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FINANCE

Mr. Assistant Deputy Chairperson (Gerry McAlpine): Will the Committee of Supply please come to order. This afternoon this section of the Committee of Supply, meeting in Room 255, will resume consideration of the Estimates of the Department of Finance.

When the committee last sat, it had been considering item 3. Comptroller (a) Comptroller's Office, (1) Salaries and Benefits $123,000 on page 64 of the Estimates book. Shall the item pass? The item is accordingly passed.

3. Comptroller (a) Comptroller's Office (2) Other Expenditures $11,000--pass.

3. Comptroller (b) Financial and Management Systems (1) Salaries and Employee Benefits $443,800--pass; (2) Other Expenditures $99,100--pass.

3. Comptroller (c) Disbursements and Accounting (1) Salaries and Employee Benefits $2,017,600--pass; (2) Other Expenditures $1,317,600--pass; (3) Less: Recoverable from other appropriations ($526,600)--(pass); Subtotal (c) $2,808,600--pass.

3. Comptroller (d) Legislative Building Information Systems (1) Salaries and Employee Benefits $443,500--pass; (2) Other Expenditures $426,100--pass.

3. Comptroller (e) Internal Audit Services (1) Salaries and Employee Benefits $1,469,200--pass; (2) Other Expenditures $182,300--pass.

3. Comptroller (f) Information Technology Services (1) Salaries and Employee Benefits $722,400--pass; (2) Other Expenditures $68,700--pass.

Resolution 7.3: RESOLVED that there be granted to Her Majesty a sum not exceeding $6,797,700 for Finance, Comptroller, for the fiscal year ending the 31st day of March, 1996.

Item 4. Taxation $11,137,400 (a) Management and Research (1) Salaries and Employee Benefits $849,600.

Mr. Kevin Lamoureux (Inkster): Mr. Chairperson, due to the fact that I have another commitment in the other committee of Health, I do want to ask just basically for some information, which hopefully the Minister of Finance (Mr. Stefanson) will be able to provide for me sometime over the next couple of days, and then end up asking some specific questions with respect to the GST versus the PST.

The information that in particular I am looking for--and it might already be out there and available for the public--is just some sort of reference in terms of where it could be found would be appreciated. The type of information that I am looking for, for example, in terms of graphs, is with respect to the annual deficits over the past decade to 15 years. I am also interested in trying to get some sort of idea on equalization payments, the EPF funding in particular, broken out for Education and Health and Family Services, if you will. Again, if it can be brought over the last 10 to 15 years, along with equalization payments themselves.

I am also very much interested in the different types of bonds. I know that we have the Builder, the HydroBonds, Grow Bonds out there. Bonds that government or its corporations make available for the public or private sector, if you will, some form of a listing of those.

And, finally, the total accumulated debt of the province without its corporations and the total corporate debts that would be owed, for example, the MPIC, Hydro, MTS, would again be very much appreciated. Again, it is not necessarily the line in which to ask these questions. If this information is provided, it will provide me the opportunity to be able to possibly ask questions at a later point in time and would be, as I have indicated, much appreciated.

Unless the minister has comments that he wants to add to that or he wants to respond specifically to my request, I will go right into the questions I have with respect to the GST, PST.

Hon. Eric Stefanson (Minister of Finance): Mr. Chairman, if it is agreed, I do not have any problem providing the information requested, and we will do so hopefully in the next handful of days.

Mr. Assistant Deputy Chairperson: Is it the will of the committee that Mr. Lamoureux be able to ask questions on this matter? [agreed]

Mr. Lamoureux: Mr. Chairperson, actually I am quite content with the minister's response, and, therefore, would like to actually move on to the issue of the GST and PST. I know the province had put forward a proposal last year to the federal government with respect to what they believe should be happening with respect to the GST. I am wondering if the Minister of Finance can elaborate on just what the proposal--I understand it even receives support from other provinces.

Mr. Stefanson: I do not have any problem responding. Technically that follows under the next section, which is Federal-Provincial Relations, and so on. I believe there might be some questions from the member for Brandon East (Mr. Leonard Evans) on this issue as well.

What the Province of Manitoba put forward as an alternative to what was coming from the federal government, was something along the lines of the provinces getting out of the provincial sales tax, the consumption tax, turning that over to the federal government so that they would in effect have all of their consumption taxes, the GST and PST, in exchange for the equivalent dollar amount from existing federal personal income tax points.

So basically simply saying, turn over the provincial sales tax to the federal government, have the federal government from their existing personal income tax points turn some of those back over to the provinces, that would equate to the equivalent dollar amount. That was put forward as an alternative for consideration because obviously we as a province were not supportive of the options that had come forward from the federal government.

Originally--I do not know that I need to go back into too much history--the standing committee made a particular recommendation. Then the federal minister came forward with what was called a six-four option, where under an integrated sales tax they would turn over six percentage points to the provinces and four percentage points to the federal government. That created a significant revenue shortfall for provinces that would have to be made up elsewhere. The federal government then came back a little later and offered a seven and five, a 12 percent combined, basically a harmonized GST, a 12 percent, turning over seven percentage points to the provinces. Even in Manitoba's case that still meant a loss of some revenue. It meant making up that revenue from some other source, like personal income taxes.

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So we were concerned about the shift from the consumption tax to the personal income tax. We were concerned about some of the base broadening that would take place under a harmonized GST, that you would be into books and other areas that would be taxed that are now not taxed. Probably one of the overriding concerns of many of the provinces was, once you get into this, how do you move forward in future years? How do you make adjustments to rates when you have a process that will require some form of agreement between all of the provinces and the federal government?

So on both the impact on our economy, the impact on consumers and the decision-making process in the future, we were concerned about what the federal government was proposing. We put forward an alternative, as did the Province of Ontario. I am not sure if any other provinces came forward with alternatives. That was back in the fall of 1994, and even though we have had at least one Finance ministers' meeting since, the issue of the GST has not been back on Finance ministers' agendas. It appears that the federal government, at this point in time, has chosen to put the issue of the GST on the back burner.

Mr. Lamoureux: Part of the proposal from the province would be if you are giving up the ability to have the consumption tax would this then not necessarily require, even though it might, some form of a constitutional limit because it is consumption tax? You would forfeit in the future of ever raising a tax in this nature with that particular proposal?

Mr. Stefanson: I would have to get officials' help here as to what legislative or constitutional amendments were required. Obviously if there ever was agreement around that approach it would have been on the basis of the federal government agreeing and the provinces agreeing. It was put forward as an alternative and basically the federal government has not got back to us or, I believe, any of the provinces in terms of some of the other alternatives that have been put forward. So, as I said, the issue of the GST at this particular point in time is an issue that really is sitting idle.

Mr. Lamoureux: The intent of the government would be not to have a consumption tax in the future.

Mr. Stefanson: The intent was a willingness to give consumption taxes to one level of government so they could make decisions on rate, what items are charged the tax and have autonomy in terms of decision making in that area, in exchange for an equivalent amount of the existing federal personal income tax points. The other objective through the whole process was that it should be neutral to taxpayers, that at the end of the day our objective in Manitoba, certainly from taxes that we control, is that Manitobans would not be paying any more taxes. But alternatively under some of the other proposals we also could not be faced with a situation where our revenue could be eroded either because we need the revenue that we currently have in our system.

Mr. Lamoureux: At the current level of retail tax that has been estimated to come into the province, what percentage of that, if you will, is money that would be classified as net revenue for the province, by the time you take into consideration the collection and the bureaucracy that is currently in place to collect that revenue?

Mr. Stefanson: Mr Chairman, our gross retail sales tax revenue estimate in '95-96 is $699 million; the estimated net after departmental cost collection is about $695 million.

Mr. Lamoureux: Actually, I am pleasantly surprised. So $695 million out of that $699 million is in fact solid revenue, net revenue for the province. Actually, I am fairly pleased to hear that. I did not quite expect that.

What percentage would the federal government have to then garner or give to the province in order to come up with the $695 million if we are currently at 7 percent? In other words, the province would require somewhere around 6.8 percent, 6.7 percent directly back from the federal government to make this revenue-neutral?

Mr. Stefanson: Mr. Chairman, as we mentioned, we were prepared to consider turning over that revenue to the federal government, the $699 million or the $695 million of provincial sales tax in exchange for existing personal federal income tax points. Each federal income tax point generates a different level of taxation than a retail sales tax point. I would have to get the percentage for the member, but the intention would be that that transfer would generate the same amount of revenue back to our provincial government.

Mr. Lamoureux: How much additional revenue would be generated if the province did harmonize the tax with the GST at the 7 percent?

Mr. Stefanson: I will get the officials up here if we are going to get into that detail, but we would have less revenue. If we harmonized at 7 percent we would have less revenue than we have today because of the input tax credit that is in place for the GST.

Mr. Lamoureux: The input credit, that is the credit that goes back, that is returned bimonthly or every three months to the consumers through the GST, is that what he is referring to?

Mr. Stefanson: No. Again, I would have to clarify the filing requirements of the GST. I know it is done fairly frequently, but it is the input credits and what they have actually paid. It works its way all the way through the system so that the consumer ultimately pays.

The businesses get an input credit when they pay the GST against what they then collect. That is how the GST system works as opposed to ours, which is purely charged at the one end. You do not get a credit for what you have paid.

Mr. Lamoureux: I am wondering if the minister can give some sort of indication if he sees any other alternatives that are out there. Is this the only option that this government is prepared to consider?

Mr. Stefanson: This time I do not see any other alternatives. I have been at several meetings since I have been Minister of Finance, and other than the proposals that have come from the federal government, there have been a couple of proposals come out of the provincial governments, including Manitoba. I know most provinces have concerns with various aspects of most solutions than what they have seen to date. All I can say is, certainly the feedback I get is--I do not get a lot of complaints about our provincial sales tax.

It is one of the lowest rates in Canada at 7 percent. I believe now only Alberta is less at zero percent. British Columbia and ourselves have 7 percent, so we have the second lowest rate--tied for second lowest rate in Canada. We give various reductions back to certain industries. We have an investment tax credit that gives a reduction back for manufacturing and processing businesses. We have eliminated the PST on the hydroelectric input into manufacturing and processing, PST on long distance, 1-800 has been eliminated. So we have done a series of strategic things to remove any disincentive as a result of our provincial sales tax to create more economic activity.

In terms of all other taxation matters facing provincial governments and federal governments and all the other federal-provincial issues, the full harmonization of the GST with provincial sales tax is not one of the highest priorities. To be quite frank, it was a commitment made by the current federal government during an election. I think they are realizing now that they are into it there is an awful lot more to it, and there are a lot more pressing issues facing the country than full harmonization.

Mr. Lamoureux: The tobacco tax revenue has also decreased substantially, and I am wondering if the minister can indicate why he believes that has been reduced year over year?

Mr. Stefanson: Actually, on the tobacco tax revenue side we are quite pleased that it is able to stay fairly consistent. The '94-95 revenue is $118 million. In '95-96, we are projecting $114,500 million, realizing the challenge we are facing with significantly lowered tobacco or cigarettes in our neighbouring province to the east. That reduction of $3.5 million is really driven by two things; one, there is continually less consumption of tobacco products, which obviously affects revenue; and secondly, we also continue to enter into more tobacco tax agreements with aboriginal bands that affect our revenue stream. But most of it would be on the basis of just reduced consumption.

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We have actually done a very good job of not only maintaining our revenue but also securing the concerns that many Manitobans have that lower tobacco prices lead to increased smoking. Most studies that we have seen from various organizations confirm that, that price is a deterrent, particularly for young people. Through the program we have had here in Manitoba we have been able to maintain our tobacco taxes and so on at the same level that they were before the federal government put in place their reductions, basically to deal with a smuggling problem in the province of Quebec.

Mr. Lamoureux: Mr. Chair, does the minister believe that we have any smuggling problem currently in the province at all?

Mr. Stefanson: Mr. Chairman, we are satisfied that it is very minimal, and it is not a major problem in Manitoba.

Mr. Lamoureux: Once again I am pleased to hear that because I know when the federal government made the decision it was a major concern, that in the provinces of Quebec and Ontario there was a significant amount of tobacco smuggling that was occurring. The federal government at the time had to make a very unpopular decision in the minds of many, in particular in the province of Manitoba. It is somewhat pleasing to hear that the Minister of Finance believes that the impact, if any, has been minimal on the province. He feels the primary reason for the reduction is, in fact, less people smoking in the province. I think that that is a positive thing.

