a 10 per cent reduction in tax, is predicated on the fact that the Liberal federal government that reduced capital gains, is part of your 10 per cent formula of tax reduction for Nova Scotians?
MR. LEBLANC: I am sorry. Could you just repeat that question again? I was having a conversation at the same time and I apologize. Can you just repeat it one more time?
MR. DOWNE: My question to you is, you mentioned that the federal capital gains reduction from 75 per cent to 50 per cent represents a tax saving to Nova Scotians. My question to you is, is it your understanding or your philosophy that the 10 per cent reduction that you indicated in your blue book is part and parcel of the federal government's reduction in capital gains? Is that part of what you say the 10 per cent would represent?
MR. LEBLANC: No.
MR. DOWNE: So then, back to the original question, what will this 10 per cent really mean to Nova Scotians from a provincial perspective? In other words, if you are at a 14.9 per cent tax bracket provincially, what is the 10 per cent reduction going to mean? Is it 10 per cent less of the 14.9 per cent? Or is it another number?
MR. LEBLANC: No. It will be 10 per cent less in provincial income tax that they are talking about. I mentioned before that though we have not changed our income tax rate, there are events which are happening today which are having a positive impact on people's income taxes in Nova Scotia. We mentioned that last year, the change in taxable income is a change in the definition of income. We basically share the definition of income with Ottawa. So, although we have maintained our rate, we are also affected by any change in the definition of taxable income. In this year, just those changes that you have referred to - capital gains - this year cost this province about $28.9 million. Our revenues have decreased already because of that so in a sense, there has been some tax relief because we do not control the definition of taxable income.
[6:00 p.m.]
MR. DOWNE: I realize that, but you do control some other aspects because of the fact that you decoupled from the federal income tax. There are some areas that you do have full control over, Mr. Minister, and I guess my question back to you is, excluding the fact that the good federal government is reducing taxes to Nova Scotians, I would say that in effect, by the fact that you have decoupled from the federal tax - and I have mentioned this maybe about four times to you before - the fact that you didn't flow through the provincial portion of it, that you have in effect, increased the tax, the provincial portion, of the federal tax. Even though the tax rate didn't go up, but as a percentage of the federal tax which is just the opposite argument you just made a minute ago, we are now at 60 per cent of the federal government tax. Prior to that, we were at 57.5 per cent. Is that not an increase relative to the
federal tax - the same argument you used here a minute ago on the federal tax reduction on capital gains?
MR. LEBLANC: Because you are talking as relative to the federal tax. We told Nova Scotians they would maintain the tax levels of where they were. In relation to the federal government, the percentage has changed. I don't argue that. The federal government has the ability to lower its tax rate because they have a surplus. They made many changes - a lot of those things are basically what people would call downloading or reductions in CHST or changes in the equalization formula and the provinces took part in helping Ottawa balance its budget. They have a situation today that they have a surplus and I am very pleased that they have a surplus. They are in a position to give tax cuts. We are not in that situation as yet. We have lost some of our tax revenues due to the fact that the definition of taxable income basically means that people have less taxable income also provincially, we have not changed our indexing. We have kept levels at where they were when we took office. We will make those changes once we balance the budget - which is in the year 2003-04.
MR. DOWNE: No matter how you want to cut it, we are now at 60 per cent of the federal tax, maybe higher, but we are in and around 60 per cent. So, in effect, we are paying as a percentage of the federal tax, more money. So, my question is, if you have a 10 per cent reduction in income tax, is it a 10 per cent reduction based on the year you took over power or is it 10 per cent after you have all these increased costs of taxes to Nova Scotians as a relative percentage of the federal tax?
MR. LEBLANC: It will be based on the year that it happens. That is based in 2003-04.
MR. DOWNE: Whatever rate the province's taxes are at that point - whether they are through increased taxes or user fees or whatever it is - the 10 per cent reduction will be based on whatever component of tax you can ratchet up as a percentage of the federal tax or what other tax you want to put in at that point. It is not a 10 per cent reduction from when you were elected, it is going to be 10 per cent of what it will be in the year four?
MR. LEBLANC: That is correct. If you did a 10 per cent today, it would be $125 million because our personal income tax estimate today is $1.25 billion. So if you look on the revenue page in our estimates, if we were to give a 10 per cent tax cut today, it would be $125 million. If we give a tax cut in the year 2003-04, it is planned to be $136 million.
MR. DOWNE: That is based on the fact that the income will increase for Nova Scotians?
MR. LEBLANC: No, because the economy is growing. I have mentioned before that . . .
MR. DOWNE: Yes, I know . . .
MR. LEBLANC: Let me answer the question and then I will be more than prepared to take any more questions with regard to this.
