The Acting Chairperson (Mr. Peter Dyck): Would the Committee of Supply come to order, please.

This section of the Committee of Supply has been dealing with the Estimates of the Department of Finance. Would the minister's staff please enter the Chamber.

We are on Resolution 7.2. Treasury (d) Treasury Services (1) Salaries and Employee Benefits $441,900.

Mr. Leonard Evans (Brandon East): I believe we are on to Treasury Services, the last item, and I believe the minister from previous questions wanted to provide some information first.

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Hon. Eric Stefanson (Minister of Finance): When we last met I took some questions from the member for Brandon East as notice at that time, and I will provide the answers here now.

The first question was: Could you give us some idea of how much more Winnipeg pays for borrowing a given amount of money compared to the province? Wood Gundy, the lead manager of our Canadian borrowing syndicate, estimates that the City of Winnipeg would pay a credit spread differential over the province of Manitoba of the following amounts: If it was a two-year issue they would pay seven basis points, that is, seven one-hundredths of a percent; three-year issue, eight basis points; a five-year issue, 10 basis points; seven-year issue, 12 basis points; a 10-year issue, 15 basis points; and a 20-year issue, 18 basis points. So that gives a sense of the spread.

The second question was: How long has the Royal Bank been the preferred bank of the government of Manitoba? We have been able to trace records back to 1946, so I would say 50 years or more with the Royal Bank.

The third question was: Is there not a cost in the government utilizing credit cards for receipts of government revenues? We currently pay 1.75 percent for Visa and 1.85 percent for MasterCard. These rates have been in effect since 1993 and will be renegotiated as volume of usage increases.

The last question was: How many dollars are we talking about or what percentage of borrowing is now being handled in this way through the medium-term note program as compared to the total borrowing program. The amount of borrowing done under the province's medium-term note program can fluctuate significantly from year to year depending on market conditions. In the 1996-97 fiscal year the province's total borrowing program, including HydroBonds, amounted to just under $1.6 billion. Out of that, $697 million was raised from our various medium-term note programs as follows: Canadian medium-term note, $100 million; Euro medium-term note, $393 million; U.S. medium-term note, $204 million. That should be $697 million.

Mr. Leonard Evans: I thank the minister for that information, because I gather we are going to be rather constrained for time, I just might mention. My understanding is, we have to complete the department by six o'clock. So we are going to have to cut out a few--I see some sad faces across there. Because of other priorities we are going to have to wind this up by six o'clock. So we will cut out some of the presumably smaller questions.

But we are just completing (d) Treasury Services. Just one question here. Among other things, I know this section does a lot of work regarding the administration of the public debt and so on but, among other things, it monitors the foreign exchange markets and arranges for purchase and sales of foreign currencies to service the debt. I was wondering if the minister could explain how the section or branch, whatever it is referred, or is it a division, how does it monitor foreign exchange markets? Does it have its own research people or do we simply rely on agencies out there, different financial agencies that maybe have the intelligence for us and supply us with the data and we are content with that, or do we do more than just accept the information given to us by an outside agency?

Mr. Stefanson: Mr. Chairman, we are in discussion with various members of our syndicate or the investment dealers literally every day, drawing on their expertise, particularly the firms that represent us in our syndicates. So we have that daily contact with some members of the investment community.

We also have within this division our own expertise. We utilize Telerate and Reuters services which give us up-to-date, current information on issues like exchange rates and so on, and other issues related to doing an issue. We also belong to the Blumberg System, which provides a certain type of information. So we have systems that we access for internal information. We obviously also work with our investment dealers in terms of the best advice they provide us.

Mr. Leonard Evans: Excuse me. I do not think I heard the minister fully when he said he--I am not sure whether these were the words. You belong to the blue bird system, did you say?

Mr. Stefanson: As I mentioned, Mr. Chairman, there are three systems that we access: Telerate, Reuters, and Blumberg, like the golf course out in west Winnipeg, but they are just systems that we access that provide us information, timely information on what is happening in the market, exchange rates, financial information and so on that we can then utilize to help us with our decision.

Mr. Leonard Evans: I note in your annual report under Treasury Services you have information about the Public Debt (Statutory), so I would gather this is the part of the department that concerns itself with the overall debt program. Of course, we were talking about this previously. I note that over the years the historical data on the Net General Provincial Debt as it relates to the GDP and, in some instances, with the provincial revenue or provincial expenditures seem to be fairly constant. There has been, of course, some change, but if you look at the Net General Provincial Program Debt as a percent of GDP, it has gone up a bit from '92 to '96.

I was looking at your annual report. We also have that information in your budget document. If you look at the historical figures of the debt as a percentage of GDP, I note that back in '87-88 it was 26.2 percent, 24.8 in '88-89, and then it dropped rather significantly to 21.7 in '89-90, but thereafter it climbed a bit, then right up to '94-95 when I guess it peaked at 29.3. Now we are back down to about 25.9, perhaps a little bit lower than that for this year. So there has been a few percentage points' variation. Would the minister care to comment as to why we went from, say, 26, 25, thereabouts, at the beginning of this administration to what looks to be a peak in '94-95, 29.3. That is a net general purpose debt as a percentage of the GDP, and of course, now coming down a couple of points.

I guess it relates to two things, the extent of the debt and the extent of the gross domestic product, but there seems to, if you want to use the term, a worsening position for some years right through till '94-95 and then a lowering of that ratio since then.

Mr. Stefanson: Mr. Chairman, I think the member for Brandon East and I have had this discussion before. The growth in percentage from the late '80s to the early '90s--when I say the percentage, the percentage of net general purpose debt as a percentage of our GDP. That percentage was growing because during that period of time, unfortunately, in Manitoba, deficits were still being run by the government.

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The good news is, if you look at, as the member for Brandon East has pointed out, 1994-95, our net general purpose debt as a percentage of our GDP was 29.4 percent, and now in our budget of '97-98, just three years later, we are projecting it being down to 23.6 percent, a significant improvement in three short years now that we are running surpluses in Manitoba. It shows how quickly you can start to deal with your debt situation by stopping running deficits, starting to run surpluses. Obviously, it has also helped with issues in terms of our financial situation relative to exchange rates and interest rates and so on, but this is just showing the debt as a percentage of our GDP.

