Whitehorse, Yukon

Tuesday, January 10, 1995 - 1:30 p.m.

Speaker: I will now call the House to order. At this time, we will proceed with silent Prayers.



Speaker: We will proceed with the Order Paper.

Introduction of Visitors.

Are there any Returns or Documents for tabling?

Are there any Reports of Committees?

Are there any Petitions?

Are there any Bills to be introduced?

Are there any Notices of Motion for the Production of Papers?

Are there any Notices of Motion?

Are there any Statements by Ministers?

This then brings us to the Question Period.


Question re: Caribou enhancement program, public relations

Mr. Penikett: I have a question for the Government Leader. Recently I heard about a public relations man in Ottawa who boasts about getting the Yukon government through a major crisis. I would like to ask the Government Leader, for the record, did the Yukon Party Cabinet hire an outside propagandist to help them deal with a crisis of negative publicity about the wolf kill?

Hon. Mr. Ostashek: I can tell the Member opposite that my department certainly did not, and I am not aware of any department in government doing it.

Mr. Penikett: There is obviously someone outside misrepresenting themselves and masquerading as a Yukon Party propagandist. The Government Leader should know about it.

I would like to ask him, since this person claims to have invented the double speak of naming the wolf kill the caribou enhancement program, can the Government Leader indicate to us with certainty that the Yukon taxpayers did not in any way pay for this advice, and that this, in fact, was an invention of the Cabinet all by itself?

Hon. Mr. Ostashek: There is no invention by Cabinet here. I just said quite clearly to the Member that in all of my discussions with my colleagues, I have not heard anything so ridiculous. I have not heard of anything so ridiculous, and I refute what the Member opposite said, that this is something that Cabinet did.

Mr. Penikett: I assume that the Government Leader was not listening to the question. Let me ask him again: was the designation of the wolf kill program as the caribou enhancement program an invention of the Cabinet of the Yukon government of the day, or did it result from some professional advise from elsewhere?

Hon. Mr. Ostashek: I am sort of stunned and flabbergasted that that sort of a question would come up two years into the program. My understanding is that it has been called the caribou enhancement program since day one.

Question re: Caribou enhancement program, public relations

Mr. Penikett: I am sorry to have stunned the Government Leader so early but, in fact, it was called the wolf management program from day one, but that is something else. Let me ask the government - special waste program, the Minister responsible for the Yukon Housing Corporation said.

On the same general subject of the environment, I would like to ask the Government Leader this: after initiating private consultations with select groups and consultation which, according to the letter instructions of the Government Leader, was designed to avoid discussions with the Opposition, can the Government Leader indicate what the decision of the recent Cabinet retreat was with respect to proceeding with amendments to the Environment Act in this sitting?

Hon. Mr. Ostashek: I am just trying to recall if it was even discussed at the Cabinet retreat. I cannot recall if it was or not. As the Member opposite is fully aware, the amendments are still being reviewed by the Council on the Economy and the Environment. At this point, we have not yet had a report from them.

Mr. Penikett: Has the Government Leader or the Cabinet made a decision about whether they are going to proceed with the proposed amendments to the Environment Act in this sitting or not?

Hon. Mr. Ostashek: As a direct reply to that - no, we have not, because we have not seen the report of the Council on the Economy and the Environment yet, and we do not know when it will finish them.

Mr. Penikett: For the first time in the throne speech, this government indicated a new interest in environment questions. I am therefore interested if the government can indicate its policy with respect to special management areas, since we have recently received complaints from the land claims table that, apparently, it is YTG policy now that no more special management areas should be created. Can I ask the Government Leader his position on that?

Hon. Mr. Ostashek: I think the Member opposite should get a different make. I really do. I know he has not been well over the last two days and maybe he is hallucinating a little bit, but I do not know what he is talking about.

Question re: Non-government organizations, funding for

Mr. Cable: I have some questions for the Minister of Economic Development. They relate to a letter I sent him on December 16, 1994, concerning funding for volunteer organizations. I asked the Minister to provide me with a list of all community organizations that had received funding in the now current fiscal year and his advice as to whether that funding was for core funding or fees for services. Then, just earlier this week, or late last week, I got back this rather bureaucratic letter indicating they would table that information in this legislative session. Could the Minister indicate why this information cannot be made available now?

Hon. Mr. Fisher: First, the reason the letter was somewhat bureaucratic is because it was written by bureaucrats for my signature. We will be tabling a list of all grants and/or contributions to organizations when we do the budget debate.

Mr. Cable: That did not answer the question, of course, but let me try with another question. The Minister of Health and Social Services, in January 1994, I believe, was asked a number of questions about funding of non-government organizations, commonly called NGOs, under his auspices, and I got the impression that this government would not fund non-government organizations purely for advocacy services. With respect to funding that is under the administration of the Minister of Economic Development, what is the policy for funding non-government organizations - that is, the policy with respect to funding for advocacy services and with respect to core funding?

Hon. Mr. Fisher: There has been no change in policy from the previous administration. However, having said that, I will also say that there have been no additional agencies identified for core funding during my term as Minister of Economic Development.

Mr. Cable: I have gone back through Hansard and looked at the questions and answers that relate to this general subject. Could the Minister indicate if there is something in writing that determines what constitutes an advocacy service, who is entitled to core funding, and who is not? Could he table that document, if it exists?

Hon. Mr. Fisher: I have a definition of what is considered core funding and what is classed as fee for service. I would be quite happy to table that in the next day or so.

Question re: Keeping Kids Safe program

Ms. Commodore: My question is for the Minister responsible for the report, entitled "Keeping Kids Safe". I am not sure whether that would be the Minister of Justice or the Minister of Health and Social Services.

Last October, the government released its report, entitled "Keeping Kids Safe". The committee that did the report was originally formed to look at creating a treatment program for sex offenders. However, according to the report there is no evidence that sex offender treatment works, so they chose not to pursue that concept. Can the Minister responsible tell us what they based that decision on and what kind of evidence they were looking for?

Hon. Mr. Phillips: The evidence to change focus is based on the recommendations of the care givers themselves, the people who are involved in the current process. That is why the press conference was held with the people from Health Canada and the Department of Justice, the people who actually are delivering the programs. The recommendations for change came from them and that is the reason why there was a change made, because, after all, they are the people who are on the front lines and are working with those people and have most of the information on whether these programs are successful or not.

Ms. Commodore: There is no question that we applaud the Keeping Kids Safe program, but according to a Justice official, when that report was released it was stated that money was tight. We wonder whether or not that is a fact with this new budget.

At that time they decided that existing resources and volunteers would tackle the problem of monitoring the sex offenders. Can the Minister tell us if the Keeping Kids Safe program will be conducted at no extra cost to this government, because that is what they were saying at that time.

Hon. Mr. Phillips: I think the Member is a bit confused about what the program does and how it operates. The reason the monitoring is carried out by professionals and volunteers is that family members and others are not necessarily paid, because they are volunteers who want to make a contribution and work with the program to deliver it. That is why they are called volunteers. It is not because we are trying to keep costs down but because that is the nature of the design of the program, that individuals in the community work in the community to make it a healthier community.

Ms. Commodore: I am not confused at all. I read the report twice; I took notes; we listened to a couple of the committee members, and we know exactly what is happening. For the Minister to say he thinks I am confused is wrong.

I have a copy of the interim report that was done in December 1993. Because this was such a high priority issue, why did it take 10 months for the government to release that report?

Hon. Mr. Phillips: One of the reasons was because it is a very sensitive area, and a lot of consultation went on with various groups and organizations with respect to the program that was going to be delivered. That is why it took a while. It is a program you would not want to rush into, because it is innovative. It is new, and it is something we are going to be closely monitoring. It is not something you would want to jump into overnight.

Question re: Keeping Kids Safe program

Ms. Commodore: According to the CBC Focus North program last night, the north has the highest rate per capita of sex offenders - higher than anywhere else in Canada, except the Northwest Territories. Yet, after many years of looking at the problem, this government has chosen to ignore it until they find evidence the program works.

Other than monitoring these adult offenders once they have been released from custody, what options do the adult offenders have, if they choose to seek help?

Hon. Mr. Phillips: The Member said she listened and read the report. If she had been at the press conference to talk to the individuals there, they would have given the Member some indication of how people will be dealt with. I will get a copy of the report, which I do not have handy, and come back to the Member with the information she has requested.

Ms. Commodore: I have the report. I have two. I have one that was done in December 1993, and another one that was released in October. It is exactly the same report, word for word. We have had committee members speak to us.