MR. CHAIRMAN: Order, please. Let's have some civility. Don't interrupt.
MR. LEBLANC: No, there is no problem. We have no arguments.
MR. CHAIRMAN: Thank you.
MR. LEBLANC: We have said that we will maintain the levels of taxation at where they are. We have done that. When it comes to 2003-04, people will see a 10 per cent reduction in the personal income taxes that they pay in this province. So, as of that time, that estimate will be $136 million. I just want to make sure that I explain myself properly.
MR. DOWNE: I think most Nova Scotians believe that there would be - at the end of your 10 per cent reduction - 10 per cent less tax than they were paying when you took over as a percentage of the federal tax. The federal tax went down, you clawed back or didn't flow through the provincial portion of that. The capital gains provision, you had no way of decoupling from that, so you had to pay that.
I want to move on to bracket creep, which is an issue that I was always under the impression that you being a good fiscal conservative and a strong private sector individual would really want to allow people to have dollars in their pockets that they legitimately should have. Now, bracket creep, as you know, was brought in by Brian Mulroney - I am not sure, but, nevertheless, that was brought in for whatever reasons, and it is not a fair tax. I think you would agree with that. It is a provision that says because inflation goes up, whether your salary goes up or not, inflation goes up, you are possibly going to be pushed into a higher bracket.
My question to you is, why didn't you take off bracket creep in the Province of Nova Scotia? I understand that is costing the taxpayers $25 million this coming year. Is that accurate?
MR. LEBLANC: The estimates we got from staff were in that range, if we put indexation in on those brackets, it would have cost us $25 million. I go back again to the statement that we have made, we are asking Nova Scotians to work with us and make reductions in spending in the Public Service and that is never easy. For ourselves, that is why we laid out a plan that said that we would do it over three years, they will bring in a balanced budget, and the fourth year would bring a tax cut. For ourselves, we are still on target on what we are saying. Are you referring to whether or not we should give some other tax cuts in the interim? Our position has been adamant that we are going to stay consistent and we
will give the tax cuts once we have balanced the budget of this province. I have said that on numerous occasions, and I still say it here today. The timing, when it will happen, will be the year 2003-04.
MR. DOWNE: Mr. Minister, can you tell me how many people are going to be affected in the Province of Nova Scotia because of bracket creep? For example, how many Nova Scotians who are now at a lower rate of 9 per cent, will actually be going up? Or individuals who are at 14.9 per cent, how many will actually be going up because of bracket creep? Do you have a breakdown of how many Nova Scotians are going to be affected by that, and what rate would they actually go up to?
MR. LEBLANC: I don't think we have that information. We don't have that; the staff says they could try to see whether we could get those numbers for you.
MR. DOWNE: Well, if you don't have that statistic, how do you know it is going to cost about $25 million?
MR. LEBLANC: I stand corrected, my staff says we have it but we don't have it here. Anyway, those calculations were done. I will try to see if we can get that for you.
MR. DOWNE: The last time I asked you to provide information I think I waited almost a year, and it was just about the time the Auditor General, about two minutes before he started his presentation that that information became public. Can I ask the minister, I plan to be here for a little while, would you be able to present that to us today or tomorrow?
MR. LEBLANC: Tomorrow.
MR. DOWNE: Tomorrow would be fine, we are all busy tonight.
MR. LEBLANC: That is fine. She said that some of the staff wouldn't be there to run it, but we will get it. Staff tells me that information is available, and we will get it to you.
MR. DOWNE: Tomorrow?
MR. LEBLANC: Yes.
MR. DOWNE: Suffice to say that there will be individuals who are currently at 9 per cent who will be going up by the time we hit your magical period of tax reduction.
MR. LEBLANC: The point you should also make is that people's overall rates don't change, basically only the portion that goes over that threshold would change. The effect of this is not major per individual, it is minor, but it does have an impact on the bottom line, I
don't disagree with that. If people move up into a higher bracket, it doesn't affect all their income, it only affects the portion that would move into the other bracket.
MR. DOWNE: Mr. Minister, I still see this as a hidden tax, whether you agree or not. I am sure that if you are on this side of the table you would be saying, Mr. Minister, you said in your red book, no new taxes. Mr. Minister, I am saying to you, in your blue book, you said no new taxes. This is a tax. You didn't take it away when you had a chance to take it away, and the bottom line is Nova Scotians are paying more tax. Just standing still, doing no more than what they are currently doing, they are going to be paying more tax.
MR. LEBLANC: I don't agree.
MR. DOWNE: Am I wrong on that, Mr. Minister?