Our debt position has improved significantly. Today, our debt ratios are amongst the best in all of Canada. If you look at all of the debt ratios as a percentage of our expenditures servicing the debt, we are consistently either second or third lowest in Canada. If you look at our per capita debt ratios, we are in the lower half of the provinces. If you look at our percentages now against GDP, we stack up very well against other provinces, and so our debt position has improved significantly in relationship to other provinces. That is good news.

We are now not taking on any tax-supported debt in Manitoba. We are now generating surpluses. Our debt-servicing costs are going down significantly over the last two years. They are down by some $75 million over these last two fiscal years, down to $520 million this year, and our debt as a percentage of our expenditures is now under 10 percent. So we have made significant improvements with all of the debt ratios, with our debt-servicing costs. Obviously, there is more work to be done, and it will be accomplished, because we are committed to start actually paying down the debt.

As we all know, this budget includes $75 million into the debt retirement fund, and as we pay down more of our debt, these percentages will continue to improve, our percentages will get stronger and stronger as each year goes by.

Mr. Leonard Evans: Well, you know, that may be, but I noticed that again the net general purpose debt has a percentage of GDP dropped in '89-90 to '88-89. From '88-89, where it was 24.8, it dropped down to 21.7 in '89-90. Then again it was only around 22.6 in '90-91. Yet, those were not necessarily surplus years, so obviously there must have been some improvement on the gross side, the GDP side.

Mr. Stefanson: Mr. Chairman, yes, our economy has grown every year. So, in those particular years, the relationship of the size of the deficit to the growth in the economy, obviously, the deficits were not as large. I believe in '88-89, '89-90, if I recall, they were in about the 140-million range, and then they were higher in the later '80s and early '90s. In fact, they peaked one year, in about '93, in excess of $500 million, a year in which we had a significant reduction in transfers from Ottawa, a midyear reduction of in excess of, if I recall correctly, $200 million as a result of downward adjustments to transfers from the federal government.

So the member is right. Our GDP, our economy has continued to grow every year, but depending on the size of a deficit in a given year can determine whether or not that percentage is going up or going down. So in '89-90 it did go down and it would be that the growth in the economy exceeded the offset in terms of the size of the deficit that year in terms of the addition to debt.

Mr. Leonard Evans: Leaving the economy aside for the moment, if you look just at the dollars per capita of the net general purpose debt, which a lot of people become concerned about as opposed to the overall net debt, because the overall net debt presumably includes investment in utilities and so on. So when you are looking at the net general purpose debt, you are looking at the more miscellaneous type of debt, the debt that comes from excessive expenditures over revenues.

When I look at that per capita, I note that in '87-88, which is the year prior to this government taking office, it was $4,691 per person, and over the years it has fluctuated a bit, but the last several years, but for this very last year, I think it has been increasing. In fact, it reached a peak in '94-95 of $6,520 compared to $4,752 when the government took office. That is, what is that--a one-third increase or 40 percent? I have not got a calculator here. It did come down from '94-95, where it was $6,519. I am referring to the budget document that the minister tabled in the House. This year you are projecting for '97-98, $5,735, but that is still $1,000 approximately per person, per Manitoban, more than it was when this government took office it seems.

So when you look at it in that respect, after a decade almost, the burden of debt per person has not diminished; it has increased in a decade. I repeat, in 1987-88 it was $9,372--I am sorry, $4,691 per person, and as of the projection for '97-98, it is $5,735, so roughly $1,000 more per Manitoban after a decade of administration by the present government. So when you look at it in those terms, you wonder, well, what has been happening in a decade? It is not a matter of one or two years, it is a matter of 10 years that we are talking.

I think that is the stark reality that the minister has to face, and I know he is very concerned about the problem. We hear about it quite frequently how important it is to have balances or, even better still, surpluses so that you can run down the debt. I want to make it clear that nobody wants to have a lot of debt, particularly at the provincial level. We do not have a central bank, and surely we do not want to be spending all this money on interest payments to people, particularly abroad or anywhere, when we do not have to, when we would rather use those funds for other purposes. The stark fact is that the net general purpose debt per capita has grown from $4,752 in--I am sorry, $4,691 in 1987-88 to $5,735 in 1997-98, as budgeted by the minister.

I make that as an observation. I do not know whether there is much to be said about it except that the burden of debt per Manitoban has increased in the last decade.

Mr. Stefanson: I do not think that anybody has ever denied that. I think there are a few important points to be made. First of all, even at the $5,700 per person, that is the third lowest per capita debt in all of Canada. Only British Columbia and Alberta are lower than Manitoba in terms of their per capita debt. But I think the most important point to be made is that if the member for Brandon East were to go back to 1981 and look at the per capita debt in 1981, and I do not have that budget with me, but I would suggest that the per capita debt was probably just a little over $1,000 per person back in 1981. Under a previous administration that ran deficits of $500 million each and every year that per capita debt quadrupled to over $4,000 a person and, if we had carried on on the pattern of running deficits of $500 million per year over these 10 budgets, we would be at per capita debt of about $10,000 per person today as opposed to the $5,700.

So while I acknowledge there has been some growth in debt in Manitoba, that record over those 10 years has probably been the best performance in all of Canada in terms of arresting the growth in deficits, the growth in debt, getting it under control, stopping it, now actually starting to pay down the debt. If you look at all of the economic indicators for Manitoba in areas of debt and debt servicing, Manitoba stacks up as amongst one of the top two or three provinces in all of Canada.

So nobody has ever denied there have been some adjustments upward in terms of debt, but, thank God, they came to a screeching halt compared to where they were heading from 1981 to 1988. This performance has been probably the best in all of Canada over these 10 years.

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Mr. Leonard Evans: I would just like to point out, Mr. Chairman, that I guess it is a matter of economic philosophy and also of economic circumstances because, as I recall, in the early '80s we did suffer a major depression in Canada, and it was our decision, the government's decision of the time, to fight the depression, to fight the recession, by stimulating the Manitoba economy, and the way you do that is by running deficits. You do not stimulate the economy by running surpluses. That is one point I would make.

The other point, of course, is the rates of interest that were prevalent at that time, which would add to the deficit problem. But I would also point out to the minister, he knows full well that we recognize that in good Keynesian fashion you have to balance off your previous deficits with surpluses in the future, and we did this, we attempted to do this in '87 with some tax changes. In fact, the government was beneficiary of that when it came into office in the first year and, as we pointed out many a time, the government chose to set up the Fiscal Stabilization Fund and take the monies out of revenue so that they would not be showing a surplus in their very first year, instead showed a budgetary deficit of $141.3 million. They could have had a fair--almost $60-million surplus. This is going back to fiscal measures that were taken by the previous administration, and the intent then was to provide additional revenues so that we could--and to maintain expenditures at constant levels--so that we could pay back some of the debt. This is in good Keynesian fashion.