According to one local expert, who happens to be on the committee that did the report, there is no cure for this problem. It is like a cancer, so they will not be seeking a sex offender treatment program for adult offenders. Is that the official position the government is taking, that there is no cure, so they will do nothing about the problem?

Hon. Mr. Phillips: It is totally false to say the government is doing nothing about the problem. We are doing a lot about the problem, more than the government in the past did. We are looking at an innovative way of dealing with the problem. There is no proof, anywhere, that the programs that are developed for these sexual offenders actually work. In fact, many of the people in the system take for granted that, because someone is sentenced to take a program, they are cured. That has not happened. There are a lot of repeat offenders.

We are looking at an innovative approach to deal with the matter, which, by the way, was recommended by the experts in the field who have been doing this for years. This is their idea.

Speaker: Order. Would the Minister please conclude his answer.

Hon. Mr. Phillips: I will, Mr. Speaker, but the Member said we were doing nothing, and I am telling her what we are doing.

We are trying out a new, innovative approach, recommended by the experts in the field.

Ms. Commodore: For the record, I did not say that they were doing nothing for the program. I said I applaud the Keeping Kids Safe program; we all do on this side of the House. There is no question about that. What I was saying is that they have given up on the treatment program for adult sex offenders. The government already has a sex offender treatment program in place for young offenders. Does the government have proof that it works?

Hon. Mr. Phelps: There is very little proof that any of the existing programs being used in any of the jurisdictions in North America are very successful, if at all successful. The program for young offenders is being utilized here. We were doing it with our eyes wide open, recognizing that the chances for great success are not all that great.

Question re: Carmacks road development

Ms. Moorcroft: My question is for the Minister of Community and Transportation Services regarding road development in Carmacks. I understand that the Village of Carmacks has asked the government to determine the costs of safety measures, such as sidewalks, crosswalks and a bicycle lane, if they upgrade Riverfront Drive for industrial traffic to the new mining developments in the Carmacks area. When will the department have the information of what the full cost of Riverfront Drive road improvements would be in order to safely accommodate industrial traffic?

Hon. Mr. Brewster: The department will be going out with the figures to meet with the people just as soon as a meeting can be arranged. We had a meeting arranged and, apparently, there was another meeting out there, so they asked us not to come at that time. That was the information given to me this morning.

Ms. Moorcroft: It seems that they already have the information. A lot of the people that we have talked to in Carmacks have concerns about bringing industrial traffic through a residential area. They say that the government went out of its way to propose an expensive alternate truck route in order to justify the Riverfront Drive route. The residents want to be sure that the government is looking at all viable routes for truck traffic to the mining developments, and are not manipulating the figures to support what the government wants and not what the residents want. Will the government cost out the routes proposed by Carmacks residents that would take mine traffic away from the residential area?

Hon. Mr. Brewster: Those have already been costed.

Ms. Moorcroft: I am sure the Minister has made a commitment that the Village of Carmacks and the Carmacks/Little Salmon First Nation will have real input into the decision making here, and I have to tell him that some people in Carmacks are not satisfied that all of the alternate routes have been properly examined. I am sure the Minister will also say that the government will not force an unwanted development on the community. Can the Minister explain how he will be coming to a final decision?

Hon. Mr. Brewster: The first thing is that I will go to the meeting to understand some of their problems. I think I know most of them, and cost is certainly a factor. There is no question about that. Also, the amount of traffic is a factor, although at the present time it does not look like there is a great deal of traffic.

Question re: Dog Act

Ms. Moorcroft: In October, we had a complaint from a resident of Carmacks about the fact that the territorial Dog Act values chickens more than children. Has the Minister inquired into a case where a child required stitches after being bitten on the arm by a tied dog?

Hon. Mr. Brewster: No, I have not. I was not aware of it.

Ms. Moorcroft: The RCMP made the statement that territorial law only covers dogs that destroy wild game, poultry and other animals and does not mention dogs that bite people. I have the Dog Act here and that is indeed the case. Does the Minister agree with that statement? Does he understand the problem?

Hon. Mr. Brewster: Municipalities can make laws regarding dogs.

Ms. Moorcroft: How has the Minister of Community and Transportation Services satisfied himself that the Municipal Act gives small communities all the necessary powers that they need to deal with situations like this?

Hon. Mr. Brewster: I am aware that it is done in Haines Junction. It has been done several times.

Question re: Gun registration legislation

Mrs. Firth: I have a question for the Minister of Justice. There have been many platitudinous statements about gun control made by the government in this Legislature. The Government Leader has been saying that the government would fight it to the bitter end and join other parts of Canada to join with them to use whatever means are at their disposal to fight it. The Minister of Justice has said that he has sent a letter to the federal Minister of Justice informing him of the position of the Yukon government regarding the new firearms legislation. I would like to ask the Minister if he would tell us what that position is.

Hon. Mr. Phillips: The position is a condensed version of what I said in the House during the debate. That is, that we basically do not support firearms registration and that we had some strong concerns over the legislation that was coming into play. I will be expressing those views, in person, to the Minister of Justice when I travel to Victoria at the end of the month to meet with all other Ministers of Justice.

Mrs. Firth: The legislation cannot be implemented without the cooperation of all of the provinces and the two territories. The Province of Alberta has stated that it will refuse to implement all of the gun legislation changes. I would like to ask the Minister if, at that conference, he is going to put forward the same position on behalf of the Government of Yukon: that being the refusal to implement all of the gun legislation changes?

Hon. Mr. Phillips: I have asked the Department of Justice to check into that. The difficulty is, at first blush, that we are not a province, we are a territory; therefore, the laws are a little different for us. As I said, the Department of Justice is looking into that and we are exploring those options. As well, I will be meeting with the other four provinces and the Northwest Territories, who are objecting to the legislation, to discuss options we can pursue together.

Mrs. Firth: Some Yukoners are very concerned about the government's position and are calling for no compromises. My position is that I agree with the Province of Alberta, in that we should refuse to implement it. I would like to ask the Minister of Justice to get back to Members of the Legislature with the government's official position so that we can pass it on to the public, prior to him going to that conference at the end of this month.

Hon. Mr. Phillips: I think it is very well known in the community, based on the people I have talked to, that we are opposed to this legislation. We are not opposed to legislation that does the job it was designed to do - to deal with the criminals who are committing crimes with firearms. We feel that this legislation is far more harmful to the law-abiding gun owners in this country, who are not the problem. That is our concern, and the one I will be conveying to the Minister. I will be bringing an update back to the House.

Question re: Campbell Highway

Mr. Harding: I have a question about highways for the Minister responsible for Community and Transportation Services. I was very disappointed when I looked in the 1995-96 budget and found that, out of a $50 million dollar highway capital construction budget, only $300,000 was to be spent on Campbell Highway capital upgrading. Anvil Range expects to start trucking ore on that highway this summer, and the government has known that since it announced its bid to buy the mine earlier in 1994. I would like to ask the Minister this: why is there so little money in this budget for Campbell Highway upgrading?

Hon. Mr. Brewster: At the present moment, we think that there is enough money. However, there is a contingency fund that will be used to improve the highway, if we find that is necessary.

Mr. Harding: For the last two years, the highway has seen little capital upgrading, and that is in spite of the tremendous mining potential of the area - Anvil Range, the Grew Creek deposit, the Tag deposit, just to name a few. I would like to ask the Minister this: will he give me and my constituents a firm commitment that the government will start a major capital upgrading project on the Campbell Highway road to resources this year?

Hon. Mr. Brewster: No, we have not seen that there is an increase in traffic. Until we are assured of that, we will not do that.

Mr. Harding: Anvil Range is going to start trucking ore in the summer. I am sure that the Minister can see that will add up to an increase in traffic and load on the highway.

I would like to direct my final supplementary question to the Government Leader. Many of my constituents often ask me when, and if, the Yukon Party minority government will fall. Now, with the Yukon Liberal Party supporting the budget of the Yukon Party, it seems a sure thing that Yukoners will have to ride out the next two years. Can the Government Leader tell me, now that the mine is running, if they will be prepared to invest more capital money in Faro, aimed at community improvement and economic diversification, and also if they will repair some strained relationships with many of my constituents?

Hon. Mr. Ostashek: The Member for Faro is being funny, in a jovial sort of way. Let me make it quite clear that this side of the House is very optimistic about the Anvil Range Mining group putting the Faro mine back into production. As far as the Town of Faro goes, we are always prepared to listen to options that are available to increase economic diversification, and we support any viable projects that are put forward by the community.

Question re: Curragh Inc., recoveries of money

Mr. Cable: I have a question for the Government Leader about his ministerial statement on January 4 relating to the money that is to be recovered by the government from the proceeds of the sale of the Faro mine. The total proceeds are $4.77 million. He indicated that part of that would go to the employees and the other part, in the amount of $1.8 million, would go to the Yukon Energy Corporation. The Minister went on to say that the receipt of that money is firm, but the timing of it is up in the air, because of some further anticipated litigation or negotiations.