Again, I appreciate having the opportunity, particularly from the member for Brandon, for allowing me to ask questions right up after Question Period. Thank you.

Mr. Jim Maloway (Elmwood): I would like to follow up a bit on the member for Inkster's questions on the tobacco tax. Could the minister give us an idea of what the province's contribution to the antismuggling campaign has been since the beginning of the effort?

Mr. Stefanson: Actually, the detailed information on Tobacco Interdiction is on page 72 of the Supplementary Information.

Mr. Leonard Evans (Brandon East): I was going to get to this when we got to the Tobacco Interdiction section. I just wanted to--under Taxation Administration reference is made to processing tax refunds on a timely basis for overpayments. I was wondering how much overpayment are we talking about here?

Mr. Assistant Deputy Chairperson: Excuse me. Could you bring your microphone forward please? I would just ask you to repeat that.

Mr. Leonard Evans: Yes, I will just repeat that statement, Mr. Chairman. There is reference made to the Activity Identification of the Taxation Administration, and reference is made to processing tax refunds for tax overpayments. I was wondering what kind of taxes are we talking about, and to what extent do we have overpayments? Is that a major issue? Could we get some idea of the percentage of overpayments by tax?

Mr. Stefanson: Mr. Chairman, I am told the vast majority of those are vehicle refunds where there are vehicles bought and sold within the six-month time frame when you can get your sales tax back. That is the vast majority of what is referred to in that section. I can certainly undertake to provide any more detail around that issue.

Mr. Leonard Evans: Do you not find overpayments on income tax, or is that handled federally?

Mr. Stefanson: Basically not under ours, because if you look at the taxes that are all affected by this--they are outlined at the top--which do not include personal income tax or corporate income tax that are done in conjunction with the federal government which are the more common where you would have the overpayment and then get the refund when you file your tax return.

Mr. Leonard Evans: I appreciate the minister's response which is fine, but surely there may be some overpayments in some other areas. Take mining tax, for example, is that a possibility?

Mr. Stefanson: Mr. Chairman, not so much the mining tax. In fact I wish we had more mining tax revenue over the last couple of years, but if it is going to occur it is usually where there are instalments having to be made, and those are more applicable to something like the corporation capital tax. There might be a refund there after they make an instalment once they file their annual return. I guess similarly under the health and post-secondary education tax that at the end of the year when they file their declaration, there might be an adjustment that is required as a result of that.

Mr. Leonard Evans: So basically, of all the monies that are refunded, you are saying 90 percent, 95 percent is regarding vehicle sales or rebates on vehicles, not taxes?

Mr. Stefanson: That would be correct, Mr. Chairman.

Mr. Leonard Evans: You also process refunds for Native Fuel and Tobacco Tax Rebate Programs. How much money is involved here, and how extensive is this process?

Mr. Stefanson: Mr. Chairman, for tobacco there are, I believe, 42 reserves that have agreements with the Province of Manitoba, and for 1994-95, $2,168,899 was collected and remitted to the bands who had agreements. In the case of fuel, I believe 38 reserves have agreements with the Province of Manitoba, and for the year 1994-95, $4,577,064 was reimbursed to service station operators located on the reserves operating under these agreements.

Mr. Leonard Evans: Mr. Chairman, just passing on to another item that used to be a big topic of debate in this province, and that is coloured fuel for vehicles. I notice this area of the department engages in fuel samples for the coloured tax-exempt fuels. Could the minister explain how that program is working now? How many staff do you have doing this? How extensive a program is it? Are there major problems?

Mr. Stefanson: I am told there is generally very good compliance with this program. We have approximately eight staff that are involved in taking samples for fuel. It is important to note that the RCMP have the kits and have the capability to do that as well, so I am told overall that there is generally good compliance.

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Mr. Leonard Evans: How does it work? Perhaps I should know, but is the sampling done right at the farm? Do you visit farmers at their farms or do you stop people? Are farmers stopped on the highway for tests?

Mr. Stefanson: We do not stop farm trucks, because they qualify to use tax exempt fuel. We generally do not go on the farmyards, although on occasion that can happen. The most common approach is a spot check approach for vehicles that would not qualify to be using tax exempt fuel, and that will be the RCMP and usually or quite often our staff in conjunction or in concert with the RCMP.

Mr. Leonard Evans: The minister said it was not much of a problem. I take it very few farmers are discovered breaking the law in this respect. Is that true? What are we talking about, 50 cases a year, 100 cases a year or 10 or 12?

Mr. Stefanson: Mr. Chairman, I am told it is a very low incidence of farmers that are caught doing this. It can be anybody else who gets their hand on tax exempt fuel, whether it is for an automobile or a trucking operation or whatever it might be so, again, what officials are telling me is that generally within the farm community, there is very, very high compliance. It is not a problem.

Mr. Leonard Evans: Is the enforcement totally carried out by the RCMP?

Mr. Stefanson: Mr Chairman, it is generally in conjunction with the RCMP in terms of road stoppage, public safety and so on. We do have the authority for our staff to do it independently, but it is generally in conjunction with the RCMP.

Mr. Leonard Evans: Well, obviously farm vehicles on the highway are allowed to use this type of fuel, so how do you know which nonfarm vehicles you even want to stop? More than likely a person who is in farming would have access to this fuel more so than an urban dweller, unless he has a friend who lives in the city. How do you know, how does the RCMP or how does the department know? Is it just a random stopping of people to check or is there some selection process?

Mr. Stefanson: Generally, spot checks is how program is administered. Occasionally, they will go into an area and do extensive road checks in a given area based on whatever information that might be at hand at that time, but generally it is spot checks.

Mr. Leonard Evans: Has the department made any estimate of how much revenue is foregone with this type of program? In other words, if you did not have a coloured fuel program, how much additional tax revenue would you receive?

Mr. Stefanson: If I understand the question correctly, it was, what is the value of the exemption that is being provided through tax-exempt status? We will undertake to provide, rather than try to estimate here today, that figure to the member for Brandon East.

Mr. Leonard Evans: While just passing onto another area, I note that this Taxation Administration section maintains historical files on each taxpayer is required by all areas within the Taxation Division, that is a pretty big order. Does that mean that every taxpayer in Manitoba has a historical file kept on him or her?

Mr. Stefanson: A similar answer to one I gave earlier, again in this particular department: We do not administer the personal income tax or the corporate income tax, so again here the definition of taxpayers are individuals or entities that remit these other taxes to us, which are not necessarily all the individuals who pay personal income tax in Manitoba, but in our computer system we do have the database on everybody who is paying retail sales tax, motor fuel tax, corporation capital tax and so on.

Mr. Leonard Evans: I gather, Mr. Chairman, it to be essentially business units, business organizations, or organizations and associations incorporated or otherwise, rather than persons as such, as we consider it, like the individual consumer or individual taxpayer who is not concerned or engaged in some economic activity. I do not know whether that is the best way to describe it.

Mr. Stefanson: Mr. Chairman, that is a pretty good way to describe it.

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Mr. Leonard Evans: Specifically, I note--I have not talked about any of these numbers, I have not asked questions on any numbers per se in the expenditures--in some places there is a considerable increase in communications spending, and this is one area that has had a fair increase, going from $300,000 to $352,800, I believe it is. It is quite a substantial increase. I note, there are some lines where there are some slight decreases, but there are one or two areas where there are significant increases, and this is one of them. I was wondering, why does this have to be?

Mr. Stefanson: Mr. Chairman, the page the member is referring to is page 67 of the Supplementary Estimates. I believe it shows the Communications line at $352,000. You can see by the detailed information there that it is basically all in Postage. There has been a budgeted increase for postage expenses and on the combination of what might happen to rates and also volume. This is where we send out all the notification, whether it is the information circulars on the retail sales tax or information circulars of any of these other Taxation Acts that we administer. As you can see from the Communications breakdown, it is all in the area of Postage, or primarily in the area of Postage.

Mr. Leonard Evans: I can see a rate increase as the basis for this, but why would the volume increase? Volumes usually increase if there are changes in tax programs.

Mr. Stefanson: Mr. Chairman, most of this increase is estimated to be as a result of rate adjustments. The reason there would be a volume increase is, we continue to improve the information we are providing to taxpayers through the information bulletins and doing them on a more timely basis and doing more of them so that all of our taxpayers are fully informed on their taxation requirements.

Mr. Leonard Evans: I do not have them all marked here, but I notice in various places, percentagewise at least, there are some substantial increases. There is the odd decrease. Internal Audit Services--I am just going back to page 59--is going from 10.2 to 12.5. That is a small number, from $10,200 to $12,500. It is a small number, but percentagewise it is, what, about a fifth increase. I note from different places, under Legislative Building Information Systems, Communications going from $20,000 to $33,000. That was on page 57, 20.3 to 33.2. There is the odd place where there is a decrease. There is the odd place, as I say, where there is a substantial, at least percentage, increase.

I wonder if the minister could undertake to review the whole area of communication spending and maybe give us a note because there is the odd place there is a decrease. I notice going ahead under Federal-Provincial Research there is an increase--I know we are getting to that later--from $75,900 to $94,500. It is about a $20,000 increase.

Mr. Stefanson: Well, Mr. Chairman, as the member indicates, some do go up. Some do go down, like the Management and Research is going down from 14 to 11. The Tobacco Interdiction one is going down, but other than the kinds of answers I have given him on information bulletins and so on, it is not as though there is any other major communication taking place within the Taxation Division of the Department of Finance. But I will undertake to do a review and provide any further information that can illustrate why they have gone up slightly.

Mr. Leonard Evans: Communications, does that cover advertising as well as direct mail?

Mr. Stefanson: Yes, it does, Mr. Chairman.

Mr. Leonard Evans: Well, I will look forward to a sort of a note on it or a review, to be fair to the minister and his staff. I note there are many that are small ones usually that are diminished, but two or three stand out at fairly significant percentage increases and they are larger amounts.

Well, passing on to the subappropriation dealing with Audit, I notice that one of the functions--I am looking at page 69--is to recover unpaid tax revenues. I am just wondering if the minister could give us some idea of what areas are we talking about here, unpaid tax revenues. I guess we are not talking about income taxes again. What areas are we talking about generally here?

Mr. Stefanson: Mr. Chairman, what that refers to is basically taxes deemed to be due as a result of audits and refers to then the payment and recovery of those taxes that are due.

Mr. Leonard Evans: Can the minister describe the dimension of the problem? How many dollars are we talking about being recovered? How successful are we at recovery?

Mr. Stefanson: Mr. Chairman, the estimated direct recovery in the last fiscal year as a result of audits is about $30 million.

Mr. Leonard Evans: Does the department spend a significant amount of money in connecting these audits and collecting these monies?

Mr. Stefanson: Mr. Chairman, you can see from page 70 of the Supplementary Estimates what the cost is of the Audit division. Besides the audits that lead to direct recoveries, a major part of our whole taxation system is a self-assessing system. Obviously having an Audit department enhances compliance and ensures compliance and those kinds of functions.

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Mr. Leonard Evans: I think the minister used the number $30 million. From what area is that? Is that essentially retail sales tax revenues?

Mr. Stefanson: It really comes from all areas and obviously can vary from year to year quite significantly.

Mr. Leonard Evans: Would it include--let us take our example again--mining tax unpaid revenues? Could it include that? I gather the answer is yes.

Mr. Stefanson: The question was?

Mr. Leonard Evans: I am just saying, are there any mining taxes that are in this category of not being paid?

Mr. Stefanson: Just to be clear what we are talking about, we are talking about taxes paid as a result of audits. The audit can find a whole range of things, sometimes very innocent mistakes on, as the example was given, bringing equipment in from outside of a province, sometimes the business not realizing that taxes are due on it and so on. That is why, within all of these statutes, it can vary fairly significantly from year to year where the recoveries come from.

Mr. Leonard Evans: Does the minister and his staff have much trouble with the health and education levy?

Mr. Stefanson: The short answer is no, Mr. Chairman.