At any rate, I would point out as well that even at that time Manitoba's debt burden relative to the rest of the country was not really out of line. I think we were around average someplace. I think we were around the middle. I do not think we were--I have not got the numbers with me--I do not think we were 10 out of 10 or anything like that. We were five out of 10 or whatever, and the only point I would make now is that if the minister is satisfied that he is in the upper group, that the public debt burden, the cost of the public debt relative to the other provinces is not out of line, in fact one of the best. That is good. I do not complain about that.

But I would also say that there is a price that is paid for that, a price in terms of cuts to some very significant programs that people are not benefiting from now, cuts to the property tax credit program, extension of the sales tax. One particular social program that was cut that I was particularly concerned about, and I believe the Minister of Health, Don Orchard, at the time admitted that he did not enjoy making the decision or being part of the decision, but the elimination of the Children's Dental Program in rural and northern Manitoba I think was a real backward step, because there is a great case to be made for that kind of a program. It was very cost efficient, delivered through schools, and I say that there is a social deficit that is built up because that program was eliminated.

One could look at other examples where really what the government has done is transferred costs. The costs of being in nursing homes has increased substantially in the last few years, so much so that people living on the basic federal Old Age Pension were able to qualify for a provincial welfare supplement, which I found rather strange, but it just indicated the extent to which the nursing home rates were increased.

So what I am saying is that what we have done is improve the provincial balance sheet at the expense of individuals, at the expense of people who are beneficiary of certain basic health and social programs, at the expense of provincial or municipal taxpayers. Municipal taxpayers took a $75 hit a couple of years back when this cut was made.

I guess there is no magic about it. I think one has to look at the provincial balance sheet, not just the government of Manitoba, but we should look at the provincial economy, the provincial society and ask ourselves, well, what have we done by way of government spending and government taxation that will benefit the standard of living of our people?--and that should be the bottom line. How do we improve the standard of living of Manitobans? Whatever which way, this should be our objective.

Sometimes one has to maintain programs. One should not cut back programs. I know these are difficult decisions to make, but I frankly think that there were some very basic programs that should not have been cut. Absolutely eliminate waste, eliminate frivolous spending as you will, if you can, but you will find I think, Mr. Chairman, that in a lot of the so-called waste in government, it is not there when you see it. You look at it pretty hard, and I think generally speaking the Manitoba government has delivered--and I say this historically--a fairly efficient service to the people of Manitoba.

I recall many years ago, when I was the Minister of Industry way back in the '70s, when times were good in terms of provincial finances and we would attend a federal-provincial conference, I assure you the Province of Alberta would have five or six times the number of personnel that a Manitoba minister would have on some of these tours. I am just using that as a small example. We were pretty lean in terms of going to these conferences with staff compared to what the province of Alberta was spending.

At any rate, we can go on. It is an interesting subject. I do not intend to drag it out, and I am quite prepared to go on to the next item, Mr. Chairman, the Comptrollers division.

Mr. Stefanson: Mr. Chairman, I think the member for Brandon East (Mr. Leonard Evans) and I could debate this for quite some time. I obviously do not agree with a lot of what he said and I think rather than sort of rebut a lot of what he said, I would just encourage him to look at our '97 budget document in the greatest of detail, particularly charts like the one under the Manitoba Advantage section in the back, budget paper D, the Manitoba Advantage.

It shows comparison of annual personal costs in taxes at three different income levels, $20,000, $40,000, $60,000, and it shows Manitoba consistently stacking up amongst the best in all of Canada. When you look at provincial income taxes or other costs which have a relationship back to provincial governments, as he knows, we have gone 10 budgets in Manitoba without increasing any major taxes. We have reduced personal income taxes. We have the lowest provincial sales tax rate in all of Canada today, of provinces that levy provincial sales tax, tied with British Columbia and Saskatchewan. That is after the Quebec increase kicks in which I believe is a little later this year.

So when you look at Manitoba taxes, we have taken our province from one of the highest taxed provinces in all of Canada to amongst the lower taxed provinces. That is good news for all of Manitobans. It leaves more money in their pockets, and I have a lot of confidence in them in terms of their judgment how to utilize those hard-earned dollars.

The Acting Chairperson (Mr. Dyck): Item 7.2.(d) Treasury Services (1) Salaries and Employee Benefits $441,900--pass; (2) Other Expenditures $48,300--pass.

Resolution 7.2: RESOLVED that there be granted to Her Majesty a sum not exceeding $1,724,600 for Finance, Treasury, for the fiscal year ending the 31st day of March, 1998.

Moving on to 7.3. Comptroller (a) Comptroller's Office (1) Salaries and Employee Benefits $124,400.

Mr. Leonard Evans: I believe the minister stated that my question regarding the financing of McKenzie Seeds could be brought up under the Comptroller's Division. I wonder if he had anything to say, or is there some specific section within this area that I should raise this? At any rate, I believe it was supposed to be under Comptroller.

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Mr. Stefanson: Mr. Chairman, I would like to introduce Mr. Eric Rosenhek, the Comptroller, who has joined us.

I have some information from the question that the member for Brandon East asked. It is not overly lengthy. I suppose you could say that the Minister of Finance would be involved in either capacity. For instance, if the shares of the corporation are held in the Consolidated Fund, they are held by the Minister of Finance. In this case, the common shares were held in the Consolidated Fund while the preferred shares were held by the Manitoba Development Corporation.

The Minister of Industry, Trade and Tourism (Mr. Downey) is responsible for the Manitoba Development Corporation and is responsible for the administration of the divestiture agreement. I can respond to the question regarding whether the government still holds equity. All the shares, common and preferred, held by the province in A. E. McKenzie have been redeemed. A $3-million debenture note was received as part of the redemption proceeds, and this note has since been fully redeemed by the purchaser. But the Manitoba Development Corporation presently holds certain shares issued by the purchaser for a purpose other than investment. First of all, there are 102 class M preferred shares of the purchaser that are held to ensure that the required capital expenditures and job creation are achieved, and, secondly, 213,675 class A shares of the purchaser are held in accordance with the asset purchase agreement.

