This section of the Committee of Supply will be considering the Estimates of Finance, and does the honourable Minister of Finance have an opening statement?
Hon. Eric Stefanson (Minister of Finance): Yes, Mr. Chairman. It is my pleasure to present for your consideration and approval the Estimates of Expenditure of the Department of Finance for the 1998-99 fiscal year. I do have a very brief opening statement, after which I would be pleased to respond to any questions that the members might have.
The department proposes to spend $729.2 million in 1998-99. This represents a decrease of 0.2 percent or $1.2 million under the 1997-98 Estimates. In terms of the area of Public Debt, with the era of rising debt behind us, we are building on last year's reduction of $55 million for Public Debt expenditures with a further estimated reduction of $5 million.
This has been made possible due to lower borrowing requirements as a result of continuing improvement in the province's fiscal position, the relative stability of the Canadian and U.S. interest rates, and our province's declining debt burden.
Mr. Chairperson, we acted on the advice in council received from Manitobans during the consultations leading up to the provincial budget, and we increased our debt payment to $150 million. Our province's declining debt serves to relieve the next generation of the burden of accumulated debt and also supports immediate debt servicing savings as reflected in the department's Public Debt expenditures.
Notwithstanding 1998-99 expenditure reductions, Public Debt remains the single largest component of the department's spending representing 71 percent of the department's budget and 8.9 percent of the entire provincial budget. The magnitude of this cost underscores the importance to Manitobans of continuing to balance our books and to reduce the burden of debt.
In terms of tax credit payments, total expenditures for Manitoba's 1998-99 tax credit programs, which include property tax credits, cost of living tax credits, pension or school tax assistance, political contributions tax credits, and the learning tax credits are estimated at $198.5 million. Of this amount, $15 million represents the learning tax credit which is part of the Department of Education and Training Estimates.
As announced in the budget addressed, the learning tax credit has been reconfigured as part of a comprehensive approach to supporting post-secondary education in Manitoba, which includes enhanced direct assistance to students through loans and bursaries, interest relief, debt reduction and scholarships and bursaries initiatives, and increased operating support for post-secondary educational institutions. Manitoba continues to be the only province in Canada to provide a refundable learning tax credit to encourage students to invest in their own education and training.
The Department of Finance's share of total net Manitoba tax credits will increase by approximately $1 million as a projected number of eligible claimants for the property and cost of living credits increases.
The department has established the office of Information Technology. The province's chief information officer will bring greater focus and leadership to government's major information technology initiatives and ensure the effective investment of information technology resources to meet the year 2000 and other technology challenges.
Like most organizations, the year 2000 problem for Manitoba is pervasive. The issue is the top priority of our information technology professionals. Manitoba has been very proactive in responding to this issue and has established the year 2000 office. A detailed examination of all critical systems has been undertaken and plans to ensure the timely co-ordinated replacement and refurbishment of critical provincial systems are being implemented.
Over a year ago, we completed assessments of our year 2000 problem for core government. Some systems have already been refurbished and are year 2000 compliant. The remaining assessments are being completed this summer.
A framework for prioritizing year 2000 work across government and a special consideration given to the unique technologies of the health care sector is being established to ensure that the year 2000 problems of systems most critical to program delivery are addressed in priority order.
Our overall year 2000 initiative is broad based. It ranges from refurbishment of core government systems to awareness programs targeted at the wider business community. Manitoba has established a standing offer arrangement with the year 2000 suppliers to perform year 2000 inventory, assessment, refurbishment and testing. This ensures that competitive market pressures are continually brought to bear to ensure maximum containment of costs.
With those very brief statements, Mr. Chairman, I am more than pleased to respond to any questions.
Mr. Chairperson: We thank the honourable minister for those comments. Does the official opposition critic, the honourable member for Brandon East have opening comments?
Mr. Leonard Evans (Brandon East): Mr. Chairman, yes a few opening comments. As I have said on other occasions, the Department of Finance is a well-established, well-run department. It has a reputation of being very well-administered with loyal staff. I have had the pleasure of being on the government side of this Legislature as well as the opposition side, and as one who has had 15 years' experience on the government side and having dealt with that department and having seen it operate, I can tell you very categorically that it is one of the better-run, one of the best-run departments in the government, and it continues to serve us well. It continues to serve the people of Manitoba very well indeed.
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Our problem in the opposition is, of course, mainly with the government's fiscal policies and its approach, its ideology, and, as the minister knows, a great deal of our debate involving himself is when we discuss the budget at which time we talk about such things as the economy and where the budget is heading and so on. I just want to take the opportunity to point out that although the economy has certainly improved in the last few years, nevertheless we in Manitoba have much to be concerned about still, because even though it is perhaps better today than it has been for some time, we still see our employment performance, at least this year, not to the level of which I think any of us would want to see it.
I was looking at the last data from Statistics Canada and the Bureau of Statistics. I see Manitoba ranks nine out of 10 in the first five months of this year in terms of job creation. I think it was something in the order of 1.1 percent over last year's first five months. This makes you concerned, especially when you note that the national average is about triple that. The national average growth rate is over 3 percent, and even Saskatchewan, our sister province, is over 2 percent in growth. I do not have all the numbers in front of me. I do not have any of the numbers, but it is about double, as I remember, what our job creation has been in the first five months of this year.
Also, we should be concerned that real wages over the past many years have not kept pace, and Manitobans are actually obtaining lower real wages today than they did in 1988. There are a lot of statistics around to show this because what has happened is that although there have been increases in nominal wages, they have not kept pace with inflation over a great deal of that time; now, there may have been a variation from one year to another, but generally speaking in the past decade.
Also, we should be concerned about other matters that indicate that the economy could be stronger than it is, and I point, of course, to the continued loss of people to other provinces. Our outward migration increased sharply last year--I believe over 6,000 people on a net basis--and even Saskatchewan was gaining from us by a considerable number.
So these statistics would indicate to me that although the economy has been helped by the North American economic boom that has been occurring the last few years and, of course, by relatively low interest rates and by a cheap Canadian dollar--all these have been major factors that have helped our economy. We have seen some growth, but, nevertheless, there are these features of our economy that should give us cause for concern.
We are also concerned about the way the budget has been presented. I have called it a shell game in the sense that you see it one time, then you do not see it, and the minister is great. He is very adept at moving monies in and out. I note in the last budget he put $60 million in from the Fiscal Stabilization Fund. He gave us a reason for that. He said it is for Health expenditures, but, nevertheless, he took $60 million out of the Fiscal Stabilization Fund and was able to show on that account a $23-million surplus. If he had not taken that $60 million out of the fund, we would have had a deficit.
So this is what confuses me and confuses Manitobans. We put money in on the one hand, pay down some debt and then take it out on the other hand, and then you legitimately ask the question, well, what does the bottom line mean anymore? When it comes to the bottom line of a budgetary surplus or a budgetary deficit, one really wonders how reliable a number that is, given the fact that you have this flexibility of the fund in moving monies in and out, because if the fund did not exist, this could not happen. You would have to play it straight.
I recall when this fund was first set up by a predecessor of the present Finance minister, Clayton Manness, the Provincial Auditor of the day, was very upset because we did have a real surplus in the first year, but the surplus was quickly devoured into the newly established Fiscal Stabilization Fund. The Auditor of the day said that money should have really gone to pay down the debt. That is normally what would happen to a surplus. Automatically, it goes toward the debt, but it did not go toward the debt. Instead, it went into the Stabilization Fund and the rest is history.
The fund has been very useful to this government, and I know other governments have funds too, but I say the existence of that fund, you could argue from an administrative point of view, makes for greater flexibility, but, on the other hand, it makes for less reliability of the bottom-line budgetary surplus or budgetary deficit figure.
I note back in 1992-93 which was a very bad year for Manitoba because our revenues diminished considerably over the previous year, we had the bottom-line budgetary deficit of $566 million which would have been really $766 million if the government was not able to take $200 million out of the fund. That year, the $766-million deficit prior to taking money out of the fund was the worst deficit position we have ever experienced in the history of this province. Of course, it is the reason, this plus other huge deficits that did occur previously under this government, that the total debt today, even though it has come down in the last year or two, is still higher than it was when this government assumed office in 1988. So those are the facts.