MR. LEBLANC: I don't agree. We told Nova Scotians that we would maintain the status quo, and that is where we are. There have been some tax reductions already in some of the areas that the federal government has changed, the definition of income. You mentioned before, we honour the definition of income per the federal government, and as such, we have no control over that. There have been some tax reductions for certain people, especially in regard to capital gain. For ourselves, we set out in our blue book when we would have reductions in taxation.
MR. DOWNE: The bracket creep is still an issue. When the minister reduces the tax by 10 per cent assuming he will reduce the new level of income, whatever, from where we started that 10 per cent reduction, is the minister prepared to commit that he will also eliminate bracket creep, over and above the 10 per cent reduction in year four?
MR. LEBLANC: Mr. Chairman, for ourselves, we will make the reductions in year 2003-04. Nova Scotians will pay less than 10 per cent. As to how it will be done, it will be shown in the budget of that year. I am not prepared to indicate ahead of time how that will break down. For ourselves, we are saying today that the impact that Nova Scotians will see will be a reduction in personal income tax of 10 per cent.
MR. DOWNE: It could very well be that they won't see an income tax reduction as much as a bracket creep reduction or some combination of other types of tax reductions, not necessarily totally income tax.
MR. LEBLANC: I am saying today that the details of that will be in the year that it is announced. I know you would like for me to indicate ahead of time, I am not prepared to do so in advance of it.
MR. DOWNE: Keep your options open, Mr. Minister. Is that what it is?
MR. LEBLANC: I don't think it is appropriate for me to be speculating how we will give tax reductions in the year 2003-04, committing in advance of the budget being prepared. I think it would be inappropriate. We are telling people that they will see a 10 per cent impact on their income taxes in the year 2003-04.
MR. DOWNE: Mr. Minister, maybe I am missing something here. What is the complication? If you are going to give a 10 per cent reduction, are you considering bracket creep as part of that 10 per cent or not? Yes or no.
MR. LEBLANC: Mr. Chairman, I have already indicated that for me to predict two years from now how that will transcend into the budget I don't think it is appropriate. For ourselves the one commitment that we have given Nova Scotians time and time again is that they will see a 10 per cent reduction in their income tax in the year 2003-04. I know the honourable member would like me to indicate how that will happen, for ourselves I don't think it is appropriate for me to be speculating as to how it will, other than the fact that we have clearly indicated in our blue book it will happen in that fiscal year.
MR. DOWNE: But it is clearly an option you are looking at, that bracket creep will be part and parcel of your 10 per cent reduction?
MR. LEBLANC: The bottom line for ourselves is 10 per cent. That is what we said we would do. People want to see a change in their cheque, and that is what we said we will do, and that is what we will do.
MR. DOWNE: Mr. Minister, you brought in a number of user fees over the last two budgets. I think it was projected at around $26 million to $29 million, somewhere in that vicinity, in additional taxes that you have charged through the term user fee. Can you tell me, from what you have projected that number to be and what the reality of that number would be, what is the difference or what is the actual number?
MR. LEBLANC: Are you talking about last year or this year?
MR. DOWNE: Yes, last year. When you brought in your budget last year, you projected . . .
MR. LEBLANC: I think it was $20 million. I think there was an issue brought up regarding the Seniors' Pharmacare Program, as to how much was in there, was it an additional fee. I think it was approximately $4 million that was pointed out, I think it was by yourself or the NDP, someone mentioned that it was an additional cost that the seniors would be paying and we should have added that to it. I didn't disagree with that, it was more of an oversight on it. I don't know, there were a few other ones. I don't have the numbers here. Obviously, we have been preparing for this budget. I haven't been reviewing last year's
budget. I kind of apologize. Maybe you could be a little more specific, and I can try to get the information to you.
MR. DOWNE: Mr. Minister, normally most Ministers of Finance review their previous year's income streams just so they have an idea of what has gone on . . .
MR. LEBLANC: That is a bit of a stretch.
MR. DOWNE: . . . because invariably a question would be asked. I assume you must have spent some time looking at the revenue streams that came in last year, this is that windfall year that you seem to be talking about all the time, when Paul Martin gave you a $249 million gift from heaven. You must have looked at some revenue numbers.
MR. LEBLANC: Mr. Chairman, it is not a revenue, it is a recovery. It isn't looked at as revenue, so when we looked at our revenues, those don't show up.
MR. DOWNE: That hasn't been challenged, yet, enough to be able to determine whether or not it is a revenue or a recovery, nevertheless if it is a recovery it is a reduction in expenditure.
MR. LEBLANC: I am just using the same good people that you referred to for advice, and they both tell me that it is a recovery not a revenue.
MR. DOWNE: Mr. Minister, I am not here to argue with staff. I think the staff are great people.