In terms of information regarding the sale, there is quite a lot of disclosure in Volume 4 of the 1995-96 Public Accounts. The audited financial statements for what was formerly A. E. McKenzie Company Limited for the year ending October 31, '95 include extensive information on the sale of net assets and as well the March 31, 1996, audited financial statements for the Manitoba Development Corporation published in this volume also contain information regarding the sale. That is basically in response to the questions the member asked when we last met.

Mr. Leonard Evans: Did I hear the minister properly when he said that it was the Minister of Industry, Trade and Tourism (Mr. Downey) who was responsible for McKenzie Seeds?

Mr. Stefanson: Yes, what I indicated was that the preferred shares that were issued were by held by the Manitoba Development Corporation, and the Minister of Industry, Trade and Tourism is the minister responsible for the Manitoba Development Corporation. As a result, that is the direct involvement that the Minister of Industry, Trade and Tourism has.

If there are common shares issued, they are usually issued into the Consolidated Fund, and that is the responsibility of the Minister of Finance. So there are occasions when the Minister of Finance holds common shares on behalf of the government of Manitoba.

Mr. Leonard Evans: Mr. Chairman, I would like to know why I have been told that I should ask questions of the Minister of Labour (Mr. Gilleshammer) about McKenzie Seeds.

Mr. Stefanson: I think, Mr. Chairman, quite simply, because when it was owned by the government, he was the Minister responsible for McKenzie Seeds, was the minister involved at the time of the sales transaction and so on, so certainly he brings background and understanding to the issue, so I think a question of either minister is certainly appropriate. If you are asking which minister should you be asking, it is appropriate to ask either minister, I would think, a question about McKenzie Seeds.

Mr. Leonard Evans: I also listened to what the minister is saying about information being in an MDC report and in the Public Accounts. Did you say? I will have to read Hansard again, I guess, because--I will do that. Perhaps the minister is not aware, but I have been trying to get a copy of the sale agreement between Regal Greetings and Seeds and the government of Manitoba, and I am told it is not available or will not be made available. I, for the life of me, do not see why.

I use as a precedent the sale of the Manitoba Data Services, a Crown corporation to ISM or whatever it is called now, and that was made available by Mr. Manness who was then Minister of Finance. The deal was signed, and it was made available to the Legislature. That was fine. It was quite a big document. This involved a bigger sale than McKenzie's does, certainly far bigger, and I do not know why. I am told that it is third-party confidentiality, but I do not understand that. The deal has been made.

What we are interested in seeing is the arrangement because we want to know just exactly what are the conditions of job guarantees, and we were told there would be so many jobs guaranteed, but we have not seen that in writing. We do not know what the conditions are, what kind of jobs they are. At the moment they have lost their president and two vice-presidents, and there is a transfer of some of the operation from Brandon to Toronto.

These may be very good commercial decisions from the point of view of Regal Greetings, so I am not faulting them for any commercial decisions. Those might be the proper decisions for that private company to make, but at the same time I wanted to know specifically how do these changes stack up against the written agreement between Regal and the government of Manitoba?

Mr. Stefanson: I am told that based on the various due diligence procedures performed on this transaction that the new company, the new McKenzie Seeds company, have met or exceeded all of their requirements and are in complete compliance of the asset purchase agreement which was signed.

The member is right. There has been at least one request for the information that he is talking about, the agreement, which was requested under Freedom of Information, and the reasons given for not providing it were that to give access to any record which discloses financial, commercial, scientific or technical information supplied to a department by a third party on a confidential basis and treated consistently as confidential information by the third party. There is another section that says: Can refuse to give access to any record the disclosure of which could reasonably be expected to prejudice the competitive position of the third party.

So certainly the reasons for not releasing this document are in complete compliance with reasons and rationale provided under Freedom of Information which I would suggest are there for a reason. I mean they are there to protect third parties if they provide any confidential information about their business which could then affect their competitive position or other aspects of doing business. So it is not a desire to withhold information from the member for Brandon East (Mr. Leonard Evans), but I think anytime a government enters agreements with a third party, there will be occasions when we have a legal obligation and a responsibility to protect confidential third-party information.

I can assure him that the information I have is that the new company is in complete compliance and are meeting all of those terms of the original sales agreement.

Mr. Leonard Evans: Well, the problem is that we will just say, trust us, they are meeting the terms of the agreement. But we would like to get something more specific. Exactly how many jobs are guaranteed and what kinds of jobs are these? Are these just jobs with a union agreement or are nonunion personnel involved? Did the agreement say that the senior administration must remain in Brandon, or could it be moved to Toronto? My impression is they have lost their president; there is no president in Brandon. The two vice-president positions have gone, and, in the meantime, the sales and marketing office has been moved from Brandon to Toronto. It seems that the senior management decisions are being made out of Toronto.

The impression that was left by the former president of the company, Mr. Ray West, is that it was going to carry on as an ongoing entity, a complete ongoing entity in Brandon, and I would submit that this is not the case. The manufacturing portion obviously is, but it seems that a portion of the decision-making apparatus has been transferred out of the city of Brandon to Toronto.

Now was that not envisaged in that agreement? We do not know what the agreement says about that. I know the Minister of Labour (Mr. Gilleshammer) has said, do not worry; we are satisfied that the jobs are there. I guess this is the basic thing: Are the jobs there, and just what kind of jobs are we talking about? If there has been an increase in the number of employees, well, how many are there? What is the increase in the number? There is just no--it is dead silence on that matter.

But I can read the MDC report and the Public Accounts and see what information I can get there. There is a great interest in this because it has been long my belief that eventually a commercial company may have other objectives than a provincial government in terms of how to operate that company in order to maximize profits. It seems to me a provincial government's objective is to ensure the company pays its way, but they want to maximize the presence in the province of Manitoba, maximize jobs in the province of Manitoba.

I would submit private enterprise and commercial operation wants to maximize profits, and if that is the objective, that may conflict with employment in the province of Manitoba. I think the fact that some of the senior executive positions have disappeared is an example of that.

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Again, I repeat, I am not faulting Regal. I mean, this may be a sound business decision. The point is that that sound business decision that is good for the commercial interests of Regal Greetings may not be good for the employment interests of the people of Manitoba in this province.