Having said all that, Mr. Chairman, I think our debt situation, yes, it has grown but still, in a relative sense, relative to other provinces, relative to the burden as measured by a percentage of spending, that is interest spent as a percentage of total expenditures, is still well within the Canadian average. In fact, in many ways, if you take some of these figures, you will see that we are actually much better than the Canadian average in terms of the debt burden on Manitobans. So it depends on what figures you want to use. The minister can use the figure of the percentage of his total spending of his department, how big an item that is, and it is a big item, I am not denying that, but when you look at it in another way in terms of public debt costs, percentage of expenditures, 9.4 percent of total expending, and that is relatively low in Canada. I think it is about the lowest, if not the lowest. It is one of the lowest in the country.
On that basis, one could argue that our debt burden is not really that significant. Certainly, as a percentage of GDP, debt costs have been coming down, but they have never really been, in the last couple of years, that horrendous in terms of what was going on in the rest of the country.
I just want to make one other point, too. Back in the '80s when there was an increase in debt, too, I might point out that was a phenomenon that was occurring right across the country and including the federal government, and for some very good reasons, not only recession but also horrendous inflation. When you had interest rates of what, 18 percent, 19 percent and whatever, and this did create an increase in the debt burden at that time.
At any rate, my last couple of points, Mr. Chairman, as part of the introduction is to point out again that although we want to be prudent and good managers and nobody disagrees with that, we should be very careful with our spending, every last single dollar of it. Nevertheless, I think it is a fallacy to think that because we moved into some sort of a surplus position that this is the main reason why our economic situation has improved. I would say it is the reverse. It is because of the improvement of our economic situation that we have been able to come into the black and out of the red, so to speak.
The reason we have a better economic situation is because the North American economy has done very well, and as I said, also, low interest rates and the cheap Canadian dollar. All these are major factors that have buoyed the Manitoba economy and has enabled this Minister of Finance (Mr. Stefanson) to obtain the revenue to do with what he wishes to do, and what his government colleagues wish him to do.
So I just want to make sure that we get the sequence correct and that is, it is the economic situation that has a bearing on our provincial budget, not the other way around. Having said that, I am not going to state categorically that the budget has absolutely no impact on the economy. That is not true. But it is not as great a factor, I would submit, and with all respect, as some of these major national and international economic forces that I mentioned previously.
Just one last observation, and that is while we like to look for a fiscal surplus and like to brag about it and pat ourselves on the back about it, we also have to be concerned about what is happening to the social services side. Some people would argue the fiscal surplus has appeared and it may be growing, but the social deficit has increased, and that is a real concern to Manitobans because when you look behind that word are matters of adequate spending on education, adequate spending on health, adequate spending on social services, and everything from inadequacies in our hospital system to growing child poverty.
So, those are our opening comments. We do have some questions on specific parts of the department, and my colleague, the deputy critic of Finance, the MLA for Elmwood (Mr. Maloway), would have a few questions as well on Information Technology.
Mr. Chairperson: I thank the honourable member for Brandon East for those opening comments.
Under Manitoba practice, debate of the Minister's Salary is traditionally the last item considered for the Estimates of the department. Accordingly, we shall defer the consideration of this item and now proceed with the consideration of the next line. But before we do that, we would ask the minister's staff to join us at the table, and we ask the minister to introduce his staff as they are present.
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Mr. Stefanson: Mr. Chairman, just, with my critic the member for Brandon East, for procedures, can we sort of go through these section by section and try to deal with some of them quickly? Obviously, I have the deputy and a couple of key people here, but then I sort of rotate. If you want to talk about public debt, I bring those officials. Is it just as simple to take each category and go through? I am prepared to be flexible, just recognizing that I have access to having the right people here to provide as much information as I can.
Mr. L. Evans: Yes, that is fine, as long as the minister is prepared to be flexible, if we could sort of proceed through the sections. My colleague has some questions on Information Technology. The member for Osborne (Ms. McGifford) had hoped to be here to ask some specific questions, but she had to leave because of another appointment. She will be asking those during concurrence, but I would reiterate that it is our intention to wrap it up by six o'clock. So, regardless, it will be a two-hour exercise. This does not include all the enabling appropriations. I know you have some responsibility there. We were hoping that those would be discussed tomorrow. So the department per se would be dealt with today.
Mr. Chairperson: Just for the benefit of the committee, would there be unanimous consent to ask questions under the one line as they pertain to the questions and raise the questions that way? What is the will of the committee?
Mr. L. Evans: Mr. Chairman, it is just a matter of maximizing flexibility--we have two hours--and try to be as efficient as possible.
Mr. Stefanson: I think your suggestion that once we get into section by section, just pick a line and ask all the questions and then we can move through if that is as easy as--
Mr. Chairperson: Agreed? [agreed]
I would ask the minister's staff to please come forward and the honourable minister to introduce them as they are present.
Mr. Stefanson: Mr. Chairman, seated immediately to my left is Pat Gannon, the Deputy Minister of Finance; across from Pat is Debra Woodgate, the associate secretary to Treasury Board; and Erroll Kavanagh, who is the director of Management Services.
Mr. Chairperson: Line 7.1 Administration and Finance (b) Executive Support (1) Salaries and Employee Benefits.
Mr. L. Evans: Under Administration and Finance, I want to assure the minister I do not intend to ask any questions about the Soldiers Taxation Relief fund--not this year; maybe next year.
But I would like to ask a question about personnel policy. Could the minister update us on the arrangements to provide equity of employment and any proactive employment policies within the department? I think it is handled under the personnel division or whatever it is called.
Mr. David Faurschou, Acting Chairperson, in the Chair
Mr. Stefanson: Joining me as well is Melanie Brownscombe, the director of the Human Resource Services within the Department of Finance.
Employment equity is still an important part of the hiring process for the Department of Finance. In 1997-98 our fiscal year ending March 31, '98, there were 26 hirings in the department. Eleven were women, which is 42.3 percent; three were from visible minorities, 11.5 percent of all hiring; one aboriginal, 3.8 percent, but I think, more importantly on an overall basis, when you look at the workforce in the Department of Finance of approximately 400 employees for the year ending March 31, 1998, just over 50 percent, 50.81 percent are female, 1.85 percent are aboriginal persons, 3.23 percent are persons with disabilities, 6 percent are visible minority persons. In most of those areas we have continued to make progress over the last several years, so in terms of the question, it continues to be a priority and I have just outlined some of the statistical information.
Mr. L. Evans: Mr. Chairman, I wonder if the minister could comment about the turnover of staff. My impression is that there is not much turnover, but is this the case? Also, how do you compare with other departments?
Mr. Stefanson: Mr. Chairman, I will certainly determine if there is any more specific information that I can share with the member, but speaking to our senior officials, we believe within government we would be at the lower end in terms of turnover because of the nature of many of the positions. Certainly looking at many of our senior positions, I know first-hand there has been very little turnover.
I think on an overall basis though, the employees, like our population in general, we do have an aging population to a certain extent, but just looking at the stats that I just provided the member, a number of hirings, at 26 out of a workforce of roughly 400, shows that it is a relatively stable workforce within the Department of Finance. I think that is pretty indicative of government overall these days.
Mr. L. Evans: I would just like to pass onto the Treasury section now, so we could pass this section. That is 7.1.
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The Acting Chairperson (Mr. Faurschou): Item 7.1.(b) Executive Support (1) Salaries and Employee Benefits $355,000--pass; 1.(b)(2) Other Expenditures $69,200--pass.
7.1.(c) Management Services (1) Salaries and Employee Benefits $439,800--pass; 1.(c)(2) Other Expenditures $77,800--pass.
7.1.(d) Payments Re: Soldier's Taxation Relief $2,000--pass.
7.1.(e) Tax Appeal Commission $20,000--pass.
(Resolution 7.1: RESOLVED that there be granted to Her Majesty a sum not exceeding $990,100 for Finance, Administration and Finance, for the fiscal year ending the 31st day of March, 1999.)
7.2 Treasury.
Mr. Stefanson: Joining me now is Mr. Neil Benditt, who is the assistant deputy minister of Treasury Division; and Don Delisle, who is the director of the Treasury Division.