Mr. Leonard Evans: It would seem to me that the problem area there is when you get to the cut-off point, you know, debate as to who is above and who below the line in order to pay or not to pay this particular tax.

Well, it is not, I think, especially about the health and post-secondary education levy now, the payroll tax, but I cannot help but note, as I have on past occasions, that the taxes go with this even though we were promised it was going to be eliminated some many years ago. I know, and I think reality would dictate, this tax probably will never be eliminated. It may be scaled back a bit more, but I cannot ever see it being eliminated by virtue of the fact that it brings in a substantial amount of money. We are talking about a couple of hundred million dollars, give or take, and the government is very dependent on all sources of revenues these days. Especially since it does not want to increase other taxes, I cannot see it necessarily going forward and fulfilling a promise made a couple of elections ago to eliminate this tax.

Mr. Stefanson: I think the point worth making, Mr. Chairman, is when this tax was introduced several years ago, I believe the exemption level was $50,000. Today it is $750,000. As a result, approximately 90 percent of businesses no longer pay this tax, particularly small business, and obviously it enhances their ability to create jobs and compete.

Mr. Leonard Evans: Well, I appreciate the fact that the exemption level has risen. We raised it a couple of times, I believe, when the NDP was in office, and probably would have raised it again. So essentially the tax is coming from larger corporations, including federal Crowns, but the commitment was made categorically that this tax would be eliminated, period, and I just make the point that will be a fine, frosty Friday morning when that happens. There would have to be a revolution in our economy or something. We would have to have monies coming from heaven, or whatever, in order for this tax to be eliminated. I just cannot see that happening.

Mr. Stefanson: Well, Mr. Chairman, I assure the honourable member that we will continue to look at making adjustments to remove this tax from as many businesses as possible. We now have 90 businesses exempt, and that has helped create jobs in Manitoba. We will continue to do what we can to work towards the ultimate elimination of this tax.

Mr. Leonard Evans: At any rate, Mr. Chairman, the minister has to acknowledge that this is a significant amount of revenue and it does help him to achieve whatever he wants to achieve by way of balancing a budget or obtaining surpluses even. It would be quite a blow if suddenly this tax revenue was taken away.

Just going on, there is reference made to "Detection of smuggling and other offences evidenced by successful court prosecutions and tax recoveries indicating satisfactory investigation programs." In other words, this observation, which is on page 69, does that mean that the court prosecutions gives the public evidence of the fact that the department has been successful in detecting smuggling or that it exists to some degree? I find it a bit of a strange way to put it. I gather the objective is to seek out smuggling where it exists and prosecute as required. At any rate, could the minister give us some data on the extent of this? How widespread is it now, and what categories are we taking about? Everybody is familiar with tobacco products, but are there other products as well?

Mr. Stefanson: Mr. Chairman, some examples would be liquor, some retail sales products, occasionally boats or something like that, major items. As I said earlier on the tobacco, we are fortunate that smuggling is not a major problem here in Manitoba.

Mr. Leonard Evans: I imagine the minister is only referring to smuggling across provincial borders not across the international border. That is under the federal jurisdiction, right?

Mr. Stefanson: No, we are concerned with both, and we work very closely with the federal government, federal excise as an example, in terms of controlling smuggling from the United States.

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Mr. Leonard Evans: But the actual detection at the international border I would have thought would be done by federal officials.

Mr. Stefanson: Mr. Chairman, in many examples it does involve more than just the federal government and the federal excise. It will involve the RCMP, it will involve our staff from the Department of Finance, sometimes the City of Winnipeg Police. Sometimes they will work collectively at the border and other times it will take place within our province.

Mr. Leonard Evans: This is a large and could be very complicated subject. I appreciate the fact that detection takes place on occasion other than at borders. It could be that information is found elsewhere.

How do you measure the trend in this area? We are talking about all kinds of smuggling over provincial borders. What is the trend? Do we have any historical data in this respect?

Mr. Stefanson: Mr. Chairman, one of the real indicators is in our revenue sources, and from our own revenue sources they continue to grow. We also do it on a comparative basis to see how we are faring across Canada and so on. So one of the single easiest indicators if you were having a problem with the smuggling in a given area is that very quickly your revenues could start to erode.

Mr. Leonard Evans: Does the minister not have data on the actual smuggling processes, the actual smuggling activities? Do you not have data showing the amounts of money involved, the number of offences, et cetera?

Mr. Stefanson: Mr. Chairman, of course we have files on any detection in these areas. As I have indicated, it really has not been a problem in Manitoba, and looking back over the years there is no escalation of any smuggling activity. The only slight problem area we did have for a period of time was the tobacco issue which, as I say, is basically being well adhered to now here in Manitoba.

Mr. Leonard Evans: So I gather there are data on this and it is not published, but basically speaking the observation is that smuggling is not a growing problem. If it is at all significant, it is probably with the challenges with the tobacco and tobacco products.

Reference is made to determining tobacco and fuel taxes paid by Indian bands. How do you go about calculating this? How do you determine this matter of taxes paid by native bands?

Mr. Stefanson: Mr. Chairman, on the fuel tax issue there is a record of every sale to every Status Indian purchasing fuel on reserve. So that is a method of keeping track of the fuel tax rebate on reserve. On tobacco, it is done on a consumption basis on the estimated percentage of consumption of Status Indians on reserve, and that is entered into in every individual agreement that we enter into with Indian bands.

Mr. Leonard Evans: I do not recall whether the minister gave us a number on this. Did the minister give me a number or can he give me a number? How much money are we talking about in the tobacco and how much are we talking about with fuel? Did you just give me it now?

Mr. Stefanson: Mr. Chairman, I read those amounts under both the fuel tax and tobacco tax into the record a little earlier.

Mr. Leonard Evans: Mr. Chairman, I will look at Hansard and get those subsequently.

For whatever reason, reference is made to auditing 15 Manitoba-based truckers. What is the purpose of this audit?

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Mr. Stefanson: Mr. Chairman, we are part of an international fuel tax agreement with several provinces and many states in the United States which is supported by the Manitoba trucking industry and makes the whole filing of the forms relative to tax and so on much simpler and more straightforward. One of the parts of that agreement is compliance. You need to do a minimum number of audits every year, and this fulfills our requirement here in Manitoba.

Mr. Leonard Evans: I gather this is an audit of the trucking firm as opposed to--it would be an audit of a trucking company as such. How do you go about deciding who you are to audit? First of all, could the minister give us an idea of how many trucking companies we are talking about and, therefore, what percentage are we dealing with here?

Mr. Stefanson: I should point out, when I mentioned that we are part of the international fuel tax agreement, when we do the audits out of the Manitoba-based companies, it then involves compliance with all of the agreements, all of the other provinces and states that are part of the agreement.

Having said that, I am told there are approximately 600 Manitoba-based truckers. I will confirm that. That sounds like a fairly large number. I guess if you think of a lot of the very small truckers it might, owner-operators, it might make sense. So this gives you then a sense of 15 out of 600.

Mr. Leonard Evans: Are we talking about, when you have 15 then, is this just of a random sample, or are we identifying, say, 15 of the largest companies?

Mr. Stefanson: Mr. Chairman, it has to be a mix of large, medium and small so you get a sampling.

Mr. Leonard Evans: What has the department found out from these audits? What is the bottom line? What has been achieved by this audit?

Mr. Stefanson: Mr. Chairman, the member for Brandon East may have seen the announcement when Manitoba joined the International Fuel Tax Agreement. It took effect on January 1 of this year. So we are just going to be going through our first round of audits here in Manitoba, and we will gladly provide more detailed information when we are doing this again a year from now. We are just going through our first set of doing it. Our staff have been brought up to speed, trained on what the requirements are, and we will be doing our first audits in 1995.

Mr. Leonard Evans: Well, there are audits and there are audits, but is there some major objective in this audit?

Mr. Stefanson: You are right. I do not want this to get confused with other traditional audits. These are audits under the International Fuel Tax Agreement. So it is a very specific audit related to that agreement as opposed to the others which would just fall under the same--truckers would fall under the same process as every other business in Manitoba in terms of whether it is a retail sales tax or a payroll tax or whatever kinds of audits. This is purely as it relates to the International Fuel Tax Agreement.

Mr. Leonard Evans: At any rate, will information be forthcoming on this at some point? Did the minister indicate that? After the first one is completed, will there be a document or will there be some material on that?

Mr. Stefanson: Mr. Chairman, not unlike the discussion we have had on some other compliance issues around our taxes in Manitoba, we can certainly have the same kind of discussion again about the International Fuel Tax Agreement, but we would not be releasing individual information on individual businesses as a result of audits, not unlike any taxpayer audit.

Mr. Leonard Evans: Well, we will just leave that for the moment. I am still curious as to what the objective is, what is under this agreement, what is going to be achieved by this? I am still curious about that.

Mr. Stefanson: Mr. Chairman, we will certainly gladly provide information around the International Fuel Tax Agreement. We have done two in conjunction with Manitoba truckers, two press releases on the whole agreement and so on. So in terms of providing background information to the member for Brandon East, we will undertake to do that.

Mr. Leonard Evans: I thank the minister for that offer. That would be great if he could just bring forward some of the news releases or whatever information is easily available.

Just passing on to another item here--references made to the general public, taxpayers in western Manitoba are provided with information necessary to comply with the statutes. I think I can more or less guess, but I wonder if the minister can explain what this is all about.

Mr. Stefanson: I am sure the member for Brandon East does know the answer, that this is really our Westman office out of Brandon, Manitoba, staffed with about 15 people, more or less, that services that part of our province on behalf of our Taxation Division.

Mr. Leonard Evans: I appreciate that, Mr. Chairman. Is there anything the office has to do that is different from say an office in Winnipeg? What I was thinking of was whether there was any problem because some communities are near the Saskatchewan border. I guess as long as our taxes are less than the Saskatchewan taxes, we do not have much problem, but I was wondering if there is anything caused by that proximity to Saskatchewan.

Mr. Stefanson: No, Mr. Chairman, there is nothing unique. Some of the individuals who work out of this office, report to this office, live in some of the surrounding communities--Boissevain, Virden and so on. Other than that the functions of the office are the same as out of Winnipeg.

Mr. Leonard Evans: I thank the minister for that information. I just wondered whether there was something unique in the region that the office had to be concerned with over and above other responsibilities, and I gather the answer is no.

I would like to pass on to the Tobacco Interdiction section, which is probably one of the more challenging areas for the department in terms of ensuring that the people comply with various provincial statutes. I appreciate it involves the RCMP, Ontario Provincial Police and so on. There are stories in the paper, from time to time, and I happened to notice, I guess over the weekend, a story about 400 Manitobans being identified through obtaining records from a particular company called Star Tobacco in Ontario. I had earlier thought the minister was telling us, well, there is not much of a problem here, but it seems to me when you find 400 people from one company alone, that seems to be a fairly big problem.

I was quite surprised, personally, at that amount, that there were 400 people from one company alone who somehow or other escaped paying provincial taxes on cigarettes or tobacco products. I also appreciate the fact that newspapers do get the facts wrong once in a while and interpret things a little oddly sometimes, but I was wondering if the minister could comment on this problem.

It seems that through one company alone--this incidentally is probably a very effective way of determining illegal purchase of tobacco products as opposed to stopping people on the highway.

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Mr. Stefanson: Firstly, it was not all from one company. What we have here is this is the first time that we have been able to deal with collecting the tax as a result of mail distribution of cigarettes. It has been something that has been worked on for a period of time with the federal government and with our officials, so what we are talking about here is really a catchup. This is the first time letters are being sent as a result of the work that has been done with several companies spanning many, many months.

I think the member will recall it has been part of our discussions and frustrations with the federal government, the ability to deal with the mail order side of cigarettes coming into Manitoba. It was resolved, and this is the first time we are able to deal with it.

It represents many months; it represents several companies. I reiterate what I said before that we are fortunate that smuggling is not a major problem in Manitoba. Manitobans are basically abiding by the law, buying their cigarettes in the traditional ways that they always have. You can tell by our revenue sources that they are for all intents and purposes holding firm after you factor in consumption reductions and so on.

Mr. Leonard Evans: It just seemed to me that this was probably a more effective way, although it is a different dimension, I appreciate. It seemed to me a more effective way in a way than having, say, RCMP stopping people on the highway when they come in from Ontario. I very rarely travel, I am very rarely--in fact I do not think I have been across the Ontario border, by car at least, for years, so I do not know what the situation is.