Could the Minister confirm that the amount to be received by the Yukon Energy Corporation is firm and that we are just waiting for a few months to pass before it is received?

Hon. Mr. Ostashek: Yes, as I understand it, the money is firm. It is the money that we will be paying to the employment standards people for distribution to the employees and the money for the Yukon Energy Corporation, as well as some residual money that will go to the Department of Finance - some $500,000 or $600,000.

Mr. Cable: If I have my numbers correct, the $1.8 million is about eight or nine percent of the Yukon Energy Corporation's annual revenues. In view of the fact that the receipt of this money is firm, could the Minister responsible for the Yukon Energy Corporation indicate to the public whether a substantial rate reduction in the near future can be expected?

Hon. Mr. Ostashek: There would be nothing that I would love more than to be able to stand up in this House and make that commitment. However, the Member opposite is aware that, with the closure of the Faro mine, the government entered into a rate relief program that is costing millions of dollars. That rate relief program is still in effect. Once the money is paid out to the Yukon Energy Corporation, once the Anvil Range Mine is back in production and once we know all the integral parts of what is happening with the Yukon Energy Corporation, we will look at the rate structure.

Mr. Cable: It is my information that the corporation may be considering an application to lower rates. Is that accurate?

Hon. Mr. Ostashek: I could not say whether or not it is accurate. I am not aware of it.

Question re: Agricultural Association, funding

Mr. Harding: I have a question for the Renewable Resources Minister and Economic Development Minister. Today in Question Period the Minister said that the government did support some core funding but that there was some statement to the effect that they were generally opposed to core funding even though they supported it in some cases.

The Yukon Agricultural Association applied for some fee-for-service funding to help them promote agriculture in the territory and further economic diversification. I have been made aware that the application was denied. Why was that?

Hon. Mr. Fisher: The application as a whole was denied because it was essentially for core funding rather than fee for service. It was for office space, office manager, and so on; but some additional funding has been provided to the YAA since that application was rejected.

Mr. Harding: The "some money" the Minister referred to does not go very far toward the application YAA put forward. Earlier today in Question Period, the Minister said that they did promote some core funding. So, when I look at the EDA and the BDF loans and grants provided by this government over the last couple of years, I see hundreds of thousands of dollars provided to a number of organizations in the community and they wanted to do very similar work to what these organizations are doing out there right now.

I would like to ask the Minister this: why would they be turned down, specifically, when the others have received generous funding?

Hon. Mr. Fisher: I do not know which organizations received generous funding that the Member refers to, but the Yukon Agricultural Association is certainly welcome to make application to Economic Development under the EDA program. The application for the core funding he was referring to earlier, which he called a fee for service, had gone to the agricultural branch of Renewable Resources.

Mr. Harding: Organizations that have received fairly generous funding are the chambers of commerce, the Chamber of Mines, organizations such as the Tourism Industry Association and the Klondike Placer Miners Association, who provide some service to the government, obviously, and the Yukon Agricultural Association would like to follow right along in that suit.

The former president of the YAA has said that some of the industry's greatest setbacks have come under this government, and I am hoping that the Yukon Party is not just being vindictive as a reason for denying this application. The throne speech never mentioned agriculture -

Speaker: Order please. Would the Member please ask the question? This is a supplementary question, with a brief preamble.

Mr. Harding: Yes, Mr. Speaker, I am getting to it. Why has this industry been given back-burner status by the Yukon Party?

Hon. Mr. Fisher: It certainly has not been given back-burner status. I would like to remind the Member that the core funding he is referring to was, in fact, put in place by that government, not by our government. It was here when we took over.

Question re: Industrial support policy

Mr. McDonald: That opens up a whole new area, Mr. Speaker, but I know you, especially, will know that we will deal with it at some point in the near future.

I have a question for the Economic Development Minister about something that he is somewhat familiar with - the industrial support policy.

It appears that the policy has backed away from a notion that was embraced in the 1993-94 budget speech, which said that the Yukon Party vision was to build infrastructure and, consequently, mining investment would come. The Minister of Community and Transportation Services said it best in the last few days, that in abandoning the Diefenbaker vision the government was not going to be putting millions of dollars into a road if it was not going to bring any mines into production. Can the Minister tell us what caused the government to reverse itself and move from a supply-side vision in providing infrastructure support to a demand-side vision?

Hon. Mr. Fisher: I do not really understand where the Member was coming from when he said that we reversed our position. We have not reversed our position. We will construct the infrastructure where there is a need and a benefit.

Mr. McDonald: Last year's capital budget speech made reference to the Diefenbaker vision and spent a page and one-half explaining that the Diefenbaker vision was the right vision, and that people had stopped laughing at John Diefenbaker because they realized that if one builds infrastructure, mineral investments will be made. Now they have obviously changed the position to one where mineral investors must agree to go into production before the infrastructure commitment is made. Why has that change taken place?

Hon. Mr. Fisher: I think that the change may be in the perception of the Member opposite because we are not going to build roads out into the country somewhere without knowing what is at the end of the road or along the road. We do not have the kind of money the federal government had when Diefenbaker was talking about the Dempster Highway, for instance.

Mr. McDonald: Is the Minister then saying that, while they had mentioned in last year's budget speech that people have stopped laughing at John Diefenbaker, what he meant was that they had stopped laughing temporarily and now the government has decided that it is going to start laughing at John Diefenbaker's vision once again?

Hon. Mr. Fisher: I think that the Member's statement is just nonsense. I am not saying that we ever did laugh at John Diefenbaker, nor that we stopped laughing, nor that we are laughing. What I am saying is that we will provide infrastructure when the need arises.

Question re: Industrial support policy

Mr. McDonald: There is nothing nonsensical about the question at all. I am drawing the statements from the government's own budget speeches, their own economic statements. The government has clearly reversed its stance and decided that its rhetoric has not matched reality. So, they have decided to change. I want to ask about the reality today. Now the reality today is that the government has inserted $1.3 million to continue building the Freegold Road. Can the Minister tell us whether or not the mining companies that will be using that road have made production decisions and whether or not they have signed development agreements with the Government of Yukon?

Hon. Mr. Fisher: I am not sure if there have been production decisions on the Freegold Road; however, the Freegold Road is a public road under the responsibility of the Yukon government, and has been for probably 25 years that I can think of, and it is in bad need of upgrading.

Mr. McDonald: Only yesterday the Government Leader indicated in Hansard that the money that was planned to be spent on the Freegold Road would not be spent unless there was some production at the other end of the road. I am asking the Minister to, number one, listen to the Government Leader, and number two, answer the question: is the money going to be expended before a production decision is made for those mines?

Hon. Mr. Ostashek: I am not sure what the Member opposite is after when he has taken the line of questioning that he has, but what I said in Hansard is absolutely correct. I said in Hansard that the money was in the budget for 1994-95. We did not upgrade the road because the traffic on it does not warrant it. The money is again being put into the 1995-96 capital budget for approval. If the production decision to have that mine go ahead is not made in this fiscal year, clearly we are not going to spend that money there when there are other areas where that money would be put to better use.

Mr. McDonald: I would like to remind the Government Leader that the Speaker's Chair is occupied. A vote of non-confidence in a Minister should not be taken lightly.

I will ask the Minister of Economic Development this final question: given that the Campbell Highway has only $300,000 in capital, as we found out in Question Period today, because Anvil Range has not made a production decision to the satisfaction of those producing the government budget and, given that the Old Ditch Road has only $1.00 in it because Loki has not made a development decision, why is the Freegold Road budgeted at $1.3 million when, again, the mines along that road have not made a development decision?

Hon. Mr. Phelps: I am rising as the Minister of Education. I have been trying to logically figure out what the policy for industrial support of the side opposite was during its tenure in power, while they were busy giving gobs of money to the Watson Lake sawmill, which cost gobs of money, and to Curragh, which lost it. They are urging us to spend more.

I have for tabling my modest conclusion as to what the policy of the NDP government was. I might add that, in reaching my conclusion, I assumed that there of course was no political preference given in their deliberations when they gave out all this money.

Speaker: The time for Question Period has now elapsed.

Notice of Government Private Members' Business

Some Hon. Members: (Inaudible)

Hon. Mr. Phillips: Settle down. Pursuant to Standing Order 14.2(7), I would like to inform the House that the Government Private Members do not wish to identify any items to be called on Wednesday, January 11, 1995, under the heading "Government Private Members Business."