Mr. L. Evans: Mr. Chairman, just a general question, among other activities of this division is that it has to maintain contact with the rural financial community, so we know what the markets are like out there, and I was just wondering if the minister could comment about the markets. Where do we think we are best in seeking loans? Where do we think the best market situation is for the Province of Manitoba?
Mr. Stefanson: Certainly the best market for us today by far is the Canadian market. Not surprisingly, interest rates in Canada are still at roughly 35-40 year lows. Our borrowing requirements in total for this year will be in the range of about $1.4 billion, which is virtually all refinancing of outstanding issues. Sitting here today we expect to do almost all of that in the Canadian market provided rates stay where they are. They are running at about a quarter of a percent below the U.S. rates straight up to today, and compared to other markets, Canada represents the best market for us right now.
Mr. L. Evans: That is good news, Mr. Chairman. You do not have the insecurity of exchange rates changing on you that you have when you borrow abroad unless you make other arrangements. When you make this comment about low interest rates in Canada, would you suggest that it is primarily because of the policy of the Bank of Canada trying to keep interest rates low, or do you think there are some other fundamental forces at work that provide for lower Canadian rates?
Mr. Stefanson: A good question. I met with one of the deputy governors of the Bank of Canada some time ago, he pointed to two reasons for the low interest rates that we see in Canada today; one is a direct correlation to low inflation, and we are seeing low levels of inflation in Canada, relative to what we experienced many years ago.
The other one he pointed to very directly was the fact that governments, provincial governments, right across Canada and the federal government have consistently been getting their fiscal house in order and as a result of that are obviously borrowing less money and going to the market less often for their requirements and less often to the international market. So the fact that governments are balancing their budgets, borrowing less, has been a direct contribution to the low interest rates.
I guess I did not respond to the member's opening comments, because we have agreed to disagree on many, many issues and had some healthy discussions. I certainly could have challenged or possibly even corrected some of his comments, but we will get many opportunities to do that. But this is one area where I would say there is the direct correlation between governments balancing their books leading to lower interest rates in Canada, lower interest rates leading to an awful lot of more economic activity in Canada, allowing individuals, businesses to grow, expand, invest and compete with countries right throughout the world. But those are really the two main reasons: the low level of inflation, and the fact that governments are getting their finances in order, balancing their books and borrowing less money.
Mr. L. Evans: Well, we have been fortunate in one sense of relatively low inflation. Certainly, if governments are borrowing less, the demand for loanable funds has dropped, has shifted, but then there is private borrowing as well. There is corporate borrowing. I mean, they are in the markets, too, are they not? What is happening there? Corporations borrow for all kinds of reasons. I know they go to the market on a share basis, on a stock basis, but they also borrow directly. They float corporate bonds and sometimes, I do not know, I do not have all the numbers, but they can be pretty significant too in terms of the volume of corporate borrowing. I do not know how it compares with government borrowing. I do not have those numbers. I am just saying, just to say governments are borrowing less, I am not denying that is not a fact. I am not arguing that, but I am just saying: what is happening to the corporate sector at borrowing, because that has to be a factor?
Mr. Stefanson: Mr. Chairman, I do not have any specifics here today in terms of the breakdown of annual borrowings, say, within Canada between private sector and government and so on. We will certainly determine what information we have on that topic, and I will provide it to the member for Brandon East. I think there is no doubt that with the growth and expansion of the economy that the private sector has probably moved in and picked up some of the slack or the room in terms of borrowing, but I would not think that they have, in any way, filled that entire difference, maybe a portion of it, because we are also seeing growth and opportunities for business to access equity pools.
We see it right here in Manitoba alone where today we have a number of more equity pools than we had 10 years ago, and so business is certainly accessing, whether it is Venture Capital pools, labour-sponsored Venture Capital pools, other sources for a significant amount of their financing as well. I would expect that they have moved into that area somewhat, but we will see what statistics we can readily obtain, and I will provide them to the member for Brandon East.
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Mr. L. Evans: Mr. Chairman, I thank the minister for that offer. I think the Bank of Canada tries to keep tabs on these types of statistics, which brings me to the point that I believe the Bank of Canada has been trying to maintain a low interest rate policy. I know the bank governor, from time to time, tries to maintain that while it is really the market that is determining everything, they are just back there as a passive player, but that ain't so in my opinion. The bank can play a very critical role, and if they have a very tight monetary policy, it will drive up interest rates. So I think the bank is fairly accommodating and has been trying to keep interest rates low. I think that is one of the factors. It is just their policy.
I recall many economists complaining about Mr. Crow, when he was governor of the Bank of Canada, that he drove this country into a massive recession because of his exceedingly high interest rate policy, which brings me to another question, although maybe the minister partly answered it. I was wondering whether the minister has met and has had discussions with the governor of the Bank of Canada on these and similar matters.
Mr. Stefanson: Mr. Chairman, in terms of meeting with the Governor of the Bank of Canada, he does attend, on occasion, at meetings of federal-provincial Finance ministers. He has been there certainly within the last year at one of our meetings, and we had an opportunity to hear first-hand from him and as well ask him any questions. As well, the bank, I think, has improved its relationship with provincial governments by, on an annual basis, having a deputy governor come out and meet with Finance ministers, senior officials and so on. Again, we have had that happen over the last couple of years in Manitoba. So that is helpful as well.
The only other comment I would make is that I do not believe the Bank of Canada has a publicly stated low interest rate policy. They do have a policy to keep inflation between 1 percent and 3 percent. That is a publicly stated policy of the Bank of Canada. Of course, inflation today is hovering down in the 1 percent range or thereabouts. That goes back to our earlier discussion about the direct correlation between inflation and interest rates, and by having low inflation, having governments balancing their books, today we are seeing the kinds of 35- and 40-year lows in terms of interest rates in Canada.
Mr. L. Evans: Well, I think the minister is correct in that observation of trying to maintain inflation at a certain range. I guess it is unwritten and maybe unsaid, but my impression has been that they have been trying to accommodate fiscal spending by the government by leaning towards a lower rate of interest. I want to take the opportunity to make the observation that I have made in the past, and that is the Bank of Canada has the ability, if it so chooses and if the federal government has the will, to actually lend the money directly to the Government of Canada. So, instead of making the Royal Bank and the Bank of Montreal rich, filthy rich with profits that they do not know what to do with, except increase CEOs' salaries to the multimillion-dollar range, instead of making them rich, we could borrow interest free from the Bank of Canada.
The Bank of Canada may charge an interest rate, but all the profits it gets from interest are turned back to the federal government in terms of profits or dividends paid by the bank to the Government of Canada. In other words, it is a bookkeeping procedure, and therefore what the bank is providing is actually interest-free money. If you are worried about the burden of the debt, this is one way to overcome it, and that is to have the Bank of Canada used as the financial instrument for financing government programs.
Similarly, Mr. Chairman, in the Bank of Canada Act, the Bank of Canada can be authorized by the federal government to lend money to provincial governments as well at a preferred rate of interest. I would think the Minister of Finance would want to advocate that at various conferences because that would certainly relieve the burden of debt on provincial governments, including the Province of Manitoba. This was written in the Bank of Canada Act, and I think at some time in our history it would have been a critical device or critical instrument to help certain provinces that were facing bankruptcy back in the Dirty Thirties or earlier on.
At any rate, this is a possibility, and, instead of Mr. Chretien running to the markets for a hundred million dollars to finance an infrastructure program, he could have gone to the Bank of Canada, if he had had the will, and borrowed it from the Bank of Canada interest free. The bank, in turn, would have had to exert controls over the commercial system by reinstituting the reserve ratio requirement, which was thrown out a couple of years ago. I think Canada is only one of about two or three countries that has eliminated that requirement, which is incredible. In doing so, they have given up a very important instrument to control the commercial banking system, which operates not by some inordinate or by some god-given right, but they operate by the rights of the Parliament of Canada. Commercial banks operate because they are given that right and that authority by the people through the Parliament. The people's bank could be financing Mr. Chretien's--I am using this as a hypothetical example--hundred-million-dollar infrastructure program and save the taxpayers a great deal of interest burden.