To me it is distasteful to have to have a police force stopping citizens or whatever they do. I do not know whether they do random checks or whatever with regard to tobacco products. I for one support the government's objective. I really want us to be able to maintain our revenue sources, but I have a--I guess it is a conflict. On the one hand I appreciate that we need the money, we should be entitled to those revenues. At the same time, it does infringe on individual liberties, and it certainly does infringe on interprovincial trade.

We always give so much lip service to interprovincial trade of products in Canada and the whole notion of free trade among provinces certainly, but when it comes to--here is an area that suddenly there is no such thing as free trade. It is just the opposite, absolutely no free trade. It is definitely regulated, and you must comply with the taxes of each province.

There is, in my mind, on the one hand I can see benefits from the government's policy. On the other hand it does in my judgment lessen our democratic situation. It does lessen the freedoms of Canadians, not only Manitobans but Canadians.

Mr. Stefanson: I am pleased to hear overall the member for Brandon East's support, because he knows full well that this is an issue that none of us wanted to be faced with having to deal with. As I said earlier to the member for Inkster (Mr. Lamoureux), it was as a result of a decision made by the federal government to lower federal tobacco taxes to deal with a smuggling problem in the province of Quebec, had a domino effect across our country. We know that the province of Ontario tried to deal with it through enforcement that lasted a few days, and they were unable to sustain the kind of activity that was taking place, I guess, primarily in Ottawa-Hull and in those regions.

It has certainly been a situation that all of western Canada did not want to be faced with if the federal government had maintained their traditional levels of taxation equitably across Canada, so we do appreciate the support with what has been a difficult issue to deal with.

Mr. Leonard Evans: Could I ask the question: Does the minister know how the RCMP operates in this matter? Is it just a spot check of cars coming into Manitoba from Ontario? I wonder if the minister could explain?

Mr. Stefanson: Mr. Chairman, at the time that we entered into this the media asked me the same question. I have to give the same answer, that that is all part of enforcement and as a result I should not be providing details on that.

Mr. Leonard Evans: It is a big mystery, trying to find out I suppose. My colleague for Elmwood is going to ask a number of questions in a moment, I believe, on this area, but I just have one other question. What about air transport and people coming from elsewhere with cigarettes or tobacco products of some kind or other at the airport? Is there any attempt made to control this?

Mr. Stefanson: The short answer is yes.

Mr. Leonard Evans: Is that with private planes or does that include commercial flights as well?

Mr. Stefanson: Again, the answer in that case is both.

Mr. Leonard Evans: The minister is telling us, for example, he is satisfied that they are keeping check on, say, flights coming in from Ontario by Air Canada, by Canadian Airlines. Presumably a person could come in with three or four suitcases full of cigarettes, for example. To my knowledge, when you come on a domestic flight nobody checks your baggage. You collect your bags and go home.

Mr. Stefanson: Again, I cannot talk about enforcement. Yes, we do follow up in those areas based on reasonable and probable cause, but I cannot get into any of the enforcement issues.

Mr. Leonard Evans: It would seem to me it is a very difficult area because people could easily come with several suitcases full of their favourite products. I do not know how anyone has the right to stop them or check them because we are not talking about international flights, we are talking about domestic flights. There is freedom of movement in the country, unless there is something in the legislation which gives certain authorities the right to open your suitcase because they think they may find some tobacco products on which the taxes have not been paid.

Mr. Stefanson: I have nothing more to add.

Mr. Leonard Evans: I will just make this last comment here. In a way I realize I share the objectives to obtain as much revenue in keeping with our laws. It is regrettable that the federal government took the action that it did, causing this problem. Yet, at the same time, it is really unfortunate because it does chip away at the democratic freedom of our citizens.

There are some people who would argue in a very extreme way about the rights that people should have. I know we have responsibilities to be law-abiding citizens, but at the same time it seems to me that--especially when we are talking about people, Canadians travelling within Canada, generally law-abiding citizens and yet maybe breaking the laws. It may not be in their opinion. As a matter of fact, this is a very important legal question. Do we have the right to do what we are doing? I do not know. I am not a lawyer, but I think there is some suggestion made that if it finally goes to court, I am not sure whether the court system, the judicial system, will uphold what the government has been doing.

Mr. Stefanson: Mr. Chairman, I guess I just want to exercise a little caution and want to indicate that at this stage it is difficult to comment on the substantive constitutional challenge other than to say that we believe the legislation is constitutional, and we are prepared to defend it vigorously in the courts.

The matter is before the courts. It is not proper to comment further or to engage in discussion or debate as to the legal validity of the current legislative scheme. So I express that as a caution for all of us at this particular point in time.

Mr. Leonard Evans: I would defer at this point to my colleague the MLA for Elmwood, who has a number of questions to ask on this same topic.

Mr. Maloway: Mr. Chairperson, I would like to ask the minister how successful the whole effort has been, then, to have spent, I believe, 18 months and spent roughly--well it is hard to say what they have spent exactly. It looks like on salaries alone it has cost the province an extra $582,000 in a 12-month period. My guess is that the overall operation has been a money loser, or at best a break-even proposition based on the increased revenue that they have got versus the expenses that they have put out. I ask the minister whether he can confirm that is, in fact, the case.

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Mr. Stefanson: Mr. Chairman, similar to what I said earlier, if we were to follow the reductions that occurred in eastern parts of Canada the lost revenue to the Government of Manitoba would be approximately $80 million, so there is a significant revenue issue but, as well, I point out I had the opportunity to meet with many health organizations over the course of the last year and a half and virtually all of them support our initiatives and show various studies that show that this is also very much of a health issue, that there is a direct correlation between price and the smoking habits of individuals, particularly our young people, so it is a combination of a financial and a health issue.

Mr. Maloway: Mr. Chair, I am not quarrelling with the minister's intent here to reduce smoking, and in the process, but what I am suggesting is that perhaps the minister will admit that this effort is costing as much as we are saving in revenue.

Mr. Stefanson: No, I would not admit that at all, Mr. Chairman. As I pointed out, the revenue being saved and protected is $80 million versus the costs as outlined on page 72 in the Supplementary Estimates.

Mr. Maloway: Mr. Chairman, does the minister have any information on the possibility of larger quantities of cigarettes being brought across the border through the use of watercraft or small aircraft? I know they are watching the highways pretty closely, but could large quantities be brought in through the back door?

Mr. Stefanson: Again, Mr. Chairman, I am not at liberty to outline any specific enforcement activities other than to indicate that we do pursue all avenues.

Mr. Maloway: I guess I am not asking the minister to detail any specific incidents that his department is working on, but I am asking him whether, in fact, they have even considered the possibility that huge quantities could be brought in through the back door through boats and aircraft while they are very vigilant on the highway. Has he looked into that situation, and if not, why has he not?

Mr. Stefanson: Mr. Chairman, I want to assure the member for Elmwood (Mr. Maloway) that we consider all modes of transportation.

Mr. Maloway: So the minister is agreeing then that there has been some effort made to look into this area, that large quantities may be brought in through the use of boats or aircraft.

Mr. Stefanson: I will just restate, Mr. Chairman, that we consider all modes of transportation as part of enforcement.

Mr. Maloway: I would like to ask the minister, in view of the recent article a few days ago in which it was noted that sales records of a firm in Toronto were seized and I believe 400 letters were sent out to the customers of that firm collecting the sales tax, it appears to me that that is one efficient way of collecting the tax, far more efficient than the RCMP efforts on the highways.

Why was that idea not acted on earlier? Is it being acted on with respect to other companies, because it seems like an obvious partial solution to the problem?

Mr. Stefanson: As I said earlier in response to a question, we started working on this immediately at the time that the federal government reduced their taxes. As I said, this is the culmination of many months of work. The press report was inaccurate. It does not involve only one company, it involves several companies. In fact, part of the changes that were required to allow this kind of enforcement included some federal legislative amendments as well.

Mr. Maloway: Can the minister confirm that all of the suppliers' records that have been discovered at this point have been seized, or is this just a situation where only one or two companies' records have been seized?

Mr. Stefanson: I cannot confirm that. We are back into discussions around enforcement.

Mr. Maloway: Mr. Chairman, I would like to ask the minister, in a different area now, some questions regarding the collection of retail sales tax and payroll tax.

Can the minister give us an update regarding the attempts to collect the $200,000-plus PST, provincial sales tax, arrears regarding the Clancy's restaurant chain? He had promised in the past to do several things. That was about a year ago, and I think the minister has had ample opportunity to have his staff fulfill those promises of that time.

Mr. Stefanson: Mr. Chairman, I think, as the member for Elmwood knows, that company has filed for bankruptcy, and we along with some others are an unsecured creditor.

Mr. Maloway: Well, Mr. Chairman, a year ago the minister promised to, quote: examine the series of events and what, if anything, could be done about earlier collection of the problem.

I believe he was quoted as making that statement in a Free Press article last year. Further to that, an official of his department said that there was a current review that would determine whether any further action is required, and this was in regard to the department's inability to press charges against the officials of the company.

Now there is a clear indication here that as a result of this situation the department was going to conduct a review and a study of this situation and come up with some answers to these questions. I want to know, where is this study? Who did it? Where is it? Why do we not have it?

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Mr. Stefanson: Mr. Chairman, all I can tell the honourable member is that I am satisfied the department did everything that they possibly could in this particular instance, and they did everything legally possible in this situation.

Mr. Maloway: Mr. Chairman, I would like to ask the minister then, are there any provisions of The Retail Sales Tax Act and the payroll tax act that allow a delinquent to be taken to court?

Mr. Stefanson: There are provisions in both of those acts to take a party to court, but in this particular situation the party was bankrupt and there are no proceeds available to be distributed to unsecured creditors.

Mr. Maloway: I would like to ask the minister then why the department did not press charges then for failing to file proper provincial sales tax forms. I will accept that by the time this department actually got moving on this particular account, the taxpayers of this province were out upwards of $350,000. I accept the fact that they bungled this situation. I am trying to find out at that point why they did not proceed to at least charge the principals with failing to file proper sales tax, because part of their argument was that they were misled by improper filings and they were looking at possible criminal charges in filing of false PST forms. What do they have to say about this?

Mr. Stefanson: Mr. Chairman, all I can tell the honourable member for Elmwood (Mr. Maloway), and I hope he will take my word for it, is that the department did not bungle the handling of this transaction and took all appropriate steps in the circumstances.

Mr. Maloway: I would like to know whether anything was turned over to the Justice department. There was a suggestion that that could be done in this situation. If there was an indication of serious criminal code offences, they would be turned over to the Justice department for action. I would like to know whether anything was done in this vein.

Mr. Stefanson: I am told that we had the input of the Justice department on this matter.

Mr. Maloway: Could the minister repeat that last statement?

Mr. Stefanson: Mr. Chairman, I indicated and I am told that we did have the input of the Justice department on this matter.

Mr. Maloway: Would the member table any or provide us with any documentation that would help us to understand as to what made up the decisions that this department made in this situation that caused Manitoba taxpayers to be out upwards of $350,000 in sales tax?

Mr. Stefanson: I am not sure there is anything I can provide him with. I will review the matter, and if there is anything of substance or use that I can provide him with, I will. I want to assure him, as I have before, that we have an outstanding record in Manitoba in terms of collecting taxes that are due.

Mr. Maloway: Mr. Chairman, there was some reference made to the provincial Labour department also filing court liens in an attempt to recover money, wages for employees. How much money did the department recover on behalf of the employees?

Mr. Stefanson: I do not have that information. The member refers to the Labour department. It is probably a question more appropriately asked when the Department of Labour Estimates are up.

Mr. Maloway: Mr. Chairman, I would like to know why the department did not press charges in this particular case? What were the reasons?

The minister has said that the company was out of money. We accept that, if the department did not move quick enough to try to seize what it could have if it had been on top of the situation. So given that, the department still did not move when there was clear indication of improper filing of the PST forms. The minister makes reference to the Justice department, that he had referred it to the Justice department. I would like to know why, after this period of time, has still nothing been done by this department in an effort to satisfactorily put this case to bed? What is the reason?