Speaker: We will proceed to Orders of the Day.


Hon. Mr. Phillips: Mr. Speaker, I move that the Speaker do now leave the Chair and that the House resolve into Committee of the Whole.

Speaker: Order. It has been moved by the Government House Leader that the Speaker do now leave the Chair and that the House resolve into Committee of the Whole.

Motion agreed to

Speaker leaves the Chair


Chair: I will now call Committee of the Whole to order. Is it the wish of the Committee to take a brief recess?

Some Hon. Members: Agreed.

Chair: We will take a brief recess.


Bill No. 3 - Third Appropriation Act, 1994-95 - continued

Chair: I will now call Committee of the Whole to order. We will be discussing Bill No. 3, Third Appropriation Act, 1994-95. Is there further general debate?

Hon. Mr. Ostashek: When we wrapped up last evening, there were several requests for information. One of them was from the Member for McIntyre-Takhini, when he asked if we could give him a breakdown of the monies that were spent to continue to keep people working this winter. I have been able to get that together, and I will table it now for the Members opposite.

Also, the Member opposite was concerned about the fluctuations in the grant calculations from the time of the main estimates to the supplementary estimates. In fact, he needed some more assurances that everything that could be done was being done to calculate the grant as accurately as possible. I would like to read this into the record and, if the Member wishes, I can certainly table it so that every Member can have a copy of it. So, along with what I said, the grant is accurate, based on the best information available at the time the calculation is done. But it is apparent, as time passes, new baseline input data is received from various sources, principally Statistics Canada and the Conference Board. That changes the calculation. Therefore it is impossible for the interim estimates to contain grant calculations that will exactly match the final actual calculation of entitlement.

The Member also commented that the final grant calculation of public accounts always seems to exceed the sum shown in the main and supplementary estimates for the year. This is generally the case, but is not always true. Going back through the records for the past nine years, there have been two occasions where the public accounts figure was less than the main estimate figure and three occasions where it was below the spring supplementary projection.

The tendency for the actual grant to exceed the main and supplementary estimates is probably due to two factors. First, there appears to be a general upward bias to Statistic Canada's figures as updates are recorded for the Canadian Gross Domestic Product, Yukon population, and provincial and local expenditures. Secondly, the program transfers, a number of which have occurred over the years, will of course increase the grant. In many cases, the program transfer merely results in trading recoveries monies for grant monies.

Our record at estimating grants, we believe, has been very good. In nine closed years since formula financing has been in effect, in no year has the final actual grant number varied by more than two percent from the grant estimated in the mid-term supplementaries. In only three of the years has the actual figure varied by more than three percent from the projection of the main estimates, and in at least two of those three years, the reason for the large variance was due to program transfers being finalized after the main estimates were tabled.

While this degree of accuracy is reassuring, it is, of course, true that even a small one- or two-percent variance can mean a great deal in absolute terms. No doubt that is what has happened again this time. Based on our current grant levels, each one percent of difference is worth roughly $3 million, and that could have a major impact on our surplus/deficit situation. This occurs because the grant is such a significant portion of our total revenues. The only other jurisdiction with a problem of similar magnitude is the Northwest Territories.

Even some of the provinces, notably P.E.I., experience similar fluctuations with their equalization and EPF revenues. P.E.I. has been calculating its own data, in some cases, rather than using interim federal data. In recent years the fluctuation in the federal estimates of transfers, and the input data that determine the transfers, have been a topic of discussion at federal/provincial finance ministers meetings, and the federal government has promised to look into the problem.

I do not believe that I can give the Member an assurance that the estimate of the grant will become more accurate. In fact, whether it is by design or by chance, I think that the projections have proven to be remarkably accurate. The Member is aware of the variables in the formula calculations, but I would like to take a minute to review them for him, if I may.

The formula in the first instance does not calculate a grant,;rather, it computes a gross expenditure base figure that is much larger than the grant. This base grows each year by a moving average of the current year and the past two years change in the rate of increase of provincial local expenditures in Canada. The exception to this is the moving average of the same three years of the rate of change in the Canadian GDP which caps the PL growth if it exceeds the GDP - something, the Member opposite is aware, that has been a bone of contention. The escalator is then increased or decreased, as the case may be, by the rate by which the growth in the Yukon population exceeds, or is under the rate of growth in the Canadian population. The population calculations are, of course, updated by periodic census figures. Changes are, in census years, allocated to the years back to the previous census.

The final GDP and PL escalators are not available from Statistics Canada for up to five years after the year in question. Consequently, the grant for any given year is subject to the prior year adjustments for the previous five years GDP and PL escalators. As an example of the sensitivity of these figures, an adjustment in the provincial local expenditures by Statistics Canada for the previous, say, two years of one-tenth of one percent for each of these years could have an impact of about $1.2 million on the current year's grant.

To the estimated gross expenditure base, calculated above, must be added any dollars for program transfers that may have occurred in that year. From the calculated gross expenditure base, there must then be deducted the estimate for the year of the YTG own-source revenues and certain recoveries. These revenues must be escalated at the formula's calculated catch-up factor for our alleged lack of tax effort and the estimated keep-up factor for the projected rate of change in the level of national average of provincial tax rates.

As usual, this number is not final for a number of years. Consequently, previous year's adjustments are constantly prone to the calculations. It should also be noted that, in the calculations of YTG revenues to be deducted, or, made fail-safe from the gross expenditure base, the income tax figures are estimated. They are never final for two more years. The result is that the prior years' adjustments for all these figures are constantly flowing through the calculations.

In addition to this, the estimates for the EPF are deducted from the gross expenditure base, and the EPF calculations are not final for three years. Therefore, for three years prior period adjustments for EPF flow through the grant projections.

Finally, a calculation for the risk-sharing arrangement that we have with the federal government must be made. Needless to say, during the course of the year, figures used in this calculation are, at the best, estimates.

There are other variables in the estimates in the formula calculation, but those mentioned above are the principal ones. Given these variables, I think it would be unrealistic to expect calculations to be any more accurate than they are now.

I do not believe that one can look at the formula grant on its own. One has to look at the total revenue picture, since the formula grant, some revenues, EPF and some O&M recoveries are interchangeable. The formula calculates the gross expenditure base that is made up of all of these components. In some respects, the formula calculations are far more complex and subject to fluctuations than are the provincial equalization calculations.

They will use, as elements of the equalization program, for example, national average tax rates, and then add on a number of unique complicating factors - escalator population growths, fail-safing with catch-up and keep-up calculations for own revenues, and incentive factors. The complexity of these calculations and the consequent large impact fluctuations they can have on our revenue picture are further enhanced by the very large size of the federal formula grant in relation to our total revenues.

The only thing I can say with that is that I am afraid we are faced with an estimation problem that cannot be significantly improved, given the structure of the formula. I just want to assure the Member opposite that we can more accurately calculate our formula grants, but I do not think this is possible in any practical sense.

It is a convoluted system, as the Member opposite, being a former Finance Minister is fully aware, and if there was any way we could simplify it in the next formula, I would be the first one to entertain those types of negotiations, but I can tell the Member opposite that the signals we are getting from the federal government right now are not good about changing the basic structure of the way the calculations for the grant are done.

If the Member wants, I can give him a copy of that.

Mr. McDonald: There may be other Members who are interested, and if we can get copies for them, that would be nice.

The problem I raised last spring was that it was obviously based on past estimates from a very general reading. The original estimate was an overly conservative estimate of what the transfer payment from Canada would be, and it seemed to break a trend that had been established since 1985, which was to see the grant increase every year. Now, the Minister made some general statements in his opening remarks with respect to the big picture that might suggest reasons for that being the case. First of all, the Statistics Canada bias tends to go up or show an upward trend at year-end. That may be one reason why the transfer payment may go up more than we originally anticipate, because we generally look at the transfer payment from a fairly conservative perspective so that we do not overshoot or raise expectations unnecessarily.

However, it seems obvious that, when one talks about what is generally accepted as a margin of error - the Minister mentioned between two and three percent - it is not in the same league as the almost-five-percent error we have experienced during this particular round - over $14 million is almost a five percent error. This is all the more remarkable, given that it bucks the historic trend of upward transfers rather than of lower transfers. That is the reason I am a little startled by these circumstances.

I believe there is some general justification for that, as I have said before. I am not going to trade experience, wisdom or knowledge about how one estimates a transfer payment with Finance officials. I am certain the transfer payment is calculated and that estimate is recommended to Management Board for approval in honesty and fairness. I also know that, in some respects, the estimation of the transfer payment may be as much an art as it is a mathematical calculation. However, it would seem to me that there may have been some obvious signals that this was a little too conservative for comfort. Our experience appears to bear that out.