MR. LEBLANC: I know that.
MR. DOWNE: You are the one that is talking here. I am just saying to you, I think, in fact, Mr. Minister, that the $29 million that was projected, can you inform the members here on your user fees, the hidden taxes that are there - or some people would call them taxes - how much additional revenue did you take in because of that? Can Ms. Cody or Mr. Hogg . . .
MR. LEBLANC: Mr. Chairman, we would have to go back and do the analysis. We have done analysis in cost recovery issues this year based on this fiscal year. I know the member feels we should review last year and do all the estimates again for this year, but that isn't the way that the budgets are prepared. I think you are asking, out of the $29 million, did that number change for this year on those issues. Is that what you are referring to?
MR. DOWNE: Two things. The first thing, how much did you actually get in? If $29 million is what you projected to get in - it was only an estimate of what you were going to get - what did you really take in, what did you really claw out of the pockets of Nova
Scotians last year on those user fees/taxes? I want to know what that number really is. It might be less, Mr. Minister, it might be more.
MR. LEBLANC: We would have to do the analysis in regard to that. Obviously there isn't a line item in the budget that refers to the numerous cost recovery issues that we put in. I don't have that here. We would have to do that analysis. I think the honourable member probably knows that. I think it touched numerous issues last year, and it isn't one line in the budget.
MR. DOWNE: This year you are going after some more user fee programs. I think your comment in here was that it is only a $3 million take this year. The $50 for seniors who are unable to go somewhere, they are in a hospital and they can't find a bed somewhere and they are not able to look after themselves. That $50, and those kinds of hits on people, Mr. Minister, you are projecting another $3 million this year, is that accurate?
MR. LEBLANC: The issue, if you look at it, there was a listing put out in the budget bulletin that showed $2 million. The other issue, of course, is the $50 a day that you are referring to for people who are in an acute care bed who are looking to be placed into a long-term care facility, that is another approximately $1 million. You are talking approximately $3 million in cost recovery fees or user fees, however you want to determine it.
MR. DOWNE: Mr. Minister, is that also part of the Point Pleasant Lodge, where you have said . . .
MR. LEBLANC: No, it is not. That is a decision . . .
MR. DOWNE: I understand back in the 1980's there was a provincial government - you were there probably at the time in the 1980's . . .
MR. LEBLANC: Could be.
MR. DOWNE: . . . the provincial government actually got into an agreement with the hospital saying look, the hospitals are saying we can't keep these people in who need to go for palliative care, or maybe they are in for treatments of some sort and they are not well enough to go home because they have to be there to do the treatments every day, and some people live in Yarmouth or in Clare or in . . .
MR. LEBLANC: Lunenburg West.
MR. DOWNE: Well, that is right. The reality was that the hospital said if Point Pleasant Lodge would come up with a program, we will subsidize their meal allowance - because they really are in-patients - to the tune of $14 a day; we will also look after ground transportation. I understand, in your budget, you have eliminated that, Mr. Minister. You
have eliminated that agreement, that provision. I think it is 48 per cent of the people who are taking those treatments that are staying at Point Pleasant Lodge.
MR. LEBLANC: First of all, I would say that this budget did not do that. This budget gave funding to the Capital District Health Authority, and the Capital District Health Authority as an entity has made a decision regarding this. I don't have all the details, I am sure the Minister of Health does. In this budget, we did give increased funding to the Capital District Health Authority that is here, because basically the agreement is not with the provincial government or the Department of Health, it used to be the specific hospital, now that has all been combined in a group and as such they have supposedly made the decision. I am not privy to the details there, that was made by an agency outside of government.
Mr. Chairman, is it possible to have a couple of minutes, a two- or three-minute break? Let's make it a three-minute break, and I will be right back.
MR. CHAIRMAN: We are recessed for three minutes at the request of the minister.
[6:21 p.m. The committee recessed.]
[6:25 p.m. The committee reconvened.]
MR. CHAIRMAN: We will continue. Mr. Downe, we have taken five minutes, and you have been a little longer, so we started at the five-minute point, if that is reasonable. You agreed to a five-minute recess.
MR. DOWNE: Whatever you guys feel is fair is fair, because that is just the way it is going to be anyway. I apologize, Mr. Minister, for being late, I was being interviewed. I apologize for that.
MR. LEBLANC: That is no problem.