Mr. Stefanson: I have informed the member that I believe that we took all reasonable steps and precautions through this entire matter, and at the end of the day the taxpayer is bankrupt and there is no money available.

Mr. Leonard Evans: I propose that we pass the Taxation section now and go on to Federal-Provincial Research.

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Mr. Assistant Deputy Chairperson: Item 4. Taxation (a)Management and Research (1) Salaries and Employee Benefits $849,600--pass; (2) Other Expenditures $103,800--pass.

Item 4.(b) Taxation Administration (1) Salaries and Employee Benefits $2,456,700--pass; (2) Other Expenditures $1,455,300--pass.

Item 4.(c) Audit (1) Salaries and Employee Benefits $4,701,100--pass; (2) Other Expenditures $682,100--pass.

Item 4.(d) Tobacco Interdiction (1) Salaries and Employee Benefits $582,600--pass; (2) Other Expenditures $306,200--pass.

Resolution 7.4: RESOLVED that there be granted to Her Majesty a sum not exceeding $11,137,400 for Finance, Taxation, for the fiscal year ending the 31st day of March 1996.

Item 5. Federal-Provincial Relations and Research (a) Economic and Federal-Provincial Research (1) Salaries and Employee Benefits $1,006,200.

Mr. Leonard Evans: Mr. Chairman, this is a big area. It involves our relations with the federal government and the problems that all provincial governments are now facing because of federal cutbacks. It also involves taxation at the federal level that bears on provincial taxes. I am thinking particularly of sales taxes. It is an area of great concern to any government, the fact that they are facing severe cutbacks because of decisions made by the present federal government.

Before we get into those big policy areas, I am just curious, why is there such a big increase in communications in this area? I raised this question before with the minister, but there seems to be quite a significant jump from about $76,000 to about $95,000 in the spending of communications. What are we doing? The last explanation was, well, we are sending out more direct mail re tobacco tax or whatever.

Mr. Stefanson: Mr. Chairman, it is not that we are doing any more in this area. I gather it is more of a reallocation to reflect the actual expenditures estimated for '94-95. This area includes postage. It includes the printing of the budget. It includes the property tax insert, all the things that we have been doing for many, many years, so it is not that there is any new initiative or new function being performed. It is an estimate to more realistically reflect what we expect to spend this year.

Mr. Leonard Evans: So I take it, then, that we actually spent more than the allocated amount last year.

Mr. Stefanson: The short answer, I believe, is yes. It is a reallocation and more realistically reflects what we are expecting to have spent in that area with expenditures being down in some of the other areas under Other Expenditures.

Mr. Leonard Evans: So I gather we are going to get more bulletins and brochures and little leaflets telling us about great budgets that have been brought down by the Minister of Finance.

Mr. Stefanson: You can never get too many of those.

Mr. Leonard Evans: I was trying to find the page number, but it has slipped my mind here. I believe there is some reference made in the 1995 budget to the minister undertaking an exercise, probably with his provincial counterparts, to approach the federal government on this whole cutback exercise that they have announced. I was wondering what exactly is the minister prepared to do to protect Manitoba's interest in this area.

There was reference made on page 4 of the financial review and statistics of your 1995 budget. You have a table there and a footnote indicating the impact of the 1994 and 1995 budget. A three-year total impact for '94-95 is $391 million, a lot of money. I am just wondering, what is the minister prepared to do to try to dissuade the federal government from cutting these programs as it indicates it wishes to cut?

Mr. Stefanson: Mr. Chairman, I have written the federal Minister of Finance expressing our concerns requesting an early meeting of Finance ministers. At this stage, there is no national meeting of Finance ministers scheduled. There is tentatively a western Finance ministers meeting scheduled for the end of this month which had to be postponed from an earlier date as a result of the Saskatchewan election. It was scheduled to be held roughly in conjunction with the western Premiers' meeting and has since been postponed. That was western Finance ministers. We are hoping that western Finance ministers will be able to meet with Mr. Martin by the end of this month.

So we have written to him, expressed our concern, outlined our concern, pressed for early meetings on the issue, because while we know we are okay in the 1995 fiscal year, obviously this issue needs to start to be addressed starting with our next fiscal year.

Mr. Leonard Evans: I wonder if the minister can enlighten me, since we are talking about these federal budget announced cuts of transfer payments, is it correct that in your medium-term fiscal plan you have not taken into consideration the 1995 announced cuts?

Mr. Stefanson: That is basically correct. As the member for Brandon East knows, we received the federal budget not much before our budget. We had the opportunity to include it here in our document as information, and we have outlined a series of steps that we intend to take over the next months.

Mr. Leonard Evans: I am not sure what those steps are. I do not recall that the minister made them public. Maybe he did. At any rate, the '96-97 fiscal plan would indicate a balance. There is no surplus, no deficit. It balanced. If you were to include the federal budget monies, it means you would have a deficit of $87 million. So somehow or other is the minister telling me he has already announced how he is going to make up for that $87-million deficit?

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Mr. Stefanson: Mr. Chairman, the member is correct that if you add back the $87 million you start with a deficit of $87 million, but in this budget year that we are in we expect to have a surplus of $48 million which can be applied against that $87-million shortfall, bringing the net shortfall down to approximately $40 million.

Some of the avenues we will be pursuing over the next months will be the meetings and discussions with the federal government. I anticipate from some feedback I have had that we will have the support of some other provinces. Obviously, again, the discussions that we have had before and was confirmed by various agencies was that we used conservative revenue estimates in our budget, so if our revenues come in a little stronger that will allow us to deal with that shortfall. If our dollar can strengthen and if interest rates continue to drop, again those are very large expenditure areas that can assist us in terms of meeting with that $40-million shortfall. Subject to all of those things, we then will be dealt with having to potentially find reductions of about three-quarters of 1 percent of our expenditures if none of those pan out, I guess is the way to put it.

Mr. Leonard Evans: I am a bit amazed when the minister states that he will have some monies to transfer from '95-96. Hopefully, if he does have this $48-million surplus he will have that to transfer and apply against an $87-million shortfall in '96-97. I had always thought if you indicated that you had a surplus that those monies would go to pay down the debt. Obviously that is not going to happen. You are not going to pay down the debt with that $48- million surplus. You are going to simply transfer it to '96-97.

Mr. Stefanson: Mr. Chairman, first just to clarify in terms of pursuing discussions with the federal government, the intent is to pursue pointing out to them the error of their ways in terms of their budget priorities and utilizing the contingency fund to assist provinces with Established Program funding.

Again I would encourage the member, if he has not had the opportunity yet, to read the section on the balanced budget legislation, because what we outline there is that there is a target for the Fiscal Stabilization Fund of 5 percent of expenditures. The intent is to utilize any surpluses to build up that Fiscal Stabilization Fund to that level. Again the schedule that is outlined as part of the balanced budget legislation shows starting to make annual debt servicing payments in the fiscal year 1997-98.

I can certainly run through all of that legislation, but that is how it would work. There is a Fiscal Stabilization Fund with a target of 5 percent of expenditures. Roughly $270 million is the objective to get that fund up to starting in '97-98, to start making annual payments on the debt starting at a minimum of $70 million, I believe. That would pay off the debt in approximately 30 years. It is like an open mortgage. If there is the opportunity to make payments earlier, that opportunity will be there for government.

We have clearly outlined the intention to utilize the Fiscal Stabilization account.

Mr. Leonard Evans: Mr. Chairman, the other concern I have with regard to the medium term fiscal plan is the basis for your operating revenue. I am sure you will argue, well, your operating revenues that you project are realistic and so on. Just how realistic are they? I believe there was some criticism made by an economist with the Conference Board suggesting that your expectations are a bit too rosy in terms of increasing operating revenue.

I guess basically what I am asking is: What rate of economic growth--I think the operating revenue, to some extent, is related to the estimated rate of economic growth projected. What rates of economic growth are we projecting, and how do we come with these rather positive looking steady increases in operating revenue?

Mr. Stefanson: Firstly, I think when the member for Brandon East talks about the Conference Board of Canada, he is referring to an article that appeared in the Winnipeg Free Press around the time we tabled our budget.

I thought the member had seen the letter that the individual from the Conference Board sent directly to Mr. Duncan McMonagle of the Winnipeg Free Press, where he clarified that the Free Press was incorrect.

He said: "I am writing in order to clarify remarks attributed to me in an article by John Douglas entitled "A Daring Blueprint", which appeared in the Winnipeg Free Press on Saturday, March 11, 1995. Following further analysis of Manitoba's provincial budget released on Thursday, March 9, I have concluded that the underlying economic assumptions contained in the budget are realistic and that the revenue projections are attainable. Indeed, the real economic growth forecast for Manitoba in the budget document over the next three years is lower than the most recent Conference Board outlook for the Manitoba economy over the same time period. I trust that the results of my further analysis of the Manitoba budget will be of interest to your readers. Please don't hesitate to contact me if you have any further questions regarding the economic implications of the budget." Mr. Paul Darby, Director, Economic Services, the Conference Board of Canada.

I hope that clarifies what you read in the Free Press as a result of a letter from Mr. Darby.

Mr. Leonard Evans: There was some reference in the minister's statement about me knowing about this letter. I do not know how the public was supposed to know about the letter, unless you made an announcement about it. I do not recall any announcement about it.

Mr. Stefanson: Mr. Chairman, I had the opportunity to close on Budget Debate, and I read that written letter into the record on the closing of Budget Debate.

Mr. Leonard Evans: Gee, I missed that. Okay, I did not hear you. Well, I will read it. Let us get back to that. What is the basis of your operating revenue increases? What are your rates of growth for these years '96-97, '97-98 and '98-99?

Mr. Stefanson: Just to give a comparison, if you use real GDP growth starting in 1995--I will give the numbers for Manitoba: for '95, 2.1 percent; for 1996, 2.1 percent; for 1997, 1.5 percent. To show that comparison to numbers used for Canada, Canada during that same time period was using in 1995, 3.4 percent; 1996, 2.3 percent and 1997, 2.3 percent.

I guess the more commonly used are the nominal GDP growth. In our case in Manitoba, 1995 will be 3.8 percent; 1996, 3.7 percent; 1997, 3.6 percent.

Mr. Leonard Evans: Is the minister talking about the real growth rates then? You mentioned Manitoba and then you mentioned Canada. Were you comparing the national estimates with Manitoba or was that term Canada used in a different--I did not quite follow the minister there.

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Mr. Stefanson: I guess the point is to confirm the point that we were discussing about whether or not we are using optimistic or not optimistic forecasts, sort of in keeping with the letter from the Conference Board.

To give a comparison to the nominal GDP figures I just gave, the Conference Board shows Manitoba consistently higher in all three of those years. In 1995 the Conference Board shows Manitoba at 4 percent; 1996, 4.5 percent; in 1997, 4.1 percent. So again I think the point here is to illustrate what I said at budget time, that we are using the less optimistic economic forecasts. Based on that pattern over the last couple of years, if things pan out and our economy performs better than the less optimistic, which we are expecting it will, that should also assist our revenue.

Mr. Leonard Evans: Well, if I understood the minister correctly a minute ago he told us that the Estimates, this medium-term fiscal plan Estimates was based on a projection of--this is real growth rates for Manitoba--2.1 in '95; 2.1 in '96 and 1.5 in '97. Did I hear him correctly?

Mr. Stefanson: That is correct.

Mr. Leonard Evans: What about '98 because your plan goes to '98-99?

Mr. Stefanson: Keep things moving along and I will get that for the member.

Mr. Leonard Evans: Well, my only comment about these numbers is that we have three years of positive numbers, and it has been suggested that 1998 will be positive, too. That will be four years of positive numbers. Yet if you look at the historical record--and I am looking at Conference Board numbers which may be slightly different historically still with the Stats Canada, although Stats Canada is supposed to be the final authority--you see every other year it is negative. Like in 1990 our real growth was 1.1 according to the Conference Board but 1991 it was minus 4.6, and the following year was 1.9 but then the next year was minus 0.9. Then we have two positive years although what are they, 3.2 for '94 and they are showing 2.6 for '95, although that is still a forecast so that may or may not come about.

So what I am saying is that we live in a world of business cycles, and we do not always get positive numbers whether we like it or not. I find it strange that you can have four years of positive growth rates when the reality is that you get negative numbers in there.