I have no specific questions about this. If the Minister could provide us with a further explanation of this, I would appreciate it. I have one specific question respecting the decline in territorial revenue. Is that decline affecting the calculation of a transfer payment in the current year? How long is the delay between the time we estimate the territorial revenue to decline and any impact that might have upon the transfer payment calculation?

Hon. Mr. Ostashek: First of all, in answer to the specific question, the Department of Finance tells me that it books the decline as soon as it becomes a certainty - that they have determined what the decline will be in their own revenue and that is taken into consideration.

I think that what the Member has to keep in mind, and I agree with him, is that the $14 million was a five-percent difference. I just want to lay this out for the Member opposite because I sympathize with anybody who has to try to understand this convoluted system. I have always felt that I was pretty good with numbers, until I got into this. Every time one thinks one has a grasp of something, something else has to be calculated into it. What really happened to us this time, and something Finance could not have foreseen, was that in April 1994, our keep-up factor was 1.57469. In November 1994, in the supplementary, the keep-up factor was 1.50126. That, in itself, had an impact of $10.7 million on the calculations. That is a big difference. So, that is the type of thing that Finance could not have been aware of at the time that the budgets were put together.

The other thing that, I am sure, the Member opposite is aware of - I know that I am aware of it - is that Finance officials, by their very nature, when forced to make estimates, always err on the conservative side. I do not believe that has changed with the change of government. The accountants I have had over the years in business always took that approach. If they had to err, they always erred on the side of conservatism. They did not err on the side of optimism. So, that certainly has an impact on the calculations. I think that should have been consistent all the way through, however. I do not see that that change came with the change of government.

The keep-up factor is the principal reason, but it is also an assumption. There are a host of other changes in the calculation throughout the whole darned formula. On one side, it puts it up; then another calculation brings it back down; and another side puts it back up again. In the end, I believe that the department comes up with a calculated estimate based on the best information that is available to it at the time the calculations are done.

I want to say to the Member opposite that I have been the Minister of Finance for two years now, and I know how frustrating it is.

Hon. Mr. Ostashek: Officials sometimes come to me on a weekly basis, and numbers keep changing. The goal posts are moving constantly and it is frustrating trying to calculate how one is going to put together a budget when this figure is so fluid. I do not know the answer for the Member opposite. We can continue to try to work on it, and I would be willing to listen to any suggestions that he has. I believe the best thing we could do is try to work out a simple system with the federal government.

Mr. McDonald: First, I will just deal with my last question and the Minister's first answer.

I asked whether or not the decline in the revenues for the current year had an impact in the current year in terms of the territorial transfer payment calculation. If it did, is that reflected in the calculation, and if it does not, what does it portray? I would just ask the Minister to take note of that. I have a short list of questions here.

The second comment is that I do recall discussions Finance officials had from time to time regarding the level of taxation that other provinces were inflicting upon their public, and anticipating that level in determining whether or not the grant calculation was going to change through the PL escalator. Given that taxation efforts are fairly public, to say at this point that it would be a complete surprise to move that distance - I think the Minister said from 1.57 to 1.50 - in my view, would at least necessitate some questions about why that size of a jump was not anticipated, given that we are fully aware of what is happening. And we are also aware of the delay factor in the calculations. I would like a comment from the Minister on that question.

I make this suggestion to the Minister with respect to finance policy: acknowledging that Finance officials, quite appropriately, want to ensure that operations are well funded and fully funded and that we do not overextend ourselves, we must also understand that the conservative advice that we receive may sometimes be too conservative. If one were to listen to the advice of all the people involved in financial affairs, one might be inclined to follow a policy whereby we build up huge surpluses for the year prior to negotiating federal transfer payments from Ottawa, at which time there are alarm bells of spend, spend, spend, because we have too much money and consequently cannot make a legitimate case for the existing transfers to be maintained.

Somebody has to have a long-term vision. Somebody has to realize what impact this is going to have on the economic life of the territory. Historically, we have generated extremely large surpluses, and we have told people that there is a certain level of expectation that they must respect in terms of what they can expect from the public purse. People gradually get used to that level of expectation, and surpluses get bigger, and then suddenly there is a massive spending spree in order to bring the bank account, so to speak, into line with what would be reasonably expected by federal politicians.

Obviously, there has to be some judgment call, and some risk, borne ultimately by the Finance Minister and by Management Board about how much of a conservative estimate they are going to respect. I think that, under the circumstances, and based on our experience with this transfer payment calculation and our experience in the last year, we may have been accepting advice that is well intentioned, but too conservative.

I cannot give the Finance Minister any advice about what he can do. I think that it is a judgment call, and ultimately he is going to have to bear the risk of the figures being wrong or too far out of whack. I can only say that a lot of attention has to be paid to this particular subject, because we can argue endlessly about all kinds of programs that cost substantially less than the $14 million windfall in the transfer payment calculation.

While we do not spend a lot of time discussing these matters with respect to financial affairs and the calculation, I would hope that the Minister would spend a fair amount of time with Finance officials to ensure that he has cut the line just as fine as he can, not only to provide himself with a sense of comfort about the accuracy of the numbers, but without also being so conservative that we face huge fluctuations. I will just make that point, and I would appreciate the Minister's comments. Then, I would like to talk about the formula financing negotiations themselves.

Hon. Mr. Ostashek: The calculation of income tax has all been taken into consideration and it has all been reflected in the supplementary. That is the understanding that I have now.

I want to talk a little bit about the keep-up factor and the dramatic change. The Member opposite is aware that Finance has to use the Statistic Canada or the Conference Board figures when doing that calculation. They must base their figures on those calculations. This year, with the reduction in tobacco tax - and nobody knew how dramatic it would be - it would be very hard for them to calculate.

The Member opposite is absolutely correct in that we do make judgment calls. We must at some point make a judgment call as to what the level of funding is going to be and whether we are going to be in surplus or deficit position. I do not see this $14 million increase as a windfall, as he calls it. We are not in a huge surplus position. If we are over, and we under estimate one year on the revenues and we have a bit of a surplus that year, it can always be put to some good use in the next fiscal year. I do not think we have to store it up there until just before we go into formula financing and deal with it then. He is absolutely right. It is a judgment call and you try to be as accurate as possible and within reason. I believe in most instances that one to three percent in calculations is not out of line when doing these types of estimates based on such substantial dollars. As I have pointed out, a one-percent fluctuation has a dramatic effect on it, mainly because our transfer payment from the federal government is so high. We do not raise very much revenue ourselves and that is something that has always been a problem in the Yukon, and I suppose it will continue to be a problem.

I would like to assure the Member opposite that I do spend some sleepless nights every year when we are putting the budget together, because I know the criticism that is going to come from the other side of the House if the figures are not as accurate as possible. It is justifiable criticism. I accept that. We will continue to strive to be as accurate as we can in these calculations.

Mr. McDonald: There is an important distinction to make here. While I acknowledge that Statistics Canada does determine, or at least the Government of Canada acknowledges Statistics Canada's figures as determining the appropriate baseline information upon which the calculation is made for the transfer payment, it is the Government of Yukon that makes the estimate, and the Government of Yukon has to try to anticipate what figure Statistics Canada is going to come up with at some point in the future. Obviously, there is going to be a judgment call made long before Statistics Canada has released its findings. So, when we get to the operation and maintenance estimates and start talking about the estimate for transfer payments for next year, obviously some judgment in Finance has been made as to what kind of information Statistics Canada is going to produce, and they are going to have to judge that based on the kinds of information that is received from governments across the country and from our own estimates of population, or at least how Statistics Canada will count the population. We make those judgments and ultimately we have to determine whether or not we are going to be conservative. I guess our choices are very conservative or less conservative estimates about what the transfer payment calculation will be.

The basic point is that if we are going to be out dramatically, or five percent rather than the standard two or three percent or whatever we have experienced in the past, we have to be especially sure that what we are anticipating by way of Statistics Canada final figures, and recognizing it is a judgment call, is accurate.

I would only say that, based on what we are experiencing here now, I would make the prediction - not always an easy thing to do - that we would probably end up at year-end with something close to a $30 million surplus, not an $8 million surplus, unless there is some allowance for a bad debt that we have not been informed about, or we need to make some more transfers to the Yukon Energy Corporation and move it from the unconsolidated accounting to the consolidated accounting. That is possible. There has certainly been a lot of experience of that. Based on the projection for the year of $8.5 million, and given that we can probably expect a $20 million lapse - oinsomething in that neighbourhood - we are talking about approximately a $30 million surplus.