The argument against that is, well, it is inflationary. Well, I say the way to ensure that it is not inflationary is to make sure the Bank of Canada gets back the tools of reserve ratio requirements in order to contain any excessive lending on the part of the commercial banks in the meantime. In other words, you do not want to increase the money supply excessively to create inflation; you do not want to do that. But the old argument is brought, oh, you are just printing the money. Well, I am just saying that, instead of the Bank of Montreal printing the money or Toronto Dominion, I would like to see the Bank of Canada print it, if we want to use that terminology.
In other words, the commercial banks could create the money on government bonds without any assets. They do not need a nickel of assets. If you want a hundred million dollars, the federal government gives them a piece of paper. The commercial banks write it into their credit in their books. They do not need one red cent of assets to back up that loan of a hundred million dollars, yet they gain millions of dollars in interest payments from the taxpayers of Canada in the process.
Mr. Stefanson: I know the member for Brandon East feels strongly and, some would say, passionately about this issue. He has raised it on many occasions. It falls in the category of another issue where we agree to disagree, and I have responded in previous Estimates. In fact, I think I wrote a fairly detailed letter to the member not all that long ago, but it is worth just responding again.
Mr. Chairperson in the Chair
First of all, the Bank of Canada is not a lender. It holds some Canadian assets and will only lend directly to provincial governments in the case of a dire national emergency. We are not in that situation, thankfully.
Secondly, the Bank of Canada is a Crown corporation of the federal government. In this case, by selling bonds to the bank, the federal government would be borrowing from itself. This would severely undermine confidence in the country and in our currency, as is evidenced in instances where some Third World governments have borrowed from their central banks because international capital saw them as bad risks. This factor is particularly important in a country like Canada that is a major trading nation, where there is greater vulnerability to potential problems with the international environment.
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Thirdly, Canadian governments have finally turned around their debt spiral and are eliminating annual budgetary deficits. These gains have been necessary, but reductions in program spending growth have sometimes been difficulty, as we all know. Signalling that the accumulation of debt is no longer a problem would set back all of the major gains that Canadian governments have made over the past 10 years.
Fourthly, a large part of Canada's debt, though it must be repaid through either taxes that must be collected to pay it back or other means, is owed to Canadians. As fiscal situations are brought under control, it should not be difficult to meet annual borrowing requirements from domestic funds.
Finally, the issue that the member did touch on, printing money to feed federal and provincial deficits, would cause the Bank of Canada to increase inflation. Inflation hurts all working Canadians, but is particularly harmful to those on fixed incomes. Inflationary policies, such as the ones proposed by the member, would hurt the most vulnerable Canadians.
So those are some reasons why I disagree with the member for Brandon East. I am sure there are others, but, again, I think we could debate this for days. I am sure it falls in that category where we will, at the end of it all, put forward our best arguments and agree to disagree in terms of what should happen here.
Mr. L. Evans: Just a word, because you know this is interesting and fun sort of. We do not want to spend too much time on it, but I just beg to differ. I do not recall the letter. but I should have written you a response because the fact--this is the point, you do not want to have runaway inflation. You do not want to have inflation. The Bank of Canada has every right in the world to create the money, because the right to create money is vested in the Parliament of Canada. The Parliaments of Canada have given that right also to commercial banks, so the commercial banks are printing the money. As I said, they are printing the money without any assets. If they lend to the Government of Canada, they do not need any assets to lend the money.
At any rate, the point is inflation. The point I want to make about inflation is that you can control inflation through reserve requirements, and obviously the bank has to do that. You do not want to have the bank creating money and allowing the commercial banks to go on their own continuing to create as much money or more money at the same time. You do not want runaway inflation. That can be controlled in traditional methods that 99 percent of central banks have in this country.
I do not agree that the bank cannot lend money. It can lend money. It has that right. Read the Bank of Canada Act. In fact, it is the foundation of the whole banking system. Without that you could not have a banking system. The Bank of Canada is at the basis, so to speak.
At any rate, I will have to find that letter and maybe respond in writing. I cannot recall the letter, but that does not matter, I guess. At any rate, it seems to me that the provinces should have taken up this cause, because it should have been or could have been a policy whereby the Bank of Canada could have been required to assist provinces in lending some of the money that the provinces required at a lower burden rate, a lower interest burden. That is the point, to lower your interest burden. Similarly, for the Bank of Canada, it would substantially diminish the interest burden on the federal side because any profits of the Bank of Canada goes back to the Government of Canada.
I would only say in conclusion that, if it were not for the Government of Canada using the Bank of Canada, we could not have fought the war as successfully as we did. It was the Bank of Canada that enabled us to have the liquidity to fight the war. After the war, for some period of time, a great percentage of the national debt was held by the Bank of Canada in government bonds as compared today.
At any rate, we could go on and on about this. I just want to ask if we could pass on to interest rates for loans to Crown corporations, just to ask: how are you establishing this? My colleague for Elmwood would like to ask some questions on this as well. You establish interest rates for loans to Crown corporations and government agencies, and the question is: how are you proceeding to do this at the present time?
Mr. Stefanson: What we do for the majority of the Crown is to determine what our provincial borrowing rate is on a monthly basis and then charge an additional one-eighth of 1 percent for administration fees and charges. If there is a significant swing or jump in interest rates, we will look at it more often, but it is generally done on a monthly basis with that one-eighth percent adjustment.
Mr. L. Evans: It is one-eighth of 1 percent over the government's borrowing rate. So how do you know what your borrowing rate is?
Mr. Stefanson: We get that information, Mr. Chairman, basically straight from the market by going to our three managers, three investment dealers that are our managers in our syndicate, and being provided with the rates, taking the average of those three rates, and then tacking on the one-eighth of 1 percent for admin.
Mr. L. Evans: So you pose a hypothetical question to them because you may not be borrowing at that specific time. But, you know, if we were to borrow from you today, what rate of interest would we be paying? Would we have to pay you and then you average that?
Mr. Stefanson: Just to give some examples. On June 8, just a few days ago, if we were doing a five-year issue for Manitoba, the all-in borrowing rate would have been 5.49 percent. So, if that money was being advanced to a Crown, the 5.49 percent plus one-eighth of 1 percent would be what they would be charged. Ten years was 5.61 percent, our cost--same idea plus one-eighth of 1 percent, and so on. I could give him other numbers going over longer periods if you want.
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Mr. L. Evans: One other question, and I will turn it over to my colleague for a while. You establish interest rates for loans that are made to municipalities. In this case, we are talking about loans made by the government of Manitoba to municipalities. Is this what we are talking about, or are we talking about guaranteeing loans of municipalities? I am not quite clear on that point.
Mr. Stefanson: In the case of municipalities, we will actually buy their issue if they want us to. If they want to borrow effectively from the Province of Manitoba--nothing precluding them going elsewhere to the market--if they are borrowing from us, we will charge them our borrowing rate, the same numbers that I just provided plus one-half of 1 percent. The reason it is one-half of 1 percent is a combination of the admin costs and the degree of risk associated with lending that money. It is our borrowing rates plus one-half of 1 percent if we lend to a municipality, but it is purely at their choice. If they can do better elsewhere in the market, they are certainly able to do that.
Mr. L. Evans: Could any of your staff quantify how much do we have out by way of direct lending to municipalities today? Is it a very significant amount? I do not need to know the precise figure, just an approximation.
Mr. Stefanson: Mr. Chair, we do not have that here. We certainly can provide that information, and I will, to the member for Brandon East.
Mr. Jim Maloway (Elmwood): I would like to ask the minister several questions here concerning the borrowings. He gave a figure previously about how high the borrowings were. I wanted to get the breakdown between how much of it is foreign versus how much of it is domestic.
Mr. Stefanson: I think I understood the member for Elmwood's question wanting to get a breakdown of what currency our current debt is in, our tax-supported debt. The breakdown today of our tax-supported debt--not counting Hydro, because Hydro is completely self-sustaining--but all of our other self-sustaining debt and our tax-supported debt, our breakdown today at the end of March 31, 1998, was 78 percent was serviced in Canadian currency; 22 percent was in U.S. currency; and we have no exposure in any other currencies--Japanese yen, deutschemark.