Mr. Stefanson: Mr. Chairman, I think the fact is these are what forecasters are forecasting. They are the experts in the field and we are taking the lowest of the forecasters. So we are being extremely cautious. I am not sure which page the member was going from but even the years, I believe, that he was citing, we were better in Canada in three out of the four years in the early 1990s. From 1990 to '93 we outperformed Canada in three out of those four years. So again, in a relative sense, Manitoba has done very well.

Mr. Leonard Evans: Yet in 1993, Mr. Chairman, Manitoba was the only province to register negative growth according to Stats Canada, 1993. I think of the 10 provinces, Manitoba stood out as the only negative province.

Mr. Stefanson: I will just reiterate, Mr. Chairman, the bottom line is we are using the most conservative forecasts of the economists in this area. The member refers to 1993. I am sure he recalls full well what kind of a year 1993 was, particularly for our agricultural community, with extremely the wettish summer I think we have had in the history of Manitoba, if I recall correctly.

Mr. Leonard Evans: Mr. Chairman, the minister is making the point for me. The point is that we do, unfortunately--and I am not suggesting the government is directly responsible. If agriculture is bad, their performance is bad because of bad weather, poor weather, too much rain or not enough rain or whatever, it has a bearing on the gross provincial product. There are other factors that will have bearing on the gross provincial product which may be beyond the control of the provincial government. I am saying the reality is that we do not normally get four years of positive numbers. Frankly, I do not know how anyone could predict with any certainty what the rate of growth is going to be in 1998. I mean, when you are in the forecasting business you always make sure you are in the long-term forecasting business because you will not be around to be accountable for the results of your forecast. The minister is saying now he is going to have four years of positive numbers, that is what he is working with, and that is why he can show four years of steadily increasing operating revenue.

Mr. Stefanson: Mr. Chairman, I think the member for Brandon East also makes the point that those can be volatile and they can swing in both directions. Over the four-year period we have taken the most pessimistic economic growth numbers in terms of the assumption. So again, even accepting his argument that during those years we might have another wet summer or whatever, I also would suggest that during some of the other years we will outperform the estimates that are there and on average will at least hit the average of those four years.

Mr. Leonard Evans: The point is, Mr. Chairman, you can take the least optimistic, you can take the average, but to me it seems to be unrealistic to assume that you are going to get steady growth three, and I think in this case you are talking about four years in a row.

You look at some of the revenues obtained by the Province of Manitoba and you will see, unfortunately, from time to time, there is a fall-off. In '90-91, our revenue in Manitoba was in the order of about $4.9 billion. The following year it dropped to $4.7 billion. So there is one example where revenue dropped. It seems that the theory here is use an average or use the least optimistic or most pessimistic, but still I say that still may be unrealistic.

Mr. Stefanson: Well, Mr. Chairman, I just reiterate that we are using the least optimistic economic growth assumptions. I am told that after the recession in the early '80s that there were four or five years of steady growth. The numbers I have given the member for Brandon East, as I say, they are the least optimistic, and they show a decline in growth from the 2.1 down to the 1.5 in 1997.

I think we have taken every precaution to cover off the kinds of concerns that the member for Brandon East is talking about. I read to him the letter from the Conference Board of Canada that confirms, from their point of view, that we are being very realistic in terms of our assumption. That was the point I made when I tabled the budget and I continue to make that point, that we are not being overly optimistic or ambitious in terms of our economic growth assumptions.

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Mr. Leonard Evans: Am I correct, though, that the minister does not have the number for 1998?

Mr. Stefanson: Mr. Chairman, 1.9 percent.

Mr. Leonard Evans: That is an increase then. You are 2.1, 2.1, 1.5 and then you are going up to 1.9.

At any rate, I am being very doubtful. No matter how much good will and how much hard work everyone does, I am very doubtful whether we can predict with any confidence the revenue levels as the minister is doing. At any rate, I think I have made my point in this respect.

Particularly, when it comes to the bottom line of deficits or surpluses, there is always the uncontrollable factors including changes in federal government policy. I appreciate the minister has got a Fiscal Stabilization Fund, but in many ways that sort of muddies the waters. You are using it to smooth out the numbers, admittedly, but the Free Press accuses you of fudging the books with it. That goes back a couple of months ago, a major editorial they wrote on the Manitoba Budget. I think it was entitled "Fudging the books", and there was reference made to the Fiscal Stabilization Fund. They have one in B.C.; it is called the Budget Stabilization Fund. The short name for it there is the BS fund.

Mr. Stefanson: All the people I am most concerned about are the bond rating agencies, the investment dealers, the people who invest in Manitoba, and they have confidence in how we keep the books and how we perform. It is reflected in areas such as having the third-best borrowing spreads in all of Canada during 1994.

I could go on for quite some time if we want to talk about the strong economic performance and strong fiscal performance in this province. I am sure the member for Brandon East would want me to do that, but, for the time being, I will save those comments for another moment.

Mr. Leonard Evans: There are some others here that want to ask some questions under this section, but I just want to ask the minister again about the GST. The member for Inkster (Mr. Lamoureux) touched upon it, and the minister provided some information. It was more or less along the lines of harmonization and so on.

Has the minister totally given up on the fight to have the federal government eliminate it? This particular federal government, this Prime Minister, this Minister of Finance, Mr. Martin, campaigned on eliminating--not modifying, not changing the name of--the goods and services tax.

Categorically we heard him say this over and over, and yet there is not a word coming out of Ottawa these days about eliminating the GST. So I was wondering whether the minister is still of the view--I believe his predecessor was, he was of the view that the GST should go. I think we were unanimous in the House that we were opposed to the GST.

So my question to the minister is, what is he doing now to fight the good fight to get the federal government to drop the GST? It is the most hated tax in this country.

Mr. Stefanson: As the member for Brandon East knows, we have not supported any of the proposals that have come from the federal government, either from the standing committee or the first proposal floated by Mr. Martin, or the most recent proposal put forward a year ago last spring, where they were talking about a single GST-type tax levied at 12 percent, with 7 percent going to the provinces and 5 percent to the federal government.

We discussed that at Finance ministers in October. We opposed that proposal for several reasons, as again I think the member knows that proposal would result in Manitobans paying an additional $29 million more in overall taxes. It would also result in higher taxes on many purchases like books, children's clothing, home heating, funeral services, and so on.

It would have resulted in having to increase personal income taxes to make up the shortfall on the provincial sales tax, which again was unacceptable to us because, I think most of us would agree, consumer confidence, while it has been improving, has been fragile. We were concerned about taking more money out of the pockets of Manitobans before they even have the discretion or the choice to go out and spend that money on some products.

So everything we have seen to date from the federal government has been unacceptable to us, and we believe not in the best interest of Manitobans. To try and conclude this issue, we did put forward, along with Ontario, some alternatives. We never heard back from the federal government on those alternatives.

The last Finance ministers meeting that the GST was even on the agenda was last fall, last October. We met again this year to discuss budgets and fiscal matters, the GST was not even on the agenda.

As you heard me say earlier to the member for Inkster (Mr. Lamoureux), we do not get a lot of complaints about the provincial sales tax here. There are a lot more important issues facing finance ministers across this country. You are right, it was an election commitment of the current federal government. To date, they have not put forward anything that we believe would be in the best interests of our province.

Mr. Leonard Evans: Has the minister, either at the federal-provincial ministers' conference or by way of correspondence or a special meeting, made serious proposals to the federal Finance minister to consider other kinds of taxation so that the GST could be dropped totally.

I will give one example. There has been discussion in the business papers recently about financial transactions taxes. I read one article, I wish I had it with me. I cannot remember the numbers, but they proposed a very minute tax on the sale of bonds, the buying and selling of bonds. It would be a fraction of 1 percent, one-tenth of one percent, a very tiny amount. Yet that tiny fractional tax on, say, the sale of bonds and the bond market, I am talking domestically, would raise enormous amounts of money, hundreds and hundreds of millions of dollars of new revenue. I know there would be people who will cry out that this will interfere with the bond market and so on, but that idea was proposed by an economist. He made a good point of the significant amount of revenue that it would achieve for the federal government.

I am using that as one example. I am just saying, it is my view that over the last decade or two there has been a shift in tax burden from the wealthier groups onto the shoulders of the middle-income and lower-income groups. There is a lot of statistical information showing that both in the United States and Canada. What we have seen take place has been very regressive, in my view. I think it would be a progressive view to have some form of financial transaction tax. I am using that as one example of an idea that could be proposed by our provincial Minister of Finance.

There are a lot of other ideas, ways and means that the federal government could obtain taxes which are not as burdensome on the average Canadian as the GST is, far more progressive than the GST. The GST is regressive in many ways.

I am asking the minister--I rather suspect that he has not made any proposals for new forms of tax that the federal government could look at.

Another one that has been talked of in fact has been in international transactions in tax. In fact, I believe it is going to be discussed at the G-7 conference in Halifax in a matter of weeks. Even the Prime Minister has made some reference to the fact that national governments, sovereign governments are being held up by international speculators, and one way of coping with this is to consider some form of international transactions tax.

Professor Tobin of the United States has written on this. He is a well-known American economist that has written on this. Others have as well.

I am making reference to this by way of example to say, well there are ideas out there, new forms of taxes which are less harmful to the economy. I believe the GST is harmful to our economy. I believe there are new forms of taxes that are less harmful and are more progressive.

If the minister had any comment on this I would like to hear it.

Mr. Stefanson: No, Mr. Chairman, we have not suggested any areas of increasing any existing taxes or introducing any new taxes to the federal government. Certainly those kinds of options are open to them to consider and review. As the member for Brandon East (Mr. Leonard Evans) has mentioned, they made the commitment to scrap the GST. We have been dealing with issues that have come forward from them in terms of the interrelationship with the provincial sales tax. None of the solutions they have proposed are in the best interest of Manitobans. First and foremost, I view that as our responsibility.

While we will try to be co-operative with the federal government, our responsibility is to represent Manitobans. The kinds of proposals that have come forward have really been a full harmonization of the GST with the PST. As I keep saying, they are not in the best interest of Manitobans, and we do not support them.

Mr. Leonard Evans: Can the minister tell us whether the subject of the utilization of the Bank of Canada monetary policy come up at the recent ministers' meetings?

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Mr. Stefanson: The short answer is no.

Mr. Leonard Evans: As I said, the member for Crescentwood (Mr. Sale) will be asking some questions, but I just want to make one point here, a very important point and a suggestion, to the Minister of Finance, to study the idea, to pursue the idea of using the central bank more actively as we used to do after World War II and during World War II.

The Bank of Canada was used very successfully to finance a good portion of the federal debt. What that meant, of course, is that you had interest-free money for the federal government to utilize in whichever way necessary. One of the reasons we were so successful in World War II was because we used the Bank of Canada. By 1943, 25 percent of the federal debt was held by the Bank of Canada. In fact, a great percentage was held for some years after World War II.

Today, because of the influence of monetarists' economic policy and under Mr. John Crow, in particular, the former Governor of the Bank of Canada, the amount held by the bank is very minimal. I think it is only 5 or 6 percent. I understand the American federal reserve system itself, which is their central bank, holds in the order of close to 30 percent; however, that is calculated.

I read one study which would indicate that Canada's burden of interest on the public debt could be relieved by hundreds upon hundreds of millions of dollars--I wish I had the article with me--if we even went up to the American level of holding the federal debt around 30 percent instead of 6 percent. This involves changes in the bank act.

Of course, what has happened is the commercial banks as of about two or three years ago have been able to buy federal government bonds without any assets. You do not have to have a nickel for a commercial bank to lend money to the Bank of Canada by taking Bank of Canada bonds. The commercial banks do not need a nickel of assets to back up those loans. They have a free reign there. It seems to me that there has to be some changes. We have to go back to some of the reserve requirements system that we had before and which most countries still have.

I am suggesting that the problem of governments having insufficient monies for social programs, education and whatever, goes back to the fact that we are spending too much money on interest on the debt. That money is going essentially to commercial banking institutions, financial institutions. The banks are getting rich. Financial institutions are getting rich and so on, and the governments are having to cut back or increase taxes or whatever.