That may not be extraordinary in the experience of the Yukon government, but at a time when the federal government is looking for every last dime, it is certainly going to be an extraordinary event for them. That is something that I presume we have to bear in mind.

If the Minister has something to say about that, I will move on to the more formal negotiations afterwards.

Hon. Mr. Ostashek: I do have a few things I would like to say. First of all, the calculation for next year should be somewhat simplified, because the formula, for all intents and purposes, is supposed to be frozen at the 1994-95 level. Again, I want to caution the Member opposite, if that is what it ends up being. That is the assurance that we have had from the federal government, but the mechanics of it have not yet been worked out. It should be somewhat simpler.

At one time, for the interim calculations in the supplementaries, Finance would use its own estimates if they thought that Statistics Canada or the Conference Board were wrong. However, in past years, because of the intensity of the budget debates that have been going on in the House - I believe this had a lot to do with it - they have tended to cover themselves more and stick more to the published Statistics Canada or Conference Board figures. They are worried that they will be accused of manipulating the figures if they did not. I think they have some justification for taking that approach, considering the intensity of the budget debates in the House in the last two years.

They have done the same thing with the income tax assessments. I am sure that the old Opposition thought that they were manipulating numbers by using their own estimates, so they are using the numbers provided by Statistics Canada. That is probably, in their opinion, the safe way for them to go.

I agree with the Member opposite. There is a judgment call. The Minister of Finance has to make the final judgment call. He lives or dies by it.

I will say to the Member opposite that I am not too upset if Finance is within a five-percent range. I think that is a fairly accurate estimate. When the grant is as big as it is, it adds up to a lot of dollars. Perhaps I am on the conservative side. I would sooner have the money in my pocket before I made a commitment to spend it. I believe that I would be pleased if any money lapses and pushes the surplus to $30 million. At this point, I cannot be sure that would happen. Last year was an extraordinary case. Most of the lapses were on the operation and maintenance side, and not the capital side, as was the tendency in the past.

I am not so sure that that is going to happen again this year. I am sure the departments are watching it a lot closer. We have a better tracking system in place, and we are trying to keep a better handle on it so we do not have a surprise at year-end. At any rate, whatever the lapses are, I am sure we can utilize them in our next budget.

Mr. McDonald: I suppose the Minister was hoping for a simple solution to developing a formula financing agreement, and a freeze is as simple as you can get. I would like to ask the Minister about the mechanics to be worked out, and precisely what it is he is referring to. What constitutes a commitment from the federal government? What leeway is there to feel the commitment is not entirely in place?

Perhaps the Minister could set our minds at rest on that point.

The question of the estimation of the formula grant is not something Finance officials can completely turn to Statistics Canada for support on. I have had the very distinct impression in the past that there is a judgment call being made - particularly prior to main estimates time, perhaps at the very beginning of the budget process - to determine the availability of funds. In my opinion, that suggests that there is a judgment call being made. This does not mean that there should be no judgment call, or that the judgment call is being made in bad faith. Obviously, I have had confidence in the same official's advice, and continue to, as the current Minister of Finance does.

I am saying that there is a decision that rests with the Finance Minister, which includes the calculation of whether the estimate is too conservative or not. In this particular case, as I have pointed out, it was very conservative, it was a change that was greater than that experienced in the past, as well as one that bucked the trend of going up. In the end, the trend will continue to show that the transfer payment is going up.

In terms of the lapses policy and in terms of their financial positioning with the federal government, I am not certain how the government is going to handle at least a $20 to $30 million lapse. I would be interested in a comment from the Minister on that matter.

I am also interested in how the government is handling lapses altogether. In 1993-94, the government made a point of saying that it had tightened up the financial management by undertaking new actions. Consequently, it could trust that managers were spending as they said they were going to spend and that lapses were not expected. Obviously, that comment generated a fair amount of discussion in the Legislature because the only evidence we had was that the Government Leader indicated that he had sent around a memorandum to deputy ministers instructing them to budget accurately. Following this, it was felt that there were not going to be any lapses. Can the Minister tell us what actions the government has taken since the lapses of last spring to try and tighten up on lapsing dollars, so that we can be more certain that what we are voting is what we spend.

Hon. Mr. Ostashek: I will try to answer the questions in the order they were put forward. Firstly, the Member was asking about what was left to work out on the formula for the budget that is now before the House, regardless of the fact that I said the formula is frozen. It has not been finalized yet with the federal government whether we will use the November calculations or the year-end calculations. There is a substantial fluctuation. Those are some of the mechanics that have yet to be worked out on that figure.

The Member also made comments about the judgment call on revenues going as far back as the start of the budget process, and he is absolutely right. The first thing we do at the start of the budget process - and I am sure he probably did something of a similar nature - is sit down with Finance officials and ask them what their projections are, look at what the projections of O&M costs would be for the departments, based on certain criteria, and then look to see what there is left for the capital budget. That is the system we are using and I believe it probably was the system he used.

I do not know what he did during the budgetary process, but while we work with that figure at the start of the budget, the revenues are continually updated until the last possible moment before the budget goes to the printers. We try to get as accurate a figure as we can, based on the information that is available to Finance. There is a judgment call and I accept that, and I am prepared to accept responsibility for that judgment call.

We are going to handle the $20 million or $30 million lapse - and I think this is totally speculative of the critic at this point - by first of all by going back to some of the rationale for the large lapses last year. I think we produced a graph - if I did not, then I think the Member for Ross River-Southern Lakes did in his departments - showing the trends of O&M spending by the departments. Using those trends, estimates were made for the 1993-94 budget. As a result of some of the directions we gave to the departments and the messages we are giving to departments to try to be more efficient in their spending, along with some things that were unforeseeable in Health and Social Services, we ended up with huge lapses in O&M. I really do not believe that that will happen this year. If it should happen, I am sure we are going to have a better handle on it and will know a lot sooner than we did at that time.

First of all, for the budgetary process this year, I have not allowed the departments to use their previous year's estimates to start the budgetary process. We sent a call letter to the department stating that they would use the previous year's actuals and that they would start from there, eliminating any one-time costs. I believe the call letter that went out this year said they were to absorb the merit pay increases and inflation as well.

That is where we started. Along with that, after we had the official report at the end of September, I believe, we are now asking the departments to give us a monthly update as to where they are in their spending and revenue cycle, and trying to keep better track of it so as to make sure that we do not have any surprises.

With those initiatives that we put in place, I am hoping, and I am fairly confident that we will have a tighter budgetary process and that we will have a better understanding as we get closer to the year. I have also indicated to the deputy ministers that I would rather have them overspend a tight budget than underspend a loose budget. I think that, for too many years, we have rewarded the underachievers in the budgetary process. We put together huge budgets, we put in huge estimates, and then come in and say "Look how good a money manager I am because I have underspent my budget."

This is one of the issues that I have raised with the Member on several occasions, and I would ask the Member to still seriously consider the change that I would like to make to the Financial Administration Act, so that it is not illegal for a deputy minister to overspend his budget. I think that it is foolish and ridiculous to ask for tight money management, and then penalize somebody - even if it is just a slap on the wrist or being ostracized by one's colleagues - for overspending when a very tight budget has been put in place. I think it is totally unfair to ask our managers to do that. I truly believe that we would have a better budgetary system if that one amendment was made to the Financial Administration Act. There is no penalty for overspending anyway, so why is making an amendment such a big deal when it will be a comfort to the deputy ministers when they have the assurance that they are not going to be severely reprimanded if they overspend in a legitimate manner. It certainly does not give them permission to go out there and spend and not worry about the budgetary process. I am one who believes that you should give your managers the opportunity to manage, and with that management comes accountability. However, if you do not give them the tools to manage with, you cannot expect them to do a good job. I really want the critic and his caucus to seriously consider why they would not support such an amendment.

Mr. McDonald: The Minister said a mouthful there.

I think the Minister realizes that one of the repercussions of a budget policy that provides departments with the actuals from the previous year as a starting position in their O&M estimates is that if the departments realize that that process is going to be repeated, then they have every interest in the world in ensuring that they spend up to the actual amount of money that was budgeted. Given that we have had a lot of discussion in this House about year-end spending sprees, or even mid-year spending sprees, or spending at the beginning of the year because people do not want to lose their funds, even though they might find savings in the way that they are doing things, it is not necessarily a reward for good budgetary practice. I think we all know that there are up sides and down sides to both the process that the Minister has just mentioned and the process that has often been the case, and that is to start from the estimate from the previous year rather than the actual.

I think we have to be cautious until the Financial Administration Act is changed. I would dearly hope that the Minister is not sending out signals to managers that overspending a tight budget is better than underspending a fat budget because, obviously, that is an invitation to knowingly break the law. We do not like breaking the law, but one has to be extremely careful about a signal like that from a politician. I am hoping that the Minister will reassure me that he has not actually made that statement to deputies in the last year or so, at least.