If we ever borrow in those markets, and that is what the member for Brandon Easts referred to earlier, if we do borrow in those markets today, we swap it back to one of these two currencies. So that really has been significant progress, because even if you go back just to March 31 of '96, two years ago, we were at 68 percent Canadian and 32 percent U.S. Today we are at 78 percent Canadian and 22 percent U.S. Our objective has been to certainly try and get as much as possible, within reason, into Canadian currency for obvious reasons, and that is our revenue source. We should be trying to match our revenues with our expenditures as much as possible.
Mr. Maloway: I would like to ask the minister whether he could provide us with the written policy on investments. The Finance Department makes investments on behalf of some of the Crowns, and I am certain that he did tell me at one point that there is a written policy on these investments. I would like to know whether the policy deals with the whole question of ethical investments, and just what they would invest in and what they would not invest in.
Mr. Stefanson: Mr. Chairman, the areas permitted investments are outlined in The Financial Administration Act. I am certainly prepared, obviously, to provide the member a copy of that and comments around the various categories that are permitted investments. It is outlined in that legislation.
Mr. Maloway: I would like to thank the minister for those questions. I believe the member for Brandon East has a few more questions, and then perhaps we can move on to the technology section.
Mr. L. Evans: This may be impossible to answer, but I have often wondered how much of the debt is held by Manitobans. That may be very difficult, because some of this is institutionalized, I realize. I guess, you would know who owns the Builder Bonds; you would have some idea, initially. But about the other bonds, I guess, if it is institutionalized it may be very difficult, but in the ideal world, it would be all held within Manitoba by Manitoba-based institutions. That would be great because then we would be paying interest back to our own citizens.
Mr. Stefanson: Mr. Chairman, again, I think the member and I have discussed this before. He is right that outside of Builder Bonds, which have to be owned by Manitobans, it virtually is impossible to start to try and track and recognize what regions, what provinces investors are from.
Mr. L. Evans: The minister had indicated that the Canadian market was the most favourable market for borrowing, but, nevertheless, the minister and his staff do go to various capitals, do they not? Could he elaborate on this? Are you still maintaining contact say with Tokyo or people in London or New York or whatever?
Mr. Stefanson: The short answer is yes. We are continuing to keep contact with other markets, because we all know that markets do change and there might be points in time when we have to access some of these other markets. We are actually in daily contact with some of our syndicate members in New York, the U.S. market, in probably weekly contact with the London market, and a little less frequently with some of the other markets like Japan, but certainly in regular contact with all of these markets, because access to capital is also very important. As the member knows, as good as the Canadian market is today, that could change at some point in time and we might want to be accessing some other markets.
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Mr. L. Evans: Well, I appreciate the minister's last comment, Mr. Chairman, because this was the case back in the '80s, as I recall. These were the reasons for borrowing abroad. It was a lot cheaper, although there is risk involved, always a risk when you go outside of Canada, but it was a lot cheaper to borrow outside of Canada at that time. It was very attractive, and that was the advice we were given. That is why we got into so much foreign borrowing.
At any rate, well, times change and so on. It is interesting to speculate whether that would ever occur again because of changing circumstances. We do live in a very fluid situation.
However, just one little technical question, and that is, in this day and age of computers and the Internet and all that and the World Wide Web, do you and the staff, does the staff utilize this technique for keeping in touch with financial markets?
Mr. Stefanson: Once again, the short answer is yes. We are very much taking advantage of technology. We belong to the Bloomberg system, which gives us immediate access to up-to-date financial information, access to the websites for the various investment dealers, which provides us information. We have our own website with financial information on Manitoba, which is accessed significantly by investment dealers, investors, or whoever. So we definitely are taking advantage of technology in a very significant way.
The member was quite complimentary to the Department of Finance. Within our department certainly our whole Treasury area is well managed. I think, as the member knows today, we can borrow money at the second lowest borrowing rates of any province in Canada. Only the province of Alberta borrows money cheaper than us, even though Ontario and British Columbia have higher credit ratings. It just points to the fact that the market is really treating us like a double-A credit rating and it is just a matter of when the bond rating agencies catch up to the market, which I hope and expect will be sometime in the not too distant future.
Mr. L. Evans: That is very good. Certainly this new computer technology, the web, the Internet, I would think gives us enormous access to market information that you did not have even two, three years ago where you would have to rely more on phoning and visiting people and writing and so on and depending on others, but here you could have instantaneous feedback, instantaneous information.
I think we could, because we are short of time, we would like to pass on to the Comptroller section.
Mr. Chairperson: 7.2.Treasury (a) Administration (1) Salaries and Employee Benefits $135,600--pass; (2) Other Expenditures $118,100--pass.
7.2.(b) Capital Finance (1) Salaries and Employee Benefits $299,600--pass; (2) Other Expenditures $37,300--pass.
7.2.(c) Money Management and Banking (1) Salaries and Employee Benefits $406,300--pass; (2) Other Expenditures $258,900--pass.
7.2.(d) Treasury Services (1) Salaries and Employee Benefits $476,300--pass; (2) Other Expenditures $48,300--pass.
Resolution 7.2: RESOLVED that there be granted to Her Majesty a sum not exceeding $1,780,400 for Finance, Treasury, for the fiscal year ending the 31st day of March, 1999.
7.3. Comptroller (a) Comptroller's Office (1) Salaries and Employee Benefits $130,200.
Mr. L. Evans: On this area, Mr. Chairman, I wonder if this is the appropriate place to ask a question of the minister of the computer agency that does work that used to be done by a company that was called, well, it is the same company, Manitoba Data Services. It was privatized a number of years ago.
An Honourable Member: ISM.
Mr. L. Evans: Is it ISM today? It is owned by IBM. Does it still have a monopoly more or less of supplying certain basic computer services to the government?
Mr. Stefanson: Just before I respond to the question, joining me now is Eric Rosenhek, head of the Comptroller's Division; Gerry Gaudreau, the director of our Comptroller's Division.
It is probably best if the member is agreeable that we hold that till we deal with the office of Information Technology and deal with it at the same time.
Mr. L. Evans: Okay, well, we will just pass this section and go to Taxation then.
Mr. Chairperson: 7.3.(a) Comptroller's Office (1) Salaries and Employee Benefits $130,200--pass; (2) Other Expenditures $16,900--pass.
7.3.(b) Information Technology Services (1) Salaries and Employee Benefits $706,000--pass; (2) Other Expenditures $84,400--pass.
7.3.(c) Disbursements and Accounting (1) Salaries and Employee Benefits $1,922,500--pass; (2) Other Expenditures $1,353,500--pass; (3) Less: Recoverable from other appropriations ($506,600)--pass.
7.3.(d) Legislative Building Information Systems (1) Salaries and Employee Benefits $558,300--pass; (2) Other Expenditures $296,500--pass.
7.3.(e) Internal Audit and Consulting Services (1) Salaries and Employee Benefits $1,808,300.
Mr. L. Evans: Mr. Chairman, just before we leave this section. Internal Audit, how do we relate here to the services of the Provincial Auditor? It says Internal Audit and Consulting Services.
Mr. Stefanson: Mr. Chairman, this really is a management tool or area that is available to all of government, so it is really provided on a basis of the requests coming from departments. They might want to utilize the services in terms of the controls they have in place.
An Honourable Member: All departments?
Mr. Stefanson: All departments in the government. So the controls they might want to have in place in terms of their systems, in terms of value for money within their departments in a whole range of services. The best way to describe it, it is really a management tool available to government as opposed to the Provincial Auditor who reports to the Legislative Assembly and has a different reporting relationship and different responsibilities.
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Mr. L. Evans: Well, I think we are well served. We do not really have any criticisms in the area. Just a couple of other little questions.
It says Expected Results: a continued participation in the government's Better Methods initiative which is to reform the government's corporate administrative management systems. I think this would be a valid question. You know, what is happening here? Have we made any progress? Are all departments involved in this Better Methods initiative?
Mr. Stefanson: Better Methods will dramatically improve the government's internal business practices with respect to revenue collection, procurement, payables, and employee pay and benefits. So it is really our financial reporting and our human resources management, and, obviously, some of the resources dedicated to the project are coming from the Comptroller's Division, so we are very pleased with the progress.
If there are detailed questions about the implementation, that is best left to when we get to the chief information officer section, but, certainly, the Comptroller's Division does have a role because a major part of the change of Better Methods is the whole financial reporting system which has become somewhat outdated within government.