I am saying that instead of making all these huge payments, the federal government and the provincial governments could get some interest-free money which would take the pressure off. Under the Bank of Canada Act it can, on direction by the federal government, actually buy provincial bonds. To that extent, and under certain arrangements, under certain regulations and a responsible method, a responsible manner, you could assist the provinces.

So I say the bottom line is, how do we maximize employment? How do we maximize jobs in the country? How do we maximize economic growth? How do we ensure that our industries can expand and create jobs for our people? One way to do it is to have a progressive monetary policy with an active central bank. I would think that this Minister of Finance could do Manitobans and the country a great favour if he would take up that cause and begin advocating it at federal-provincial financial ministers' meetings and in any other way with the federal government. There are some vested interests which would be very much against this, but I would say, by and large, the whole economic system that we have would be enormously enhanced through this move.

Mr. Stefanson: Mr. Chairman, the member for Brandon East has shared these thoughts with me before and I will take them under advisement.

Mr. Leonard Evans: A last point, I will give him some references that he can read. Even Paul Hellyer, a former federal minister, has written a book entitled Funny Money, where he criticized what has been happening. He is no raving socialist. He is not making it like he is a raving capitalist. He is saying the system--it has just come out. It is called Funny Money by Paul Hellyer. The point of Funny Money is that the commercial banks can create money now without any assets. They can create money by buying Government of Canada Bonds without holding assets against it.

The fact is that the commercial banking system does create money. He is pointing out the difficulties that have resulted from the monetarist's philosophy followed by the Bank of Canada. He is saying, let us go back to what we did after World War II and very successfully during World War II--you know we did not say to Adolf Hitler in 1943: Sorry, Adolf, our debt is too big; the interest on the national debt is too big so we have to call our troops back.

We used the Bank of Canada in large measure to finance the war effort. We did a very successful job of it. At any rate, I leave those parting thoughts with the minister and yield the floor to my colleague the member for Crescentwood (Mr. Sale).

Mr. Tim Sale (Crescentwood): Mr. Chairperson, I would just add to the comments of the member for Brandon East (Mr. Leonard Evans). Pierre Fortin, who is certainly a mainstream economist, has written on this issue.

When these discussions take place about the role of the Bank of Canada, often, and I think unfortunately, staff and sometimes the members opposite smile perhaps in reference to discredited Social Credit theories of funny money, so-called.

I would just ask the minister to ask his staff to provide him with a comparison of the degree to which the OECD nations central banks operate substantially differently from Canada's central bank and hold substantially different amounts of the debts of those countries. I do not think it is reasonable to dismiss those who are saying that our central bank ought to have some role other than purely beating inflation into the ground. This is not discredited theory.

When pointing to the role of the Federal Reserve in the United States and pointing out the level of the American debt, which they in effect monetize or hold, it is not pointing to a raving socialist organization.

I think the minister should request a full appreciation of this issue in a nonpartisan way, because I think far too often the way the neo-Conservative right deals with this is to laugh it out of court instead of to seriously examine it from a macroeconomic perspective and to look at what other nations, in fact, are doing. Canada I believe is virtually at the bottom of the list in terms of the degree of its central bank's holding of its own debt instruments.

I just add those comments. If the minister wishes to respond, I would be glad to have the response, but he may already have done all the responding he wants to do on this particular issue.

Mr. Stefanson: I think I will say the same thing. I will take the member's comments under advisement.

Mr. Sale: Mr. Chairperson, in beginning my questions I wonder if the minister could tell us whether Manitoba's economy also suffered a decline in the first quarter of this year as apparently our federal growth went negative for the first quarter, according to recent reports. Did the Manitoba economy also go negative in the first quarter?

Mr. Stefanson: Mr. Chairman, I am told that our provincial accounts do not come out for a couple of more months yet. They lag behind the national, so we do not have that information at this stage.

Early indications are there are some bright lights. Manufacturing shipments appear to be strong. Retail sales were generally holding. A weaker spot is housing starts. On balance, we will have to wait until we get the final numbers.

Mr. Sale: Mr. Chairperson, okay, I would like to raise a number of questions around the Established Program Financing Act and the minister's strategy in regard to the negotiations with his federal and provincial counterparts in terms of the Canada Health and Social Transfer, which is proposed to replace EPF and CAP.

First of all, does the minister broadly agree with the mathematics, which show that under current assumptions with no changes the federal transfers under CHST will move to approximately $10 billion by the end of '97-98 from a current level of approximately $17 billion?

Mr. Stefanson: Yes, Mr. Chairman.

Mr. Sale: Would that then imply that the transfer for Health alone, using the current fractions, if we simply prorate the current fraction, would be something in the order of $3.3 billion or $3.2 billion as opposed to the current levels of $6.3 or $6.4?

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Mr. Stefanson: It sounds like the member is just doing the math of calculating what the reduction would be from the $17 billion to the $10 billion, if I understand correctly. But what we are going to be faced with, as he knows, is no allocation, but a block fund. That is one of the areas of concern that we have.

Mr. Sale: I am not trying to trap the minister here on numbers. I am simply trying to say that if we take the current CAP transfer, the current post-secondary transfer and the current Health transfer and scale them down by 40 percent, which is the cut over the next three years, will that indicate a Health transfer in the region of $3.3 billion?

Mr. Stefanson: I would say the answer would be yes.

Mr. Sale: My question then is around the strategy that the minister intends to use in addressing this issue. The current level of Health funding is something in the order of .8 percent of GDP from the federal government in a transfer. If the current reductions continue to '97-98 on a straight-line basis, that will bring the federal budgetary transfer for Health down below half of 1 percent, significantly below half of 1 percent of GDP.

I wonder whether the minister has any kind of overall view of the need for a federal transfer for health care, or is this simply a disappearing number that we have just accepted will happen?

Mr. Stefanson: Mr. Chairman, I am not sure if I am directly answering the question, but we take the position that we want and expect the federal government to be partners in funding for Health, for Canada Assistance Plan, for post-secondary education, as they traditionally have, although that has been eroding over time. Now we have seen a very significant plan of reduction over the next three years. Obviously, we oppose that, and we expect them to be full partners.

I found it a little ironic during the federal budget being delivered when all of the government stood up, gave a standing ovation when reference was made to the Canada Health Act. I would expect that that will be backed up with the financial support that is required to maintain an accessible, affordable health care system in Manitoba.

Mr. Sale: The minister probably knows that I have taken part in the Health Estimates as well. I have been asking the Minister of Health (Mr. McCrae) similar questions. I am wanting to have a better sense of what the government's strategy is in this issue.

If you believe the federal government should be a partner even though it has now become a very minority partner, what do you feel would be a level that would make that partnership sustainable? Would it be less than half of 1 percent of GDP, in other words, in the order of $3 billion or less, which the minister knows is less than 7 percent of the cost of medicare in Canada. Is it a higher number? Do you have a number?

Mr. Stefanson: I think first and foremost the frustration with this issue has been the lack of involvement in discussions with, I would say, all provincial governments, that really we have had very little opportunity for input into what is basically a fiscal decision made by the government. So that is our starting point of frustration.

We have now been calling on an opportunity to sit down with the federal government. I think it ultimately involves more. I can have discussions as Minister of Finance on the fiscal and financial side, but many of these issues are going to involve discussions with Health ministers, discussions with Family Services ministers, discussions with Education ministers.

So I am not going necessarily with a predefined funding level at this particular point in time, but I am very concerned with the magnitude of the federal reductions over the next three years and the lack of opportunity for us--part of the theory when the federal government entered into this was to say, can we find more efficient ways to deliver these services? Can we find economies of scale that will save us money and so on? Nobody can argue with that. I think that should be the objectives of the provincial governments collectively and with the federal government.

We went into the discussions on that basis but ultimately found out that the federal government has set a fiscal target now. Now they are backfilling, and we have been calling on a meeting of the Finance ministers. We got caught with our own provincial election here, but we have been calling for Finance ministers' meetings. So far, no national meeting has in fact been scheduled. We might meet at the end of June as western Finance ministers with the federal minister, but our position is we are full partners. We want to have full discussions, and we certainly find that what has been done at this particular point in time is financially and fiscally unacceptable.

Mr. Sale: Mr. Chairperson, I appreciate the minister's difficulty in answering the question in detail, but I want to continue to press a bit on it. It seems to me that if we believe that the federal government has to be a player, which I think we all do--there is no such thing as medicare if the federal government has no role in it. It just becomes 11 or 12 or however many jurisdictional health programs which may or may not have the qualities of the Canada Health Act's five principles. Then it seems to me that governments need to have a strategy. Then the strategy would have to have some kind of sense of what is our target here. What are we trying to achieve?

So what would a strategy look like? Well, it would have some kind of legislative framework, maybe the 1977-78 formula which at least put a base of cash in place and guaranteed that the cash would grow with the economy. There was a base. There was discussion to establish that base, although the federal government essentially dictated that it would be half of what it had transferred in the base year prior to that.

What does the minister think would be an appropriate base that would allow the partnership called medicare to continue? What would be the target for that base? Would it be 1 percent, one-half of 1 percent, not suggesting that we can achieve it even in a one- or two-year period, but are you going into this process with some consensus among your provincial colleagues, with a target, with a legislative framework or are we going in to be kicked around by federal bureaucrats as I think we have been in the past very often on federal-provincial negotiations? We have wound up wearing it much too often.

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Mr. Stefanson: Mr. Chairman, the member refers to a consensus, and I should point out that western Finance ministers were scheduled to meet this month, and this was one of the most significant items on our agenda. Unfortunately, that had to be pushed back because of the Saskatchewan provincial election. Whether or not we can meet in advance of a meeting with Mr. Martin remains to be seen in terms of availability of everybody.

One of the points I would like to make is as western Finance ministers there have been a lot of areas where we have co-operated, where we have taken consensus positions and taken them forward to the national table on the whole issue of equalization, when the federal government was reviewing equalization, we had a position paper. I guess that was a position paper out of the equalization recipient provinces, but on other issues, we have had western Canadian positions from the four western provinces.

So again I think with this issue we would be looking to do something very similar to see if there can be some consensus building with at least our provinces to the west that we do meet with annually and so on.

I think in terms of moving forward on the issue, there are probably two focuses. We start that there have to be some fundamental principles in place around health care in terms of recognizing we both have a role to play, the federal government and provincial, and are your principles going to continue to be principles that we support--accessibility, affordability and those kinds of fundamental principles.

Within that, we have to have the discussions about the funding levels. We are prepared to sit down and have discussions, but as I keep saying, we are not prepared to accept the kinds of reductions we are seeing over the next three years.

I do not need to reiterate what the health care minister says on many occasions about the percentage of our provincial budget that goes to health care. Our per capita levels of funding and so on, here in Manitoba, on a relative basis, stack up very well across Canada, but we will be turning to the federal government to fulfill their commitment and back that up with adequate funding. I think what they are proposing to do over the next three years is definitely unacceptable, although I do get concerned when I hear the musings of the Prime Minister talking about a 10-percent reduction in health care, budgets being a target or--I should not maybe put words in his mouth that he necessarily said a target, but being something that could be done or could be achieved.

I guess for us, the most important is, we need to be sitting down at the table with the federal government as soon as possible.

Mr. Sale: Mr. Chairperson, I would just want to put on the record that Canada spends roughly 5.8 percent of its GDP on medicare, and I think it is unhelpful in the extreme when we keep talking about 10 percent on Health, because the provincial governments cannot control what the international drug companies charge for their drugs and are in no position to control the things that are not covered by medicare. They are in a position to control the 5.8 percent that they spend.

Canada has, I think, an unparalleled record of cost containment in health expenditures in the public sector. Our private sector expenditures have grown, but the public sector expenditures on health care have been extremely well contained, particularly since we are up against an elephant that has totally out-of-control expenditures. It is no mean feat to control expenditures in a very vulnerable area of your economy, such as Health, when you are up against a nation that has virtually no control of its health care expenditures, so I think we have done a remarkably fine job, and governments across the country have been the main instrument for doing that.

One of the components of that fine job has been the fact that it is a national system. It has the characteristics of a national health care system and all the provinces are single payers. I think Bob Evans, Dr. Robert Evans, and many other Canadian health economists have said that it is the single-payer role in the Canadian health care system that has helped us to control our costs, particularly against the pressure from the United States.