MR. DOWNE: I thank you for waiting. The bottom line, as I see it, on the issue of the year 2003-04, a 10 per cent reduction will be a combination of bracket creep, user fee increases, not flowing through the federal tax on income tax, and the bottom line is that you are basically giving back to Nova Scotians what you have already taken from them over that three- or four-year period that you started when you were elected, or a percentage of that. The fact that you are not going to be able to clearly state that bracket creep will not be part of that formula or will be part of that formula leads me to believe that in fact bracket creep will be part of that formula. We will wait and see, Mr. Minister. Year 2003 is not that far away; we will know for sure by then. Unless you don't have a plan - and that is the other thing I wonder about, maybe you just don't have a plan for how you are going to do that. Anyway, we will see that in a period of time.
Mr. Minister, talking about plans, I want to move to the issue of debt in the Province of Nova Scotia. I am sure you thought this question was going to come.
MR. LEBLANC: Not really, but it is okay.
MR. DOWNE: During the last election, the now Premier made a fairly substantial deal about the fact that the net debt of the province will not go up. I think the comments were that the net debt of the province is going to be held. We can get some of the quotes to back up the statements, I think I have made some of them in the House. On Page A55 of the Budget Speech it shows the net debt of $10.096 billion at the end of 2000. Is that accurate?
[6:30 p.m.]
MR. LEBLANC: Are you talking about Page A55 or are you talking about the estimate for 2000, or . . .
MR. DOWNE: Yes, you can take it out of your Budget Address, on the back page.
MR. LEBLANC: That is A57.
MR. DOWNE: Yes, A57. It talks about in the year 2000, $10.096 billion.
MR. LEBLANC: Yes.
MR. DOWNE: The forecast for the end of this fiscal year is $11.349 billion. Could the minister explain to me and to the public what represented the $1.3 billion net debt increase from April 1, 2000 to March 31, 2001, which is the full year that you had 100 per cent of the budget control? It wasn't part of a previous administration's budget or anything else, this is all your budget program. Can you explain the $1.3 billion - roughly - increase in that period?
MR. LEBLANC: Mr. Chairman, first of all, the breakdown is there. I was going to say it is a new page, but it isn't. We have had this before, but we are putting more and more detail into the financial statements every year, so this is something we have added, quite a bit more. For ourselves, the breakdown is in here, per different category that is there. I am trying to see whether or not the member could actually specify which of the lines he would like us to get into.
MR. DOWNE: Maybe you can explain the change in net unfunded debt of $843.4 million.
MR. LEBLANC: In regard to the net debt, and I should point out there is net debt on Page A57 of Schedule 18, and then on the following page we get into net direct debt, which is Schedule 19. The big reason, especially, that net debt changes from the fiscal year ending March 31, 2000, to March 31, 2001, the large number in that refers to, if you go to the previous schedule we have, Schedule 17, if you look to the bottom where we have total borrowing requirements, the total of $2.968 billion, just above that, the short-term borrowing increase of $766.2 million, and the majority of that, if you want to look further up - and I am trying to be as simple as I can - to the first category which talks about cash operating requirements, there are five items ahead of that on top of it. It talks about Government Operations, Net Capital Advances, Tangible Capital Assets, Non-budgetary Transactions, and the last one which is Nova Scotia Resources Limited is $675 million.
The $675 million is moving the debt into cash requirements of the province, that makes up the majority of that $766 million that we talked about, below that, and that is far and beyond the biggest reason why our net debt increased in this fiscal year, let alone the operating loss, the deficit that the province had.
MR. DOWNE: I wonder how many people were able to follow that, Mr. Minister . . .
MR. LEBLANC: It is a complicated accounting exercise; I don't argue that. That is why I was asking if there are specifics here that I could do for you. The details are listed here, it is also the description of net debt versus net direct debt. I would envision that most Nova Scotians hardly know the difference between the two.
MR. DOWNE: On Page A57, the change in unfunded debt is $843 million. Can you give me the detail of that?
MR. LEBLANC: Which one was that?
MR. DOWNE: On Page A57 - pardon me, that was the forecast on 2000-01, and the estimate for 2000, I was going on that column there, the $843.4 million - the net debt has gone up $1.3 billion over what we had planned on, and yet last year in your budget estimates, and I will table this, the projected gross and net debt, in the Schedule 20 last year, shows numbers substantially lower than the numbers we currently have, shows the net debt in the estimate for 1999-2000, $9.7 billion, forecast $9.5 billion; the estimate for 2000-01, $9.9 billion; in 2001-02, $10.19 billion; then 2002-03 goes back to $9.98 billion.
These numbers that we have before us in Schedule 18 are consistently showing that we are $1 billion to $2 billion a year more. Can you explain why the numbers last year and the numbers this year are so far out? Mr. Minister, this is last year's, do you have a copy of it?