Mr. L. Evans: Well, could you give us just a simple example of a Better Method?
Mr. Stefanson: I guess one of many examples would be our voucher reporting system which is some 28 years old, which is very paper intensive in terms of preparing the voucher, entering it, in some cases in many different sources. Now that will be done once, and it will be fully integrated with the entire system from the recording of that voucher, ultimately the payment of it and so on.
So, I mean, if you think of something working its way all the way through the system, requisitioning something, drafting a purchase order, being invoiced, paying that invoice and so on, this system will be much more integrated, much less paper intensive, so it will lead to much greater efficiencies, better control and so on.
So that is just one example. I think the member from his days, if he reflects back on the whole financial reporting system, it was very paper intensive and there was a great deal of duplication. This will eliminate, hopefully, all of that.
Mr. L. Evans: What I can imagine is staff being trained to use computers and new programs to facilitate this, to cut out the paper, although there are some people who argue that computers do not really reduce paper, they expand the flow of paper, because they are great at spitting out these statements. It is just amazing.
That is fine. I would see that it involves some training. It says related training requirements. So this division would have to be very much involved in training the staff as required for these new methods.
Okay, well, I guess we could pass on to the Taxation section.
Mr. Chairperson: Item 7.3.(e) Internal Audit and Consulting Services (1) Salaries and Employee Benefits $1,808,300--pass; (2) Other Expenditures $239,300--pass.
Resolution 7.3: RESOLVED that there be granted to Her Majesty a sum not exceeding $6,609,300 for Finance, Comptroller, for the fiscal year ending the 31st day of March, 1999.
Item 7.4. Taxation (a) Management and Research (1) Salaries and Employee Benefits $995,400.
Mr. L. Evans: I have one question or set of questions, and then my colleague has some questions.
Just go down to (d) Tobacco Interdiction. Could you give us an update on that? We spent some time on that last year, I believe, but if the minister could give us a brief update on what has been happening and how successful it has been, et cetera.
Mr. Stefanson: Mr. Chairman, just before I do, joining me now at the table is Mr. Barry Draward, the assistant deputy minister of Taxation, and Mr. Ralph Moshenko, the director of Management and Research.
The program to combat tobacco smuggling is effective and will be continued. It is monitored on a monthly basis to evaluate its effectiveness. With three and a half years now of the project complete, Manitoba has safeguarded approximately $280 million in tobacco tax revenue.
To date, taxation special investigations has seized 38,391 cartons of smuggled cigarettes and 1,420,540 grams of fine-cut tobacco and has brought 282 infractions related to tobacco smuggling to court. One hundred and sixty-seven of these have been successfully completed contributing a total of $283,759 in tax penalties and $47,837 in fines and costs.
So western Canadian provinces are maintaining their current tobacco tax rates, and they are supporting each other in the smuggling control program. I think the member knows we are not happy with the federal government's decision to reduce federal tobacco taxes, as a result that the program led to reductions in eastern Canada, and it has caused a major problem for all provinces for Manitoba west. But on a collective basis, co-operative basis, we have done a good job of dealing with it not only from a perspective of revenue, but at the time of this issue, I think as the member knows, we had representation from the Manitoba Lung Association, the Manitoba Heart and Stroke Association, various organizations requesting that we not reduce tobacco taxes. They pointed to what they believed as a direct correlation between smoking habits and quantity of smoking, particularly of young people, and price. So for a combination of financial and health reasons, we have done what we have done to date. It has been very successful with an awful lot of dedication on the part of the people in this area. So it is certainly an area that we are not happy to have to be dealing with.
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Just to conclude, that is why we do continue to press the federal government on the fact that they have discriminatory tax policies. They have different tax policies for different regions of the country, and we think that is obviously unfair and not right, and we continue to press them at various opportunities to change that.
Mr. L. Evans: It seems to me prices of tobacco products did go up in the past year or so in eastern Canada. My question is whether there has been any sort of trend. I mean, in the past year or two or three, has there been a lesser amount that you had to interdict or had to become involved, or is it steady or is it growing? Just what is the flow that is occurring?
Mr. Stefanson: Mr. Chairman, the member is right that there was a slight adjustment in eastern Canada fairly recently. But, even with that, the current prices of a carton of cigarettes in those provinces is $29 compared to $43.27 in Manitoba, and our price is fairly comparable to the other western provinces. So you can see the magnitude of the difference is still very significant. Back in 1994 when this first happened, the price in eastern Canada was $26, so there has been a $3 adjustment. So the degree of pressure and, I guess, opportunities for those who are inclined to smuggle are still fairly similar. So, as a result, our level of activity, our level of staff support, interdiction and so on really has been pretty constant over that period of time.
Mr. L. Evans: Just one last question, just to refresh my memory. The provinces to the west of us, do they contribute financially to the administrative costs of this program administered by Manitoba?
Mr. Mervin Tweed, Acting Chairperson, in the Chair
Mr. Stefanson: Initially, at the time back in 1994 when this issue first surfaced, all three other western provinces, Saskatchewan, Alberta, British Columbia, made a contribution to our interdiction policy. Subsequent to that, only one province continued and that was the province of Saskatchewan until last year. We now are no longer receiving financial support from other provinces, but all provinces in western Canada have had to add additional staff. They have enhanced their resources in this area to deal with smuggling. While road is one method, some are coming in through air and other forms into various jurisdictions, so all provinces have enhanced their numbers of people and their resources. As a result of that, we have a high level of co-operation amongst our four provinces. We were satisfied with the financial support initially. It helped to launch the initiative in Manitoba, but now we are also satisfied that other provinces have dedicated direct resources, and we are co-operating very significantly in this area.
Mr. L. Evans: I am encouraged by what the minister said, and I am certainly supportive of the government's position. I only comment to myself with a smile that all these great ideas of free trade, you know, go out the window because we have got a health problem, we have got a specific smuggling problem, specific problem. At any rate, it just shows you have to be flexible.
Mr. Stefanson: I think it is very important, Mr. Chairman, that this is not an infringement on free trade. In fact, that constitutional issue has been heard by the courts, and what we are doing is certainly in keeping with free trade; the issue is the payment of taxes. It is really that simple. People can bring in more quantities of cigarettes so long as they pay the applicable Manitoba taxes on those cigarettes. So that really is the issue.
Mr. L. Evans: I understand and we discussed this last year. But the fact is there was a tax involved, just like a tariff. If you want to have freer trade with the United States, you reduce the taxes involved going across the border. That is what is happening here. You have a tax regime that is acting like a tariff, inhibiting trade.
I am not opposed to what the government is doing. Not for one minute. I am not opposing it whatsoever. I am just observing, even though you have got around it with this legislation. Nevertheless, in practice, it is a tax that is being levied in a sense. Therefore, it is inhibition to the import of the good.
Mr. Stefanson: I think there is an important point here, because the member knows from his days in government that our provincial sales tax is a consumption tax levied here in Manitoba. If you bring in a vehicle from somewhere outside of Manitoba, you pay the provincial sales tax in Manitoba on that vehicle or whatever. So really it is the same principle of paying the applicable taxes in the jurisdiction of consumption or utilization.
Mr. L. Evans: But in general it can act as an inhibiting factor to the importation of goods, whatever the commodity is, if you are paying a tax. You are bringing an item into the jurisdiction, and you are saying you have to pay our tax. It reminds me of a tariff being imposed at the border. Wherever, however you collect it, the fact is you are being taxed for bringing in an item, whether it is cars or cigarettes or playing cards.
Mr. Stefanson: I guess, Mr. Chairman, first of all, every jurisdiction is the same, as we know. They apply it in the same kind of a way. I guess various tax policies amongst provinces or amongst other countries in the world can be somewhat inhibiting in some respects.
Mr. L. Evans: We would like to--[interjection] My colleague has a question on taxation.
Mr. Maloway: I would like to ask the minister to provide us with the current age receivables list showing the outstanding taxes, provincial sales taxes--well, actually all taxes not collected--and also indicate to us what sort of efforts are being made by his department to collect these taxes. We have noticed a pretty lax approach over the years with this department and its inability to collect from some individuals who appear to have received sort of favourable treatment at the hands of this government and its collection system. So I would like to know just whether we are seeing improvements in the area of collection of these taxes or not.