Mr. Stefanson: Well, Mr. Chairman, I do not think we should spend much more time on this. The section under the Freedom of Information that I referred to, that is not even discretionary, that is mandatory under the Freedom of Information Act in terms of the releasing of the information. The member has some specific questions, I think, as he has indicated. I will not read what I have put on the record already about some of the documents that he can get some additional information from which I think might help him. Then there is certainly the opportunity to ask the two ministers, more directly responsible, specific questions about McKenzie Seeds.

The Acting Chairperson (Mr. Dyck): Item 7.3.(a) Comptroller's Office (1) Salaries and Employee Benefits $124,400--pass; (2) Other Expenditures $13,000--pass.

7.3.(b) Information Technology Services (1) Salaries and Employee Benefits $714,100.

Mr. Leonard Evans: I was going to ask a couple of questions about financial and management systems. I guess it does not really matter. It is under Comptroller generally, so I will just ask a couple of questions because then we will go on from there anyway.

I note that there was some reference to participation in the service-first Better Methods, Phase I Initiative. It used to be referred to as IMIS. I wonder if the minister could explain just what this is and what benefit there is in this participation.

(Mr. Gerry McAlpine, Acting Chairperson, in the Chair)

Mr. Stefanson: Mr. Chairman, first of all, speaking to Better Methods, we expect that significant progress will be made during 1997-98 on the replacement of the province's financial systems through the Better Methods Initiative. This will impact all the systems operated by the Comptroller's Division and will involve every department of the government. They are currently near the end of Phase II of the project, which involved the re-engineering of business processes to ensure that they are consistent with best practices.

You must remember that the systems being replaced are, for the most part, 1960s and 1970s design and still rely on the movement of paper documents from location to location in order to get the work done. The current systems are also not integrated, requiring significant effort to move data between systems. Redesign efforts are intended to resolve all of these problems. Our objective is to implement fully integrated financial systems, coupled with the elimination of those paper files that are presently duplicated in so many locations.

The new systems will also give us many capabilities that we presently do not have. For example, we will have a central system to record and track our capital assets and maintain information on their depreciated value. As well, our internal reporting capabilities will be tremendously enhanced by the ability to maintain records on a full accrual rather than a cash basis. Phase III, the implementation phase, is expected to commence in a few months, and the new systems and processes are expected to be in place in time to meet compliance requirements imposed by the year 2000, which is a whole other issue.

So we are really bringing our financial reporting system up to what is required to meet the needs today. I think like many organizations, we were very cautious, went through a period of not necessarily spending a great deal of money in that area, but we recognize we require timely, quality information and the adjustments to the systems will provide that for us.

Mr. Leonard Evans: I am pleased to hear what the minister said about this.

Just another question in this area. I understand the branch delivers courses in orientation sessions on accounting, payroll systems and so on. Could the minister elaborate on--whom do you give the courses to, to people throughout the government or just certain personnel in the department?

Mr. Stefanson: Mr. Chairman, our courses would be on an interdepartmental basis. If somebody who is working on payroll in another department or working in the financial section of another department needs information, the courses would be offered to them to provide the information required.

Mr. Leonard Evans: Mr. Chairman, is the minister saying this is strictly within the department? You are not offering these courses or whatever training sessions government-wide?

Mr. Stefanson: No, I am saying we are offering them government-wide. Our department is offering them government-wide. If people in the financial section of another department require some information or a course on financial reporting or financial information, it can come from the people in our department.

Mr. Leonard Evans: Does this take up a lot of staff? Is this a big effort in this area?

Mr. Stefanson: No, it does not. It is basically an ongoing maintenance effort, just keeping departments current, and then sometimes if new employees come on board, it is done at that time.

Mr. Leonard Evans: As we have indicated before, we are constrained for time here, so I am just going to jump under Information Technology Services and ask the minister: Is this the area that we deal with the successor to the MDS--I think it is called ISM now, if I am correct, or if this is not the area maybe the minister can tell me. But is this the area that we liaise with this private company that has taken over the MDS function?

Mr. Stefanson: This is really just central to our department. If we want to talk about the ISM, MDS, that is more appropriate under Treasury Board.

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The Acting Chairperson (Mr. McAlpine): Item 7.3.(b)(1) Salaries and Employee Benefits $714,100--pass; (2) Other Expenditures $66,900--pass.

7.3.(c) Disbursements and Accounting (1) Salaries and Employee Benefits $2,028,700--pass; (2) Other Expenditures $1,272,700--pass; (3) Less: Recoverable from other appropriations ($506,600)--pass.

7.3.(d) Legislative Building Information Systems (1) Salaries and Employee Benefits $488,400--pass; (2) Other Expenditures $286,300--pass.

7.3.(e) Internal Audit and Consulting Services (1) Salaries and Employee Benefits $1,723,000--pass; (2) Other Expenditures $212,100--pass.

Resolution 7.3: RESOLVED that there be granted to Her Majesty a sum not exceeding $6,423,000 for Finance, Comptroller, for the fiscal year ending the 31st day of March, 1998.

7.4. Taxation (a) Management and Research (1) Salaries and Employee Benefits.

Mr. Leonard Evans: Mr. Chairman, just under Taxation, we have a couple of questions. I notice, of course, one of the taxes, one of the acts administered by this branch or section is the Health and Post Secondary Education Tax Levy, which is otherwise referred to as the payroll tax. I know the minister has boasted about raising the exemption levels, and indeed most small enterprises, however you define them I guess, are not paying. If you are under three-quarters of a million dollars gross payroll, I guess you are exempted. At any rate, the fact is that this tax is still with us. It still provides significant revenue. I note in the 1997 budget document of revenues, the revenue from the payroll tax, the levy for health and education, is going to be higher than it was last year. There was $206.5 million raised in the '96-97 budget; the '97-98 budget shows $209,400, so an increase of almost $3 million.

The point is the tax is alive and well, and I would point out that it was always the intention of the former government to make adjustments from time to time to assure that smaller enterprises would not be penalized or would not be required to contribute in this way. At any rate, the point is we still have this tax even though the now Premier (Mr. Filmon), the then minister of the official opposition, indicated very clearly that the position of his party was to eliminate, not to raise the exemption levels, but to totally eliminate this tax. So I guess my question to the minister: Does he believe that this tax will ever be eliminated by his government?

Mr. Stefanson: Mr. Chairman, the payroll tax does generate a little over $200 million. That is split almost equally. About half of it comes from governments, federal government, other government agencies, and half of it comes from the private sector. The member for Brandon East (Mr. Leonard Evans) is right that we have consistently increased the threshold on the payroll tax. I think when we took office it was $100,000, if I recall correctly; $100,000 was the threshold, and in this last budget we moved it up to $1 million as the threshold.