MR. LEBLANC: We pulled out the document. I do know that part of the reason for the change in the debt is in regard to the P3 leases, whereby we had set up four or six of the leases as a lease because the Auditor General was accepting them as basically an operating lease and not a capital lease. Subsequent to that happening, the Auditor General indicated that he would accept those in their form, so that has had an impact on it. The member brings up a good question. I think some of this has to do with when we prepared our final financial statements some of these issues had changed. We will get a reconciliation, but for us to sit down here and do it right at this moment I think, first of all, it will take some time, but you bring up a good question. I don't argue it, you deserve an answer and we will get one for you. We will have to try to see if we can do it tonight and, if not, we will bring it tomorrow when we come here.
MR. DOWNE: I would appreciate that, Mr. Minister. When you take a look at $1.5 billion, what the Health budget was when you took over, and now you have spent - what? - $300 million more in Health since you have taken over, borrowed money.
MR. LEBLANC: Of course that didn't include the deficits that were in the hospital boards. There are other issues if you want to compare apples to apples that we should make sure we put in place.
MR. DOWNE: I am anxious to compare apples to apples, Mr. Minister, so you will get back to us on that one?
MR. LEBLANC: It is a good question. The member has a relevant question. Staff tells me we have the reconciliation for the debt servicing costs; we didn't do it on the debt, but it is something we will get for you.
MR. DOWNE: Mr. Minister, talking about debt, one of the big issues about being a good minister is planning, all the time planning, planning and preparing for strategies on dealing with very complex issues. One of the areas that I think is important is your plan on debt and I haven't seen anything come forward, and I am sure you must grapple with that issue. It seems to me we talked about surpluses, and in fact I think in the last budget you indicated you were going to come in with a surplus plan. I haven't seen a plan on retiring the debt, and I was wondering is it just that there are so many current issues that you are struggling with that it is hard to come up with the time to deal with this other one, or the fact that you just don't have a plan?
MR. LEBLANC: Mr. Chairman, I think we have one of the best plans in the sense that we are bringing about the balancing of the budget. I think for any of us that we realize that to continue over the long term with deficit budgeting as we have done can't be sustained. We have moved to put into place a four year plan, which basically talks about a three year plan to bring about a surplus then, subsequent to that, a tax reduction, which I think is good
for the economy but also for those who are giving as of now, that there is a stimulus to the economy in that fourth year.
At the same time, for ourselves, before we can talk about a surplus and a debt reduction plan, we have to first of all get out of the red and move into the black. We have brought ourselves closer to that. For that, I feel that we are on the right plan. Obviously, we would like to find ourselves at that point in time right now. We have made some decisions this year which keep us on target that we have outlined.
As to how the surpluses will be applied, I indicated to the member in Question Period and I have also indicated to the press that as a government, as we move closer to that point in time, a decision as a government, not only myself as Finance Minister, will be put in place as to how we deal with surpluses, whether they shall be applied entirely to the debt or whether the percentage will be a high one or whatever. As Finance Minister, it is my personal opinion that as much as possible, if not all of that, should be applied to the debt, because we are in a situation where if you have too much discretionary spending, if you have surpluses and you can still spend it, then you haven't dealt with the fundamental problem that we are still carrying too much debt in this province.
For ourselves, I think we have to come up with it. Even in our blue book there were commitments that we should commit a part of it. Sometimes I wonder whether or not we shouldn't commit more, because the debt is a dilemma. I know the member shares my concern in regard to debt and what it means to the province in the long term.
MR. DOWNE: You are right, Mr. Minister, I do share your concern. Last year in your budget you made the statement that you were going to come out with a strategy, a surplus management strategy, and that the plan will address the needs of Nova Scotians including tax reductions, debt reduction and providing core services. That will be, you state in here, as part of next year's budget we will introduce a surplus management plan. You don't have that.
MR. LEBLANC: In this budget, the answer is no. I have clearly said it before, we are not in a position to reduce the debt until we get ourselves into a surplus position. I don't argue with the member that a plan will be required, and as a government we will deliver on that. I have also indicated what my opinion is, although I have also put the caveat in my answers to you in the House that that is a decision as a government we will make as a Cabinet. I have indicated my personal preference is that as much as possible should be applied to the debt because of the fact that basically it is the people's money.
MR. DOWNE: Well, I agree with you. That is just the technical side, and that is fair. The reality is you stated that you will be coming forward with a strategy in this budget and you failed to live up to your comments in the last budget. You have a $249 million windfall from Paul Martin last year, over and above what was projected.
MR. LEBLANC: How did that come from Paul Martin? I don't understand.
MR. DOWNE: Well, the federal government, Jean Chretien, Paul Martin, all your buddies up there who have been bailing you out. Clearly the debt has grown and you don't have a strategy for it. Are you not planning to have a surplus? Don't you want to have a surplus? You could have balanced the budget this year. Is it that you don't want to have a surplus at this point, that you haven't got the strategy, or you just haven't had time to do that?