Mr. Stefanson: Mr. Chair, first of all, I will give the member some statistics. We have not closed the March 31, '98, books yet, so when I get those statistics I will provide them to him. The most recent full year where the books are closed is March 31, '97. On an overall basis, compared to our revenue, now this is for sales tax, and the provincial sales tax, which was the first one he asked--I know he then asked for all taxes, but I have provincial sales tax in front of me. Arrears, basically what you would call write-offs, in the case of Manitoba was 2.07 percent in March 31, '97; B.C., 1.67 percent; Saskatchewan, 1.58 percent for that year; Ontario, 4.36 percent; Nova Scotia, 2.9 percent.
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So, when we look at other jurisdictions, we certainly compare reasonably well. I guess that, if I can make one point to the member, it is that I and we take this very seriously, that people should pay taxes that are due. We continue to do all things that need to be done to ensure that we maximize collections. If he were to look back at the statute law amendments from '96, he would see various adjustments that enhance our ability to collect taxes. If he looks at SLATA in '97, he will see some enhancements. Again, when we get to dealing with SLATA taxation in '98, there are again some more enhancements as well. In our 1998 budget, we did dedicate two additional staff in this area to continue to support the requirements in terms of ensuring that people pay their taxes that are due. So I do not want him to in any way think for a moment that we do not take this very seriously. All of the people in this section of our department do.
Mr. Maloway: I wonder if the minister then would endeavour to provide us with a list of all of the taxes and the amount of arrears in a letter form in the next period of time. I would also like him to provide us a list of the companies that were forgiven taxes. That usually comes out every year, but last year there was some glitch in the system. There was some conversion to an Internet or some sort of computer display, and that did not sort of come out in the same form as it used to, so I would like an actual physical copy and a list of the companies that were forgiven the taxes.
Mr. Stefanson: I will certainly. For the last complete year, March 31, 1997, I gave the member statistics on sales tax. I will give it to him on other taxes that are affected by write-offs when '98 is available. I will certainly provide that to him.
The change he is referring to is that any remissions or write-offs are now reflected through the Legislative Building Information System, LBIS, which is accessible to all of us. If he has had any problem getting information that has come through the system, we can certainly provide him with what has been done during '97-98 and any adjustments up till the present point in time. So we can go back into the system, and we will undertake to provide him that information in letter form or hard copy.
That information, by the way, is made available within 30 days of the remission or write-off taking place, so it is readily accessible, readily available. But if there have been some glitches he refers to or whatever, as I have indicated, we will provide him the most current information on that issue.
Mr. L. Evans: We are prepared to pass the Taxation section now, and we would like to skip for the moment the Federal-Provincial Relations and Research and proceed to 7.8 Office of Information Technology, because the MLA for Elmwood (Mr. Maloway) has a lot of questions in that area. So we can pass Taxation.
The Acting Chairperson (Mr. Tweed): 7.4. Taxation (a) Management and Research (1) Salaries and Employee Benefits $995,400--pass; (2) Other Expenditures $157,700--pass.
7.4.(b) Taxation Administration (1) Salaries and Employee Benefits $2,385,000--pass; (2) Other Expenditures $4,083,600--pass.
7.4.(c) Audit (1) Salaries and Employee Benefits $5,154,100--pass; (2) Other Expenditures $949,300--pass.
7.4.(d) Tobacco Interdiction (1) Salaries and Employee Benefits $558,100--pass; (2) Other Expenditures $253,400--pass.
Resolution 7.4: RESOLVED that there be granted to Her Majesty a sum not exceeding $14,536,600 for Finance, Taxation, for the fiscal year ending the 31st day of March, 1999.
There is agreement I think of all committee members to go to 7.8 Office of Information Technology (a) Salaries and Employee Benefits $831,400.
Mr. Maloway: I would like the minister to give us an explanation and a history of GISMO, the new company that has been set up to deal with the computer contracts. I would like to know who the officers are of GISMO and what its method of operation is at this point?
Mr. Stefanson: Joining me now, seated immediately to my left is Mr. Kal Ruberg, the chief information officer, and Mr. Todd Herron--I am pointing to Todd here--who is a director within the office of Information Technology.
In terms of GISMO, Government Information Systems Management Organization, the four officers are Mr. Jules Benson, Mr. Pat Gannon, Mr. Eric Rosenhek, and Mr. Gerry Gaudreau.
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In terms of the background of the organization, the Canadian Institute of Chartered Accountants through the public sector auditing and accounting board has recently issued new direction on the disclosure of capital assets for government. Part of the requirement, of course, is the identification of assets and the amortization of these assets over their expected useful life.
Unfortunately, the Province of Manitoba does not have an accounting system capable of complying with this requirement at this time. This accounting system is expected to be delivered by the Better Methods project as part of our major information technology update. This development project, in itself, represents a major capital asset with a useful life extending well beyond the development period. The investment itself should therefore be capitalized and amortized in order to properly reflect its future value to Manitoba. In order to accomplish this, the province is creating a new corporation which will act as a holding company for the new technology systems of the government. It is expected that once the asset management system is in place, the holding company will devolve to the province and its assets absorbed within the province's tangible capital asset base for amortization over an appropriate period of time.
So, basically, what the organization becomes is as the assets are being developed, that is where the money flows to. That is where the assets are capitalized. Those assets will then be amortized over their expected useful life which is in keeping with exactly what the CICA, the Canadian Institute of Chartered Accountants' guideline says. As well, the Provincial Auditor has agreed to the use of a financing vehicle to capture the development costs and to amortize the project over its expected life, Mr. Chairman. So it is in keeping with CICA guidelines with the concurrence of the Provincial Auditor.
Mr. Maloway: I would like to ask the minister then what the name of the holding company is?
Mr. Stefanson: The name of the holding company--maybe I confused the member by referring to a holding company. We are only talking about one organization. We are talking about the Government Information Systems Management Organization. He used the expression GISMO. That is the holding company. That is the organization we are discussing.
Mr. Maloway: Is this holding company set up as an SOA? What is its form?
Mr. Stefanson: Mr. Chairman, it is a corporation set up under The Companies Act. Its first audited statement will be prepared for the year ending March 31, 1998. So March 31, 1998, will be the first year with audited statements. Those will be available in due course.
Mr. Maloway: Why is this corporation necessary? The government is not a business. You are talking about depreciation of the equipment in the holding company. Why is it necessary for governments to do this?
Mr. Stefanson: First of all, I think the important point is that professional accounting bodies dealing with public sector accounting and reporting have been suggesting that governments should be capitalizing their assets and amortizing them over their useful life. I mean, I am sure the member does it in his business, the whole idea that you match your costs with your benefits. These assets are going to have benefits for us for varying periods of time. It might be three years, five years, or even longer. So that is the whole objective.
So, first of all, I think we can all agree on the objective of matching your costs with your benefit. Then to do that, we need a vehicle. We need some vehicle within government to do it, and the establishment of a corporation was determined to be the best vehicle. It is very transparent, as the member knows. He can ask questions. He can see what it is. He is going to see audited financial statements. They will show the assets. They will show the contributions to those assets, where the money came from. Ultimately, it will show the periods of time that have been determined are appropriate to amortize those assets over.
Mr. Maloway: If GISMO will own the assets--and I assume the assets will be made up of the 7,000 pieces of hardware, 7,000 desktop computers, and the software and also the other types of software that are being bought for the government over and above the desktop initiative purchases. Is that not correct?
Mr. Stefanson: I do not think so. The member understands--basically, what he outlined is correct, that as equipment and systems are being developed and acquired, they are set up and established and owned by GISMO. But, once they are fully ready to be implemented and operational, they will collapse back just into government, so it is a vehicle to capture all of the development costs until you are at the point that you need to start amortizing it back to individual departments, back to the users of the system.
So, starting in 1999-2000, as some of these systems are fully operational, they can be collapsed back into government, and the charges will then be passed on to the individual users of the system. So, over a period of years, as different systems are developed through GISMO, they will then collapse back to the Province of Manitoba and be amortized over their estimated useful life.