In fact, now with this adjustment in this budget, another 600 firms in Manitoba will not pay the payroll tax. We are down to, I believe, about 1,800 firms paying the payroll tax. Over 90 percent of the businesses have been eliminated from paying the payroll tax. As we continue to move the threshold, we eliminate more and more businesses from paying the payroll tax. That is the objective. We are certainly on course to accomplish that and have made significant strides over the last several budgets to do just that, to eliminate the impact on businesses.

The dollar amount going up is there for a couple of reasons. It is the timing of the change. The change is going into effect on January 1, 1998, but probably most important of all, there are more jobs in Manitoba. If you look at the first three months of this year compared to the first three months of last year, there are 18,000 more jobs in Manitoba. I am sure many of those jobs are in businesses that are still paying the payroll tax. Obviously it generates more revenues for us through the payroll tax, through the income tax, through the provincial sales tax and through all various forms of taxation. Good news for our economy, good news for our Treasury, but by moving the exemption level as aggressively as we have over our several budgets, we have eliminated the impact on the vast majority of businesses, and we will continue to look at that issue in each and every budget that we bring down.

Mr. Leonard Evans: Is the minister suggesting to the committee that it is the government's policy to continually raise the exemption level to the point that there will be zero companies paying this tax?

Mr. Stefanson: Mr. Chairman, as I said, in literally every budget we bring down, we look at the issue of the payroll tax, as we do all taxes. Over many of those budgets, we have increased the exemptions so that today over 90 percent of Manitoba businesses do not pay the payroll tax, and we will continue to look at adjustments to the exemption level. I think that opportunity is there to continue to move the exemption level so that ultimately all, or the vast majority of businesses, will not pay it. You would still drive the tax from the federal government and some other organizations of that nature.

So by continuing to move the exemption, to give an example, in this budget alone, the 1997-98 budget, when we entered the budget there were 2,400 firms still paying the payroll tax. By adjusting the exemption to $1 million, we knocked 25 percent of those off the tax rolls. We went from 2,400 down to 1,800 with this exemption adjustment. So that is the kind of thing we will look at in each and every budget, and we will continue to make adjustments on the payroll tax to remove it for more and more businesses in Manitoba.

Mr. Leonard Evans: Yes, well, I have no problem with the minister raising the exemption levels, but I do not hear him telling us that he is going to eliminate it. I would suggest it will not be eliminated, because it provides just too many dollars that are badly needed by this government, by any government. That is the fact of the matter, $200 million is a lot of money. As the minister himself has pointed out, a lot of this comes from federal government departments and large national corporations that we hope can contribute to the Manitoba economy in this particular way.

Having said that, we are not the only province that levies this type of tax. This type of tax can be found in other provinces, and it is one method of raising revenue. Nobody likes to suggest new taxes. Nobody likes to see taxes having to increase, but on the other hand, governments do have to have revenues to offer services to the people of their jurisdiction. Whether it be health, education or highways, or agricultural services, or whatever, you do need the money. You cannot run a government with no money. This is one that was rather innovative at the time that it was introduced, but I would predict that some many years from now this tax will still be with us. Maybe the exemption level will be higher, but the amount being collected will still be $200-million-plus, I would suggest, Mr. Chairman.

Mr. Stefanson: Mr. Chairman, without belabouring this, I think the key is if we want to get into interpreting the word "eliminate," the key objective is to eliminate the impact on businesses in Manitoba. We have gone a long way to doing that. The member can talk about the adjustments they made on the payroll tax. They brought it in, in 1984, at an exemption level of $50,000. They made one adjustment and moved it to $100,000, before they were removed from office in 1988. Since then the exemption has gone--the very next year in 1989, it was increased from $100,000 to $300,000. Then in 1990, it was increased to $600,000, and in 1994 to $750,000, now in 1997-98, to $1 million.

By removing the impact on any businesses, you are eliminating the impact of the payroll tax. That is what businesses ask for. Our objective is that they do not have to pay the tax. But to leave a payroll tax in place that still generates revenue from the federal government, I am not so sure the member for Brandon East or Manitobans would be arguing with that, particularly if you look at the treatment from the federal government over these last couple of budgets, with what they have done to transfer payments to provinces like Manitoba, $220 million in two budgets have been reduced in those areas.

So the key is to eliminate the impact on businesses. We have gone a tremendous way to doing that with over 90 percent of businesses not paying that payroll tax, and we will look at further adjustments in each and every budget that we bring down.

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Mr. Leonard Evans: I think the minister should understand I am not sitting here advocating the total elimination of this tax simply because of our particular financial circumstances. Ideally we would like to eliminate it, but I do not see it possible.

The point I am making is it was stated categorically, unequivocally, by the then Leader of the Opposition and now Premier (Mr. Filmon), that this tax would be eliminated, period. The objective was not simply to raise the exemption levels so smaller companies would not pay. The objective was to totally obliterate it, period. You could read Hansard; many a time you can read that statement in Hansard, but you know there is no need to--we do not have time to discuss this further, I would suggest.

I would like to go on and ask a question briefly about the Tobacco Interdiction under the Taxation item. I know we are not at that, but if we could just cover this item and then we could pass the whole Taxation section here. If the minister could give us an update on Tobacco Interdiction, there is quite a staff involved. There is quite an expense involved in administering this. Then, I guess, we have to ask ourselves whether the cost involved has been justified by the savings on the other side, in other words, protecting our tax revenue from tobacco products. I wonder if the minister would like to give us some kind of an update on what is happening in this matter.

I guess the problem has been, in previous we have discussed--and I think it has been overcome to some extent, but the whole question of the freedom of movement of people, the freedom of interprovincial trade is a sort of philosophical issue that comes to fore here, but I know the minister has dealt with it in some ways by a legislation.

Mr. Stefanson: Mr. Chairman, as the member can see, the cost of the Tobacco Interdiction is $792,000, but if he asks, is it important and is it being successful, the short answer is yes. Right now the differential in price is that a carton of cigarettes to the east of us is approximately $26 compared to $43.25 in Manitoba. So, if you take the tobacco tax and the provincial sales tax on tobacco, we are protecting about $90 million in revenue. If we were to reduce it to the price in eastern Canada, that would affect about $90 million in revenue, so the $792,000 is money very well spent to protect that revenue. It has been very successful. I could certainly provide him numbers on cartons seized, court cases, all of that, at some other time, but if you look at the three years that we have had the program in place, it has safeguarded approximately $235 million in tobacco tax revenue.