MR. LEBLANC: Mr. Chairman, no matter what . . .
MR. DOWNE: I know what the process - excuse me for interrupting, I shouldn't do that . . .
MR. LEBLANC: It's okay.
MR. DOWNE: I understand that Cabinet and everybody else has to do their thing, that is not the issue. The issue is I expected that strategy, I believed what you said, I trusted you, and it is not there, and my question is why?
MR. LEBLANC: Mr. Chairman, first of all we have to point out the obvious. We do not have a surplus. That is something that is obvious, not only from what we told Nova Scotians would happen, it is also obvious from what we tabled in the House, the budget, we have an approximately $91 million deficit. We will have a plan to deal with surpluses when we have a surplus. I am not saying that as a government we shouldn't plan ahead. There is nothing wrong with planning ahead, but it also has to be put in place when it occurs. We have not reached that stage. No matter what happens, it is a situation where if we were prepared today we would not be able to deal with or act on the fact that there is a surplus because there isn't one.
The other issue, even on the $250 million of the additional monies that we received, approximately $100 million of that was referenced to the federal government and $150 million was dealt with in personal income taxes for Nova Scotia, just to clarify that. It is $250 million increased revenues and we are very pleased with that, but I can't give Mr. Martin all the credit; I am going to give credit to the Nova Scotians who pay the income tax because the economy was better.
MR. DOWNE: Mr. Minister, I will have to take a look in another book. It seems to me I added up how much money Ottawa gave you, and it was around that $150 million. I will check it out; I could be wrong. It seems to me I checked it out with your staff when I was in the briefing and I asked them the numbers. We tried to add them together, I might have made a mistake. It is possible.
MR. LEBLANC: No, actually, just to clarify it, the prior period adjustment is part of the monies that you . . .
MR. DOWNE: I know, I understand that.
MR. LEBLANC: No, listen. In regard to the prior period adjustment, the staff was under the impression that most of that was federal before; a lot of it has to do with personal income tax referring to Nova Scotia. When we looked at the analysis it was $150 million provincial and $100 million federal. The bottom line is it doesn't really make any difference where it came from, we did have additional revenues and we are pleased that the federal government did give us some money. Obviously we feel they should be giving more, especially in some of those other programs, but that is another debate for another day. You weren't aware of that information, and I felt that you should have it. Subsequent to the budget being tabled, we have received some additional information. What you are saying there is what you were told on the day of the budget.
MR. DOWNE: Mr. Minister, prior to your adjustments there is a five year rolling average adjustment. The federal government takes a look at the five year back average and they roll it forward and see whether or not the money should be coming. So, it came out of income tax, and you are right, prior adjustment is money - and I think you got caught with your pants down there, or pants up I should say, all of a sudden you had this prior adjustment come in and you were saying, well, wait now, this doesn't fit my plan. My plan is to show that we are in serious trouble, no matter how we mismanage this we are going to be able to get there and I am going to be a little hero. At the end of the day, you had so much revenue coming in you didn't know what to do with it.
Anyway, Mr. Minister, I just wish and I am sure that the staff who are here wish I could have had that $512 million as well. (Interruptions) I might have more hair. You were the lucky one, and I am just making sure that you are going to be held accountable for that windfall from Ottawa. I will say that I did expect, I trusted you, I believed what you said, I believed what was in the written text, that we should have had a strategy, and a strategy doesn't mean you have to wait until you get there to have it, I happen to have a five year strategy on my farm, and I am not at year five when I build my strategy. You need to have a strategy before you get there. It is kind of late, waiting for the horse to get out of the barn and then figuring out a strategy of security for the barn.
The bottom line is that you have a responsibility of good management; part of your fiduciary responsibility is to plan for the future. You missed that opportunity. You blew the opportunity of $200-some odd million windfall, and you are going to blow this opportunity if you don't put a strategy together. I think Nova Scotians would be anxious to see that strategy, Mr. Minister. I for one would like to see that.
Part of that strategy talks about a number of fronts, tax reductions and things of that nature. But there is another part of this strategy that is important as well, and that is the whole issue of debt management strategy and what you are going to do there. You are not saying anything about that. I guess my question to you, Mr. Minister, is - you have indicated that it is a serious issue and I concur with you 1,000 per cent, if we ever go sideways on interest rates, hang on - would you commit on behalf of Nova Scotians to come up, within the next 12 months, with a debt reduction strategy?