I think that the useful discussion about budget policy and about how the general situation can be improved has been a project, as the Minister might know, that has been embraced by the Public Accounts Committee. Speaking briefly for that Committee, I know that these are considerations that it will take into account when the Members actually roll up their sleeves and discuss these problems. They are not easy problems to solve either, obviously.

The Minister mentioned that the action that the government had taken to better handle the question of identifying lapses prior to year-end was that he has the departments reporting regularly to the Department of Finance about their expenditure patterns. Can the Minister tell us how the departments are reporting to the Department of Finance differently? I was always under the impression that they did report to the Department of Finance. I would like to know how they are reporting to the Department of Finance differently so that the department would better know prior to year-end what the lapse would be.

Speaking specifically to the lapses, the Minister suggested that my claim that there will be lapses that may be within the $20 million range is totally speculative. I think we both agree that it is partly speculative but not totally speculative. Unless the government can provide very firm and sure information that there will not be lapses, obviously we can only assume, based on past practice and on the debate from last year, that indeed there will be lapses. Historically, they have been in the $10 million to $20 million range and I do not think that is out of the realm of expectation.

The Minister mentioned that there was one lapse during the NDP government's direction that was larger, but clearly all governments lapse. This government has lapsed. There is nothing necessarily bad about that as long as the lapses are anticipated in some way and are managed. I make that comment but I would like to know more about the reporting practices between the Finance department and the government. I would like to know precisely what is different than what has happened in the past and what is happening now to make the government more secure in its information gathering process.

Hon. Mr. Ostashek: I have a couple of comments to make. The Member opposite has to appreciate that last year was exceptional, compared to other years, where the majority of huge lapses was in operation and maintenance, not in capital, as in previous years. That was the difference last year, and it reflected on the surplus position of the government. With capital, most of it is revoted, and on we go.

The Member spoke of the dangers of giving the managers the direction that they are starting from their actual expenditures on a budget, and they may decide to spend the whole budget, because that is what the next budget will be based on.

No matter what system one puts in place, there will be some danger. I am the type of person who believes that we have hired professionals to manage the departments. They are being paid as professionals, and we have to loosen the grip of government. It is something every government is going through. In order to manage better and move quicker, we have to give these people more authority, in some instances.

No matter what budgetary process we put in, there will be some flaws. There is no doubt about that.

I understand the danger, but I am also prepared to trust my deputy ministers until such time as they do not warrant that trust any more. They are very professional people, and I deal with them in a professional manner.

The Member cautioned me about commenting to the managers about exceeding the limitations of the Financial Administration Act. I would like to assure the Member that I would never instruct anyone to break the law. That is not what it is about. What it is about is making an appeal to the Member, because he is on the Public Accounts Committee, to deal with this issue, so we can have a tighter budgetary system without worrying about the danger the deputy ministers face of inadvertently breaking the law if they exceed their budget.

That is why we have supplementaries, and that is why we have warrants. They are very concerned about that, because they are professional people and do not want to break the law. I am certainly not going to instruct them to break the law.

There is something a little different in the accounting process now. The Member is right: they always made reports to Finance. As of the end of January, we will have a monthly summary variance report, not a full one, presented to Management Board.

We will find out in the very near future whether or not it will work. It forces the departments to go back and review it. As the Member opposite is aware, they have their finance officers in departments to track things. They call for a formal variance and then get busy, going through all the nuts and bolts. A formal variance is also a very labour intensive process. Perhaps someday, when we get the proper computer system in, it will not be - we could just press a key and get it. At this point, it takes a lot of effort in the departments to produce a formal variance.

We are going to try a monthly summary variance report to Management Board, in order to try and keep better track of things. It will also help the departments to keep better track of where they are in their spending cycle.

Mr. McDonald: We will all be waiting with bated breath for the end of the year to see the results of the latest directives to the departments.

As the Minister seemed to retreat into the notion that O&M lapses were not only different, but were an improvement on the situation in the past, I would argue that O&M lapses are, in reality, harder to explain to our revenue sources than are capital lapses. A capital lapse suggests that a project that we all intend to proceed with, will proceed. An O&M lapse suggests to our revenue sources - the federal government or our own taxpayers - that we never really needed the money in the first place. When one goes so far as to raise taxes in a year of lapses, obviously that is an issue that taxpayers think is important.

I have a question about the perversity factor. The Minister identified the problem that the perversity factor would not be an easy thing to release from the formula financing agreement. Can he tell us what the federal government's thinking is on this point? I remember seeing the letter from Mr. Martin last April, which did identify the need for some tax adjustment factor in the financing calculation. Can the Minister tell us what progress has been made on this particular point?

Hon. Mr. Ostashek: I have been making a pitch to the federal Minister of Finance, both the previous Minister and the present one, that it is unfair to penalize us for volume increases in tax. That is simply not fair. If, at some point the federal government wants us to be providing more revenues of our own and to expand the economy of the Yukon so that we are not as dependent upon the federal government, then it is unfair to penalize us for volume increases.

For the last two years of the present formula, we had entered into a risk-sharing agreement with the federal government, which did give us an extra few million dollars. The essence of the risk-sharing agreement is that the baseline revenues are established. For this purpose, the baseline of 1992-93 was used. The adjustment relates, in part, to the corporate income taxes that are excluded because of their volatility and their independence from the economic conditions in the territory. A further downward adjustment was made to account for the shutdown of the Curragh mine. Fifty percent of the volume-induced revenues under or over the baseline in subsequent years are exempt from the formula fail-safe. That means that we could take a hit on it, too, but in the good times, which we believe the Yukon is entering into now, where we are going to see a tremendous upsurge of activity and a lot more income tax revenues in the territory - the Member opposite is fully aware of what that is going to do to our formula - with fifty percent of the volume-induced revenues over or under that baseline in subsequent years being exempt from the formula fail-safe, there is also a floor and a ceiling built in to the arrangement, whereby the Yukon cannot gain more than one percent of the previous year's grant or lose more than one-half of one percent of the previous year's grant. As I said, the arrangement provides some modest relief from the perversity factor and is very similar to a proposal made by the Yukon to the federal government when, I believe, the Members opposite entered into the first formula agreement that was put in place.

This arrangement was in effect for the last two years - that is, 1993-94 and 1994-95 of the current agreement - and we expect it will yield $2.5 million in the first year and $2.7 million in 1994-95. While our approach is going to be to take the position of the federal government, we want to get rid of that perversity factor and not be penalized for volume increases in taxes in the Yukon. That would be our first priority. If we are not successful with that, I would like to possibly take a look at expanding this to a little larger percentage on the risk sharing. As I say, there is a downside to it as well, but I believe that if we want to stand on our own two feet, we have to be prepared to accept some of the risks.

While it is good in one way, it is unfortunate in another. If there is a severe downturn in the economy like we just had, the government revenues go up. They are out of sync with what is going on in the territory. It is very hard to explain afterwards, when everything is booming but all of a sudden revenues are going down because of the damn perversity factor.

Mr. McDonald: The Minister does not have to sell me on the fact that the perversity factor is perverse. I think we even coined the term "perversity factor" because it was perverse. The Minister of Tourism suggested that we are the author of the perversity factor; of course, he obviously does not know what he is talking about. The Minister of Tourism says that we are the other signatory. I would just point out that shortly the Minister of Finance will be a signatory, too, so he has to be careful. Unless the decision to transfer the leadership has formally gone down to the other end of the bench, he should be careful about doing that kind of thing.

The Minister has indicated that he is opposed to the perversity factor in the budget, for the obvious reasons that it is a disincentive to economic development; our revenues decline when our need for providing services increases. Can he tell us, as a matter of policy, whether or not they have calculated the tax burden in the territory and whether or not he believes the tax burden is sufficient? Do we have enough taxes here? Are we paying enough?

Hon. Mr. Ostashek: That is a question that we could have a whole debate on, especially with the federal government. I know the arguments that are being used by the Opposition Members, and we have used some of them ourselves: we live in the north and pay more taxes, because everything costs more up here. It is an ongoing debate. Certainly I feel that we are paying enough in taxes, as does every other Canadian. However, to try and sell that to the federal government - especially when it says to look at what the national average is, and that we are one of the three jurisdictions in Canada that does not have a sales tax - is a hard sell, and the Member opposite knows it. However, we will continue to try.