He is also right that we made adjustments to deal with the whole issue of freedom of movement of goods because we are supporters of the internal trade agreement, and with some of the changes, by allowing individuals to bring in five cartons of tobacco so long as they pay the tax, the equivalent tax in Manitoba, which is not uncommon with PST and other taxes right across Canada that you pay in the province of consumption, so it is in keeping with the tax policies of Canada. We made it more convenient to do that. If people have larger quantities, they can also get a permit and do that. So we have protected the integrity of the internal trade agreement, but we have also protected the taxation revenues for Manitoba.

I did not even get into the whole health issue, which is a whole other issue as well, if you want to get into the health issue as well in terms of the important role that this plays in the whole issue of smoking, particularly amongst young people.

Mr. Leonard Evans: Mr. Chairman, I am not being critical of this exercise or this effort or the objectives, but I wanted to get some information.

Just another question or an observation, I would imagine that most of the enforcement involves vehicles, probably on the Trans-Canada Highway. I often wonder, how do you enforce citizens who arrive in Winnipeg by air? I think most citizens are law abiding, and certainly they are, but how do you--I mean, you do not go through customs inspections. How do you prevent somebody coming with a suitcase of cigarettes over and above the reasonable amount?

Mr. Stefanson: Mr. Chairman, I think the most important thing we have done is really to inform the public and to inform them of the consequences. So, with international flights arriving, there is appropriate signage outlining the whole issue of our laws in this area. Similarly, as the member himself has indicated, I think Manitobans are quite aware of this, after being in place for three years and some controversy over the original implementation when the changes were put in place in eastern Canada. So I think there is a great deal of awareness about this whole issue of tobacco, how much you can bring in in tobacco taxes, and then there are various forms of dealing with it in terms of how the law enforcement agencies are dealing with it, but I do not think that I should necessarily outline those here in this House.

Mr. Leonard Evans: We could pass Taxation. I would like to go on to Federal-Provincial Relations.

The Acting Chairperson (Mr. McAlpine): 7.4. Taxation (a) Management and Research (1) Salaries and Employee Benefits $942,100--pass; (2) Other Expenditures $109,000--pass.

7.4.(b) Taxation Administration (1) Salaries and Employee Benefits $2,232,700--pass; (2) Other Expenditures $3,247,500--pass.

7.4.(c) Audit (1) Salaries and Employee Benefits $4,882,400--pass; (2) Other Expenditures $750,200--pass.

7.4.(d) Tobacco Interdiction (1) Salaries and Employee Benefits $536,400--pass; (2) Other Expenditures $256,300--pass.

Resolution 7.4: RESOLVED that there be granted to Her Majesty a sum not exceeding $12,956,600 for Finance, Taxation, for the fiscal year ending the 31st day of March, 1998.

7.5. Federal-Provincial Relations and Research (a) Economic and Federal-Provincial Research (1) Salaries and Employee Benefits.

Mr. Leonard Evans: We have only got a few minutes available, but I wonder if the minister could outline what major initiatives he expects to take with the federal government or with other provinces. He goes from time to time to these federal-provincial meetings of ministers of Finance, and I wonder, without undermining his position at all with the negotiations or whatever, if he could elaborate as to what are the priorities for him in dealing with the federal government and the other provinces.

Mr. Stefanson: I think for the sake of time, first of all, Mr. Ewald Boschmann has joined us, the Assistant Deputy Minister of Federal-Provincial Relations and Research, but the issues probably are unchanged. The whole issue of transfers continues to be an issue, the Equalization Agreement and formula, and the fact that that was renewed, I believe, for five years back in 1993-94 by the federal government even though it is in the constitution. I think that is an issue that we have to continue to keep at the forefront. It does have the support of all provinces; even the nonrecipient provinces have been supportive of equalization, but it is an issue that we have to continue to keep at the forefront and keep support for.

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The whole issue of the Canada Health and Social Transfer, the significant reductions, I see the Liberal government has made a commitment not to continue to reduce the amounts starting in 1998. They are freezing the reductions at this year's level which, over these last three years, is about $240 million, so they made some minor adjustments which are beneficial, but against the total reductions over these five years. They are reducing those funding transfers by about $1.14 billion and they will add back about $125 million. So it is still just over a $1 billion in reductions.

Two other issues, we do play a role in the whole discussion around the National Child Benefit, because of the relationship back to the income tax system, even though that is being led by Family Services ministers. And then the other issue that there are some track two issues on is the Canada Pension Plan. So we will be into discussions on Canada Pension Plan, plus the agreement was to renew the Canada Pension Plan every three years now, so it will be an issue that is before us on an ongoing basis.

So those are four key issues in terms of dealing with the federal government and other governments.

Mr. Leonard Evans: Do you anticipate that the changes of the CPP, really you do not know, but do you anticipate that there will be much negative impact on Manitoba's financial position?

Mr. Stefanson: I guess the short answer is no, Mr. Chairman.

Mr. Leonard Evans: The reasoning of the federal government of cuts to the provinces is that if the federal government has a large annual deficit problem, which indeed it does--I mean, relatively speaking, they are in a far worse position than the Province of Manitoba. I do not know what they are paying per dollar of expenditure. We are paying, what, 10 cents on the dollar or something, give or take a penny? I do not know what they are paying, 35, 36 percent, 36 cents on the dollar, which is substantially worse.

I, as minister, you may recall, have urged in the past, and I want to take this opportunity now to urge the minister in turn to promote the idea of the federal government using the Bank of Canada to purchase some of its debt. I would rather see the commercial banks receive less in interest payments from the federal government than the provinces of Canada receiving less by way of transfer payments.

I just point out to the minister, in 1976 the Bank of Canada held 20.8 percent of the federal debt; now it only holds 5 percent of the debt. This is a difference of roughly 16 percent. If you take 16 percent of the total federal debt, which is about $600 billion, you are looking at $96-billion worth of debt that the Bank of Canada could have been holding for the federal government, virtually, cost free, because debt held by the Bank of Canada is cost free to the federal government, because all the profits of the Bank of Canada are paid back to the government of Canada. So it is a bookkeeping amount. So the debt is virtually cost free in all those years. In other words, we could have been saving about 7 percent; that is the average rate of interest in that period, of $96 billion or roughly $7 billion a year. So what I am saying is, could the Minister of Finance not say to his counterpart, look, you are now only holding 5 percent, why do we not go back to where we were in the mid-'70s? In 1976 the bank held 20.8 percent of that. I mean, what is so radical about that? What is so revolutionary about that?