Mr. Maloway: Could the minister provide us then with a list of the assets of GISMO and what else it would own other than the software and hardware.
Mr. Stefanson: Again, the member is mostly correct. What GISMO will own will be the hardware, the software, but, related to that, other expenditures that can be capitalized or any other development costs for those systems or any consulting costs for those systems. Again, generally accepted accounting principles or standard accounting practices are that when you are developing a system, there are certain costs that can be capitalized. Again, I am sure he is well aware of that. Really, effectively, then the ownership becomes the software and the hardware that have been developed.
Mr. Maloway: I would like to ask the minister to detail for us the flow of money that goes through GISMO and tell us who signs the cheques. Government Services paid for, I believe, 500 computers back in January. Let us pretend that we are dealing with that transaction. How would that follow its way through GISMO?
Mr. Stefanson: Quite simply, the invoices will come into Government Services within the authority already approved for those expenditures. If they are satisfied, they will sign off on those invoices.
Mr. Maloway: From whom? The invoices come from whom?
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Mr. Stefanson: Well, they will come from the suppliers related to the kinds of services we have talked about, whether it is desktop--I am sure some of those invoices will come from Systemhouse. In the case of other initiatives, they will come from various suppliers and/or consultants or people working on the development of the system. So long as they are within the approved authority, Government Services can sign off on those invoices. They are then forwarded to the Government Information Systems Management Organization for payment. Any two out of the four directors that I have already read into the record for him can actually sign cheques and are authorized to make the payments based on the approved expenditures.
Mr. Maloway: I would like to ask the minister as to whether the computer equipment is being purchased or is being leased. I think there is a combination of some purchases being made and some equipment being leased. I would like to know the advantages of each of these options.
Mr. Stefanson: Anything coming through the Government Information Systems Management Organization at this time is for purchase. I think if the member is referring specifically to desktop as one example, those are being purchased, so they will come through the Government Information Systems Management Organization. So items being acquired, items being purchased are coming through the organization.
Mr. Maloway: Is GISMO designed to own equipment in place of some of the subsidiaries, I mean, some of the Crowns like Autopac and other kinds of organizations?
Mr. Stefanson: The short answer is no. It is only dealing with the government of Manitoba, the Consolidated Fund, and as we have already discussed, once the systems are fully operational, they will be transferred back to the Province of Manitoba.
Mr. Maloway: Will any of the 7,000 desktop computers be leased?
Mr. Stefanson: Just so the member clearly understands, I think I have said it before, everything through GISMO will be purchased. All of the existing machines that are being replaced will be purchased through GISMO. That does not mean that there might not be some leasing done directly by departments for any incremental requirements, but the replacement of the existing equipment is being purchased through the Government Information Systems Management Organization. Some call it GISMO.
Mr. Maloway: I would like to know who signed the SHL contract on behalf of the government?
Mr. Stefanson: That was a difficult question. I was just being sure that I was the only one who signed it on behalf of government.
Mr. Maloway: The minister earlier indicated that GISMO had four directors; one of them was Julian Benson. He mentioned the other three, and it took two of the four to sign the cheques. Is that how he explained it?
Mr. Stefanson: That is correct, Mr. Chairman.
Mr. Maloway: I would like to know a question, given that the time is getting short, about the Internet policy of the government. The government currently has 900 Internet sites. The Government Services minister (Mr. Pitura) has admitted that there is absolutely no policy, no written policy, on the use of the Internet. There have been problems in other jurisdictions with people misusing the Internet, going into sites they should not be. With no policy in effect, I fail to see how the government would even know what was going on with its current sites. Does the government plan, or have in place an Internet policy under the new managed system through SHL?
Mr. Stefanson: With the changes that are being put into place through desktop and other initiatives, we have a much more managed system and better control, better checks and balances. As a result of that, we are now able to develop and implement an Internet policy, and we are working on that right now as part of a broader policy. I can assure the member that it is being worked on and will be included as a significant part of future policy announcements relative to information technology.
Mr. Maloway: Would the minister endeavour to provide us with a copy of that Internet policy as soon as it becomes available, and tell me roughly when it is going to become available?
Mr. Stefanson: Once the policy is approved I do not have any problem providing the member with a copy of it. I would expect that that will be done within the next two to three months.
Mr. Maloway: The government has another computer contract which has turned into a big mess currently, I understand, in the Family Services department. It is a contract, I believe, with IBM, and there is evidently huge, enormous cost overruns and lots of problems with it. It is outside the orbit of the SHL contract. I would like to ask the minister whether this contract has anything to do with GISMO, whether GISMO has anything to do with this contract. Just what is the current status of that contract with IBM?
Mr. Stefanson: I just want to clarify. Is the member referring to the contract with IBM for the one-tier welfare system?
Mr. Maloway: Yes, that is the contract I am referring to.
Mr. Stefanson: That contract is between Family Services and IBM, and it does not come through the Government Information Systems Management Organization. I am told that it is coming in within budget.
Mr. Maloway: Can the minister confirm, though, that there are considerable delays implementing the contract?
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Mr. Stefanson: The member is right. There have been some delays. I would not call them overly significant. It is expected that the system will be fully operational early in 1999. It is a major system overhaul, the integration of one system, a one-tier welfare system. So as I have already said, the system is coming in within budget, and it is expected to be fully operational sometime early in 1999.
Mr. Maloway: Mr. Chairman, I wonder if he could double-check the information that we have, and that is that the whole program is supposed to be way over budget. There are people coming in from the United States, staying in hotels here, trying to solve problems that are almost insolvable. IBM has not been paid. The allegations have been that IBM has not been paid, and there is a huge battle going on over that whole issue. We would like to clarify that because I have had that report from several different sources at this point.
Mr. Stefanson: Again, I am not aware of any disputes around payments. I will certainly check on the status of any outstanding accounts with IBM and get back to the member.
To bring in the necessary people, expertise to do the job, again, is not uncommon with major information technology projects, so there is nothing that I am aware of that is untoward there either.
Mr. Maloway: I would like the minister to provide us with copies of the agreement the government has that he has personally signed with SHL and the agreement that the Family Services department signed with IBM and the hardware agreement that was signed between SHL and IBM, plus I would like copies of the criteria that were used with proper explanations for the criteria on the point system used in each of these cases.
Mr. Stefanson: Mr. Chairman, I will take note of the member's request. I think he has made similar requests in part to at least one of my colleagues. I will determine whether there is an opportunity to provide him with some of that information, and if there is, I will. I think, as he knows, in many cases when you enter into contracts with organizations, there sometimes are third-party confidentiality clauses and so on. But I will look into the issue and get back to him.
Mr. Maloway: I would like to ask the minister a quick question or two on the Y2K, year 2000, question. The issue relates to both hardware-software problems, plus the huge area of imbedded chips.
Now, the Provincial Auditor has cited major problems in one of his previous reports about the government not being on track on this whole issue. I understand the Y2K committee has issued a series of reports. One was supposed to be released within the last month or so. I am still waiting for a copy of it. I would like to know whether the minister could give us an update as to what the government is doing in terms of Y2K and whether he could give us a copy of the current report, as well as any older ones that might be available.
Mr. Stefanson: Mr. Chairman, the Auditor's report that the member referred to I think was somewhat outdated and is certainly outdated today. We are in good shape when it comes to year 2000 compliance and work at this particular stage, and I believe the previous concerns of the Provincial Auditor have been addressed.
I know anybody else looking at our system is pleased with our progress. When we compare ourselves to other provinces, we are amongst the most progressed in all of Canada, and I will certainly undertake to provide him with some written detail and any other information to verify that for him.
Mr. L. Evans: I guess we are running out of time, Mr. Chairman, and I just wanted to indicate that my colleague the MLA for Elmwood (Mr. Maloway) has other questions re: computers. I have one basic one related to the success through the MBS, as I mentioned before.
Just to facilitate matters, if we could spend a few minutes tomorrow, and the area would be Federal-Provincial Relations and policy matters under that area. Then we would be prepared to sort of skip over quickly, in fact not even cover Sections 6, 7, 9 and 10 because we are beyond the time we said we would spend. So I am just mentioning this to you to make it easier for you and your staff.
The Acting Chairperson (Mr. Tweed): The hour being 6 p.m., committee rise.