MR. LEBLANC: Well, I want to say one thing, the member asked me whether we would restate 1992 and 1993, I asked my staff whether they could do it. They indicated it would be something they would be doing very quickly and it takes a long time to get it done. The member has taken me to task on this on numerous occasions, I can't recall how many times. However, in regard to the debt management, I am more than prepared to look at it. You are asking me whether or not I am prepared to commit to something today, I am prepared to take a look at it and to deal with it. You are asking me today, I am not prepared to commit today that we will bring it forward. At the same time, it is a very good suggestion and I am not arguing that.
We have some excellent people in our division, a lot were put in place by yourself and your predecessor and I give you full compliments for it. We have one of the best management divisions in Canada. I think the level of confidence we have in Doug Stratton and his staff, they are good and I think they have served this province well. I give you full marks because most of them were there before I came. So there you go. I am prepared to give credit where credit is due. Whether you hired them or your predecessor did, I think the administration did some good things in debt management.
For ourselves, specifically referring to, I think we are always looking at how we manage it, so whether or not we will come up with a formal debt management policy, I think we basically have - first of all, the best thing we did is have competence, we have been well served, we have also dealt with the fact of flexibility. We have made provisions whereby we can borrow money, and we are going to have to borrow money. We borrowed domestic, we also have shelf documents, both in Japan and in the United States, whether we shall use them will depend on the circumstances, whether we can hedge money or make exchanges or trade-offs, that we can do that in Canadian funds. We have also filed EMTN documents in Europe.
We have a lot of debt, and that is nothing you are not aware of. For ourselves, we need options as much as possible. No matter what happens, we have to make sure that we borrow as much as we can in Canadian equivalence. We have done a lot of planning to try to make sure that we are positioning ourselves appropriately to be able to access funds as cheaply as possible. Every dollar that we pay in service charges is taking dollars out of the programs that we want to deliver to Nova Scotians.
I think we really do have, to a great extent, a debt management scheme already in place. Your comments, I will take them as noted. I am not prepared to make a commitment today. The fact of the matter is, there is a lot of ongoing work. Maybe when you respond to my comments, if you could emphasize a bit more exactly what you would like to look at, I will take them as noted.
MR. CHAIRMAN: I wish to advise the member you have three minutes left in your adjusted time.
MR. DOWNE: The first point you made was that you made a commitment a long time ago about providing the information back to 1993 when we inherited the debt from, well you were part of that government prior to that. It was an operating deficit in excess of $1.1 billion, and that was a qualified $1.1 billion, it could have been a lot higher. There are three or four things that were added in later, so it is probably closer to the $1.8 billion that we originally thought, from what we can calibrate looking at it; nevertheless, a huge debt.
The reason I kept bringing that issue up to you, Mr. Minister, was commensurate with the fact that it took so long to get the data back. At the end of the day you hired a staff person, a previous staff person under contract to do that work and then to wait for the minute the Auditor General's Report was to come out. First you make me wait forever and then you just throw it out and put a press release out the minute the Auditor General was speaking. It was almost like you were embarrassed by the fact that you were part of a government that left a yearly operating deficit in excess of $1 billion. So that is why I kept bringing it up. I was waiting for that. It was commensurate with the time I had to wait, and my response was commensurate to how you presented it.
I would have appreciated sitting down and going over it as two professionals, to explain to me what is going on and then go forward with that. As you say, I don't want to talk about the past, but sometimes you do. You don't want to talk about it when I bring it up, but you sure want to talk about it when you bring it up; anyway we both agree on that.
I would say that the surplus management strategy that I believed what you said was going to happen didn't, should be done within the next year. I think that is important. During that same time, because they do tie together very well, the debt reduction program, and I would recommend a year. I think what we need to do is take a look at what your plan of strategy will be. In the numbers that I have, it shows your net debt growing every year you are in power. You are going to grow the debt of the Province of Nova Scotia each and every year you are in power before the next provincial election. I am just saying, because of that, that is why I think it is important that you have a strategy.
MR. CHAIRMAN: The honourable member's time has expired. Now, back to the NDP caucus. The time is now 6:58 p.m.
The honourable member for Halifax Fairview.
MR. GRAHAM STEELE: Mr. Chairman, I came in here originally to fill a chair for my absent and otherwise occupied colleagues, and I got so interested in what was going on that I jotted down a few questions that I would like to ask. Excuse me if I cover some territory that had already been covered while I wasn't here.
The first question I want to ask has to do with the way that the accounts were presented this year. The government is engaged in a process of reorganization, several complicated reorganizations, Environment and Labour being put together in the Department of Environment and Labour which is actually more complicated than it sounds. Certainly, the one that is very complex, because it draws pieces from several departments, is Service Nova Scotia and Municipal Relations. Yet, nowhere in the accounts is it possible to look and compare the line items fr