In fact, I believe the American Federal Reserve System holds a higher percentage of the U.S. federal debt than the Bank of Canada holds of the Canadian federal debt. I am making that point because, instead of Mr. Chretien and the federal government taking it out on the provinces, why does he not take it out on the commercial banks? I mean, who is going to suffer? It will be fewer dollars paid to the commercial banks and financial institutions, by and large, or whoever holds the debt, and I really think that this is an item that the minister should be putting forward. It is reasonable. We are saying, look, if we could do it in 1976, why can we not over a period of years increase that percentage from 5 percent; why can we not move up to roughly 20 percent over a period, say, of five years? So what that does is it takes a lot of pressure off the federal government to cut back on the payments to the provinces or whoever else. It does not require more taxation.

As I say, the burden then is really, I guess, in a sense transferred to the commercial banks because they are going to make less profit from this. If you talk about it in terms of taxpayers, that is $7 billion a year. We have seven million taxpayers in Canada. In effect, those taxpayers paid $1,000 more per year over that period of time--$1,000 per year over that period of time--because the federal government decided to reduce the amount of debt held by the Bank of Canada. So I offer that as a suggestion. I offer that in a nonpartisan, friendly and, I hope, progressive suggestion that is legitimate. I mean, I think it is worth exploring.

Mr. Stefanson: Mr. Chairman, just very, very briefly. The member for Brandon East (Mr. Leonard Evans) has pressed this case before, and we have looked at it, this issue of whether or not the Bank of Canada could ease the burden of government debt in Canada by purchasing some of that debt, and our review shows that this proposal does not have much merit. It is not supported by most economists in Canada.

When a central bank purchases government debt, it increases the money supply. Therefore, such purchases are determined by the rate of money supply growth that is appropriate given the banks' targets for interest rates, inflation and the exchange rate. The central bank creates money simply to satisfy whatever level of borrowing the government desires, and the rate of inflation will be very high. Interest rates will be very high. The exchange rate will fall sharply, and the economy will fall into a deep recession.

The member for Brandon East pointed out that the policy is not inflationary, because it was adopted during World War II. This is somewhat misleading because the country had very rigid wage and price controls during the war backed up by rationing of key commodities. So those are the concerns that have been expressed for me, and I know it is an issue that we can certainly carry on further discussion at another time, Mr. Chairman

Mr. Leonard Evans: Obviously, we do not have time, but I do not mind an analysis--

The Acting Chairperson (Mr. McAlpine): Order, please. The hour approaching 6 p.m., what is the will of the committee?

Mr. Leonard Evans: We were going to wind this department up. We agreed to that. The House leaders agreed to that, so we are going to wind it up. We can wind it up, but we have got three minutes.

The Acting Chairperson (Mr. McAlpine): I would remind the committee that in order for us to do that, in order for us to pass this we will need a time that is--

Mr. Leonard Evans: I do not see the clock. Not to belabour this.

The Acting Chairperson (Mr. McAlpine): The honourable member for Brandon East on a very short--

Mr. Leonard Evans: Yes, I just want to make the point, I do not accept that analysis. The minister does himself a disservice if he accepts that analysis. I really tell you that. As an economist, I tell you that. If we can do it in 1976--forget about World War II--why can we not do it today? The business of creating money, the commercial banks create the money. Jean Chretien sells $100-million worth of bonds to the commercial banks. Who creates the money? It is the commercial banks that are creating the money. Somebody creates the money; the commercial banks create it, and they create it out of thin air. They create it by writing in the books, you know, $100 million.

But we do not have time to discuss this. I am going to table for the minister's edification--and I trust he and his staff will study this matter more, because I think it is a way of helping the Province of Manitoba get a better deal in terms of transfer payments. That is the reason I am making that as a suggestion.

So, having said that, Mr. Chairman, we could pass the items.

The Acting Chairperson (Mr. McAlpine): 7.5. Federal-Provincial Relations and Research (a) Economic and Federal-Provincial Research (1) Salaries and Employee Benefits $1,041,900--pass; (2) Other Expenditures $303,800--pass.

7.5.(b) Manitoba Tax Assistance Office (1) Salaries and Employee Benefits $237,600--pass; (2) Other Expenditures $39,400--pass.

Resolution 7.5: RESOLVED that there be granted to Her Majesty a sum not exceeding $1,622,700 for Finance, Federal-Provincial Relations and Research, for the fiscal year ending the 31st day of March, 1998.

7.6. Insurance and Risk Management (a) Salaries and Employee Benefits $218,500.

Mr. Leonard Evans (Brandon East): Point of order. Could you not just pass the Resolution 7.6 without reading all the detail? Resolution 7.6 pass, 7.7 pass? I am just trying to be helpful.

The Acting Chairperson (Mr. McAlpine): With the will of the committee, we will pass Resolution 7.6.

Resolution 7.6: RESOLVED that there be granted to Her Majesty a sum not exceeding $249,800 for Finance, Insurance and Risk Management, for the fiscal year ending the 31st day of March, 1998.

Resolution 7.7, with the will of the committee: RESOLVED that there be granted to Her Majesty a sum not exceeding $3,032,900 for Finance, Treasury Board Secretariat, for the fiscal year ending the 31st day of March, 1998.

Resolution 7.8, with the will of the committee: RESOLVED that there be granted to Her Majesty a sum not exceeding $182,550,000 for Finance, Net Tax Credit Payments, for the fiscal year ending the 31st day of March, 1998.

7.1. Administration and Finance (a) Minister's Salary. We will ask the minister's staff to please leave the Chamber. Minister's Salary $25,700--pass.

Resolution 7.1: RESOLVED that there be granted to Her Majesty a sum not exceeding $930,900 for Finance, Administration and Finance, for the fiscal year ending the 31st day of March, 1998.

The hour being after 6 p.m., committee rise. Call in the Speaker.

The Acting Speaker (Mr. McAlpine): The hour being after 6 p.m., this House is adjourned and stands adjourned until 1:30 p.m. tomorrow (Tuesday).