So I think that the minister should bear that in mind in thinking about the strategy, because if we lose that national character, we will lose that single-payer role as provinces, which may not feel the same as Manitoba, move to privatize larger and larger pieces of their system and thereby lose control of more and more of the Health expenditure dollar.

I want to then ask the minister, does the government have a formal legal opinion on the enforceability of the Canada Health Act in the event that there are no more budgetary transfers for health, which will happen in Quebec probably '97-98, '98-99, somewhere in there.

Mr. Stefanson: Mr. Chairman, I am not aware of any at this time.

Mr. Sale: This is where the honourable intentions of the government and its actual activities, I think, tend to come apart in the eyes of some of us at least.

If we believe that the federal role is vital, and if we take the at least informal opinions of a number of constitutional experts that in the absence of actual direct transfers they cannot enforce the Canada Health Act, then it would seem to me to be at least worth the time to get an opinion as to whether this is likely to be the case or not. I know it cannot be tested, but this is one of those no-win mug's game situations where you cannot test it until the transfers are gone. By the time the transfers are gone, it is too late to test it.

I think one of the ways of convincing Manitobans that you are serious about maintaining medicare would be to find out whether those of us who have worried about this question are correct or not. Does the federal government have to have money on the table in order to enforce the Canada Health Act?

Mr. Stefanson: Mr. Chairman, I think, as the member knows, we are committed to the Canada Health Act. We are committed to ensuring that the federal government provides their fair share of funding for health.

The rest of his comments, again, I will take those under advisement.

Mr. Sale: Mr. Chairperson, will the minister seek a legal opinion on this question from appropriate constitutional advisors?

Mr. Stefanson: As I have indicated to the member, I will take his suggestion under advisement. My efforts at this particular point in time are to pursue the financial discussions with the federal government.

Mr. Sale: I would simply say to the minister that it will be difficult to convince Manitobans that your government is serious about this issue if you have neither a fiscal target in mind for the federal government's role nor a legal sense of whether the federal government is in fact a required partner to enforce the Canada Health Act, because I think people will see a lack of sincerity in the position of the government if it is widely perceived that the Canada Health Act cannot be enforced and therefore medicare is dead at the point at which Quebec loses its last budgetary transfer.

I know this may sound arcane in terms of anything the public might be interested in, but I believe they are interested in medicare. I believe it is the government's duty to ensure the public understands what is at stake in these discussions and not to treat them as confidential, behind-closed-doors discussions of Ministers of Finance but in fact a matter of urgent public policy that the public needs to understand and have a window into.

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Mr. Stefanson: Mr. Chairman, I want to assure the member for Crescentwood that there is no lack of sincerity on the part of our government. We are strong supporters of the Canada Health Act. As I indicated, we have also been pressing the government for a proper process to allow input not only from Finance ministers, Health minister, other ministers, the public included, and to date have been somewhat frustrated by the process that they have followed to arrive at their decisions. But I want to absolutely positively assure him that there is no lack of sincerity on our part.

Mr. Sale: Mr. Chairperson, I take the minister's assurances, but I would contrast--and here I am, obviously, speaking personally--the role that I was asked to play for a previous government of a different stripe in 1985, when it was clear to the same staff who are sitting around the table today that the end result of the cuts that were being proposed by Mr. Wilson, the then-Finance minister, would be the end of federal transfers, budgetary transfers, for health and higher education. There was some mathematics involved in how long that would take, but there was not much doubt that it was going to happen.

Quebec at that time did an appendix to its budget to show the mathematics and to make the very strong case. Manitoba launched a public lobby that had public education as well as direct social action by concerned groups--hospitals, doctors, nurses, social services agencies, government. The government of the day briefed the opposition with all the data that were available. I was the staff person responsible for that, though I was very much under the tutoring of the present staff, the staff at that time because I was not an expert in these areas by any means. Nevertheless, I do not think there was a single piece of data that was not shared publicly about the implications of the federal transfers.

There were public meetings held. We wrote and circulated thousands of copies of a document that attempted to help the public understand what was at stake. We visited other provinces, met with other Departments of Finance, met with social service groups, employee groups, management groups. We, in other words, attempted to put what has now become, 10 years later, unfortunately, what we said was going to happen. It is no joy being a prophet in this regard, but what we said was going to happen has happened.

We fought publicly, and we did not win. It may be that if this government fights publicly, it will not win either. But I am relatively firmly convinced that if we fight behind closed doors, we will certainly not win, and the public will never know where the government stood on hard points of public policy.

So I guess I would urge the minister to consider bringing forward a nonpartisan public strategy of educating, informing and inviting Manitobans to take a very public role in this because I am utterly convinced that medicare will be gone in four to five years if we continue down the same road so that the federal government ceases to be a partner. I cannot see how we can maintain it against the fiscal pressures that face all governments and, in particular, the poorer provinces.

Mr. Stefanson: Mr. Chairman, other than to say I do make note of the member's comments, obviously, we will be moving forward with this issue over the next several weeks and months.

Mr. Sale: Mr. Chairperson, I hope that taking them into consideration results in some visible action and that we get invited to be part of a nonpartisan process of trying to save this particular program.

I would like to ask the minister some questions about equalization, if I may. His predecessor, Mr. Manness, made a great deal of his view that essentially Manitoba was shifting its emphasis from trying to save or maintain the Established Program Financing Act as a vital component of our province's ability to afford reasonable social programs, including health, and was focusing on equalization. Equalization negotiations, I believe, were 1994, if memory serves me correctly.

Could the minister outline what the achievements were of those negotiations that resulted in significant improvements to equalization as we now know it over the previous version?

Mr. Stefanson: Back in February of '94, there had been a five-year renewal of equalization funding. From Manitoba's perspective, the most significant adjustment was in the whole area of property tax calculation that actually generates some additional revenue for Manitoba.

I think the one concern we, along with all recipient provinces, had with the renewal was that a ceiling on equalization growth still remains in place. So when I referred to a paper earlier, that was a paper that was done by the seven recipient provinces expressing, obviously their support for equalization, but their concern that a ceiling to a certain extent does not defeat the purpose, but it restricts what should flow from that formula.

It has been renewed for five years. During the last election, the government of today talked about predictability, stability and those kinds of things. I guess the predictability is, we do have a five-year agreement, but the formula still can be a very volatile one.

Mr. Sale: I wonder if the minister could do two things: Could you tell us what the revenue enhancement for Manitoba was as the result of any changes in terms of dollars? Secondly, would the minister be willing to share, although it may already have been released and I missed it, the paper done by the seven provinces?

Mr. Stefanson: I will have to get the number in terms of the financial impact of the property tax adjustment for the member. I do not think there is any problem providing him with a copy of that paper I refer to.

Mr. Sale: I thank the minister for that. To then ask the minister, is it still your view that equalization is going to make up for the drastic cuts under the Established Program Financing Act, which appeared to be the view of the previous Minister of Finance? At least that was how I took his comments at a number of public events at which I was present.

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Mr. Stefanson: I guess, Mr. Chairman, I would question the comments being attributed to my predecessor. I think, if one is looking at the funding formulas that we receive from the federal government, one could argue the greatest equity is in the equalization formula, but that is not to suggest that that unto itself allows for significant reductions in Established Program funding or whatever.

If we are saying, if we are faced with the reality that the federal government is going to make some funding reductions, the equalization program provides greater equity for us, but we go back to our earlier discussion about what is a reasonable and fair level of funding that the federal government should be providing under existing programs or under their new Canada Health and Social Transfer, so I do not in any way accept it as an either/or that they are all critical and essential to provincial governments and to providing services that we need to provide.

Mr. Sale: I am glad to hear the minister say that because it may simply have been my misunderstanding, but I certainly believe the previous Minister of Finance appeared to think that increases in equalization would offset decreases in other transfers.

I would ask the minister to clarify if my understanding is incorrect. My understanding of equalization is simply that it acts as a backstop to our own source revenues, that is, as our own source revenues weaken or strengthen in relation to the five-province standard, our equalization rises and falls, that this is the role of equalization. It does not, in any sense, attach to the 33 percent of revenues that flow to the province from the federal government through other sources; it simply backstops our own social revenues.

Mr. Stefanson: The theory that I have always had explained to me is that it provides for reasonably comparable levels of service and reasonably comparable levels of taxation, in effect, backstops revenues, but also then is utilized by provinces in program spending.

Mr. Sale: Mr. Chairperson, I may need to ask staff to interpret that answer for me at some private point. I think he said, yes, but I am not sure.

The reason that I asked that question is that during the election campaign, at least some of your candidates appeared to say that the losses in EPF revenues over the next three years would be, in substantial measure, offset by projected gains in equalization. I certainly saw that in print, and I heard it said in public places by people who now sit in this House on your behalf. Is that the view of the government?

Mr. Stefanson: Mr. Chairman, I cannot recall a single one of my colleagues saying that. There were certainly many individuals from another political party saying that, along with members of the current federal government saying that. We never accepted that, continued to make the point that all of these programs are separate and distinct and should be viewed and determined on their individual merit. They are there for particular reasons, and let us deal with the reasons there and what are adequate levels of funding.

I would just correct that. I am not aware of a single colleague of mine that would have been making those kinds of statements.

Mr. Sale: Mr. Chairperson, I thank the minister for his answer. I am glad to know that is the case. It was not my actual experience, but that is neither here nor there at this point.

I have no further questions in this area and am prepared to pass on this particular one.

Mr. Assistant Deputy Chairperson: Item 5. Federal-Provincial Relations and Research (a) Economic and Federal-Provincial Research (1) Salaries and Employee Benefits $1,006,200--pass; (2) Other Expenditures $293,500--pass.

5.(b) Manitoba Tax Assistance Office (1) Salaries and Employee Benefits $267,500--pass; (2) Other Expenditures $56,500--pass.

Resolution 7.5: RESOLVED that there be granted to Her Majesty a sum not exceeding $1,623,700 for Finance, Federal-Provincial Relations and Research, for the fiscal year ending the 31st day of March, 1996.

We now move onto Resolution 7.6. Item 6. Insurance and Risk Management (a) Salaries and Employee Benefits $215,900.

Mr. Maloway: Mr. Chairman, I would like to ask the minister whether he could tell us what the deductible is in the case of personal injury claims against members of the Legislature. I recall since I have been here, the deductible used to be zero in the case of two or three MLAs that were being sued--this representing both parties in the Legislature. I know they were covered with a zero deductible. I believe there was a change around 1987 to where the MLA had to pay $10,000 as a deductible. Would the minister confirm that for us, because a lot of time has gone by since those days and perhaps it is even higher now? We should know that in case we were to make some statements that might be misconstrued by people.

Mr. Stefanson: Mr. Chairman, the MLAs are treated the same as all other employees in terms of the deductible being $250,000. In terms of if a claim is made against an MLA the government actually starts to pay from dollar one. The deductible is $250,000 but the government, through an agreement, pays from dollar one.

Mr. Maloway: My final question to the minister would be, when was that changed?

Mr. Stefanson: Mr. Chairman, apparently it was in around 1989. I will undertake to confirm the year and provide any information to the member on that adjustment.

Mr. Maloway: Can the minister confirm that it was in fact zero and then it went to $10,000 and then it is back to zero? Is that the chronology?

Mr. Stefanson: Mr. Chairman, it apparently went from zero to $10,000 to $25,000 to $250,000, but the government has always maintained that it would pay the deductible.

Mr. Assistant Deputy Chairperson: I will interrupt the committee. It is now six o'clock.

Mr. Leonard Evans: Is there a leaflet or a pamphlet or a letter on this that could be made available?

Mr. Stefanson: Yes, there is. Yes, it will be available.

Mr. Assistant Deputy Chairperson: Item 6.(a) Salaries and Employee Benefits $215,900--pass; (b) Other Expenditures $31,300--pass; (c) Insurance Premiums $1,647,500--pass; (d) Less: Recoverable from other appropriations -$1,647,500--(pass).

Resolution 7.6: RESOLVED that there be granted to Her Majesty a sum not exceeding $247,200 for Finance, Insurance and Risk Management, for the fiscal year ending the 31st day of March, 1996.

The hour now being six o'clock, the committee will recess until 8 p.m. when they will resume the Estimates of the Department of Finance.