I do not want to be too critical of the federal Minister of Finance. I have had a fairly good working relationship with him, and he has been fairly upfront with me. I see the Liberal Member smiling now. I do not always dump on federal Liberals. I do give them credit where credit is due. I hope the Member remembers that when he is criticizing us. I want to try to work out an agreement with the federal Minister of Finance.

In Ottawa, there are two agendas: a political agenda and a bureaucratic agenda. The bureaucracy is fighting for survival - which can only be expected - and they are going to nickel and dime everybody they can, if they can get away with it and have the consent and support of the Minister responsible for their department. Most of these negotiations will take place at the bureaucratic level, where our people will make their best pitch. If that does not work, we then have to take the political route. I do not want to be too critical of the federal Minister of Finance before we see how he deals with us in this respect.

There is another thing I would like to point out to the Member opposite while we are talking about formula financing. I do not know if the Member is aware that the federal government is not about to entertain getting into another five-year agreement. It wants the next agreement to coincide with the creation of Nunavut, which is in 1999, I believe. They are looking for a four-year agreement, from April 1, 1995, with the first year frozen, as I have indicated to the Member opposite.

Mr. McDonald: I do not have enough information to know whether or not I should be critical of federal Liberal policy, but I am going to ask some questions in order to find out. Any back and forth discussion between the Government Leader, the Minister of Finance and the Liberal Member is something that we are very used to on this side of the House. We are certainly not surprised. I have known that, in reality, there has never been a divorce in this marriage of interests. As one Member says, there are trial separations from time to time, but I have never, for one second, doubted that there are communal interests there.

In any case, I would like to ask this basic question again, because it is fairly important from our perspective, and it is something that I think the Minister can answer. Are taxes high enough? He has not introduced any taxes, but does he believe that our tax rates are high enough? Is that the position he takes with the federal government, that our tax burden is fair in comparison to others in Canada and that it is appropriate for our economy and for the government's current revenue projections? Does he believe that taxes should not be raised, or that there is no good reason to raise taxes?

Hon. Mr. Ostashek: I will say quite clearly that that is the position we have taken with the federal government, and it is one that we believe. It is also a sentiment that, in the last couple of years especially - whether it was begun by the leaders of the Alberta government, or whatever - has been adopted all across this country. It says that governments should not be looking at increasing revenues, it should be looking at decreasing expenditures. That seems to be the wish of the Canadian people at this time, and I have to agree with them.

I believe that the position I took with the federal Finance Minister at the last Finance Ministers meeting was that governments in this day and age do not have a revenue problem; they have an expenditure problem. I think that is why it is important that we control the operation and maintenance costs of government. Here in the Yukon, we are so dependent on territorial government budgets to create jobs that whatever extra finances we can avail ourselves of should be poured into capital projects to try to make ourselves, at some point down the road, more self-sufficient in order to have more control over our own destiny.

Mr. McDonald: I am sure that there has been some discussion about whether or not the actual expenditures in that part of the budget do, in fact, accomplish the task that the Minister has said is a prime objective of this government. I am not passing judgment about the general proposition, but I will give him notice that it is our position that there is a fair amount of the capital budget that has nothing to do with the proposition the Minister just identified.

Nevertheless, I would agree with him that taxes are, in fact, high enough. I have believed that for some considerable time, even before Ralph Klein was elected. I think I may have even betrayed that sentiment to the Minister when we were discussing tax increases in the Legislature a couple of years ago, in the context of rising budget expenditures.

I think the Minister is taking the right position. In the interests of anyone who is listening, I agree with the Minister's position. This is an example of where we agree. The same citizen who is watching will be the witness to an obvious agreement.

Can the Minister tell us what the federal position has been with respect to tax increases? I notice that, in Mr. Martin's letter to the Minister of Finance last April, he implied that he had some gnawing concerns about our tax rates. He suggested that, perhaps, they were not low enough. He made reference to the fact that there should be some adjustment factor in the new formula, which made reference to, presumably, the fact that they feel that our tax rates are too low. Have they made that concern known, either at the ministerial or official level?

Hon. Mr. Ostashek: Probably the simplest way to put it to the Member opposite is that it is the position of the federal government - both the previous Minister of Finance and the present one, and the officials - for several years now, that they are not prepared to finance us because our tax rates are lower than the national average. That is what they have stated. We believe that our taxes are high enough.

When the federal government came along one year ago, at about the same time as the letter came, the message was quite clear. At that time, they did not think that Canadians could stand any more tax increases. Now, as the Member opposite is aware, they have a new word for tax increases. They call them tax expenditures. I believe this issue was raised at the Finance Ministers meeting in Toronto in, I believe, in September.

They are losing this much money because they are not collecting tax on the RRSP pool and different things. I am very concerned, as all Canadians should be, with the position of the federal government. Let me put on the record, right here and now, that I am not certain that the federal Finance Minister has the full support for what he wants to do from Cabinet and his caucus. They have been sending out many trial balloons for tax increases. Call a spade a spade; that is what they are talking about: tax increases.

I am sure the Member opposite is as well read on the issue as I am. They are saying that the bulk will come on the expenditure side of the ledger, not the revenue side, but they are not ruling out tax increases. I think that is unfortunate.

The Finance Ministers across Canada are not all in agreement on this. There are some areas of Canada that feel the federal government should increase taxes and not make such heavy cuts. We are probably split in half. The other ones are saying, and I agree with them, that they do not believe an increase in taxes will give the federal government any more revenues.

We talk about the free trade agreement, and about free trade between countries. That is an issue that is not very high on the priority list of the Official Opposition. They have had big problems with it; however, if we are going to talk about free trade between countries, we have to talk about a level playing field: the same levels of taxation.

Right now, of the G-7 countries, I believe Canada has the highest level of taxation. If we are not the highest, we are at least the second highest.

As a result of that, it has not created a very level playing field for the establishment of more businesses in Canada. Why should they establish in Canada when they can just go across the border and receive a more favourable tax rate, while distributing their goods in Canada, the U.S. and Mexico?

In order for free trade to work for the benefit of all parties, I believe we have to have comparable tax rates. I do not believe we can penalize our businesses here and expect them to be competitive in the free market.

Mr. McDonald: On the last point, is the Minister saying that the tax systems between free trade countries ought to be harmonized in some way? First of all, I would like to ask the obvious question. Is he going to suggest that that be the case unilaterally, or only in the context of all governments in Canada operating together? I realize this is probably a subject for further discussion, perhaps in Economic Development during discussions about trade, so I do not want to spend a lot of time on it here. However, can the Minister simply answer that particular question?

Hon. Mr. Ostashek: I have no difficulty in answering that question. No, I am not saying they should be harmonized, but I do say it is important that our tax rates are competitive with the other jurisdictions we are trading with.

Mr. McDonald: I will pursue that with perhaps both Ministers during Economic Development debate and not take up more time here.

I would like to focus briefly on the question of what the federal government is trying to encourage the Yukon government to do. I would like to get back to the question about the raising of taxes. I presume that the Minister is saying - and please correct me at any point - that the federal government remains of the view adopted by the previous federal government that tax rates in the Yukon are not at the national average and, consequently, should be raised. Not only should they be raised, but there should be some recognition of that need in the formula financing agreement. Is that what we are talking about? Could the Minister be really clear on that point, please?

Hon. Mr. Ostashek: The federal government is not encouraging us to do anything. They simply want to save money. They will not care what our tax rate is once they have established the perversity factor. That is why we have the perversity factor: we cannot convince them that our rates are at the national average, which is where the perversity factor comes into play. Once it is established, they could care less what our rates are.

Mr. McDonald: I will agree with 50 percent of what the Minister just said. I will agree with the Minister that the federal government wants to save money and they will do virtually anything they can think of and use any argument of convenience to save money, meaning to not spend so much for the transfer payment to the Yukon government. Having said that, and having noted that I have agreed with the Minister once again - twice in less than five minutes - I have to say, and the Minister will forgive me, that I do not agree that the federal government is not passing judgment on our tax structure here, because the perversity factor is all about our taxes. If they insist on it going into the agreement, it affects not only our tax policy but our economic development policy - all policies respecting the future development of this territory. If they are saying to us, through the perversity factor or through our insistence that the perversity factor remain in the budget, that our tax rates are too low and should be raised, then that is a constant pressure that we face in this Legislature, and the Minister of Finance faces, to raise our taxes for fear that we are not going to be able to take full advantage of the economic opportunities that face us.

Can I ask the Minister again: in keeping the perversity factor in the formula financing agreement or insisting that some child of the perversity factor is retained in the formula financing agreement, is that not tantamount to the federal government saying, "Tax rates are not high enough, folks; you are going to have to raise your tax rates or pay a penalty of some sort"?

Hon. Mr. Ostashek: I guess it could be put in that context, and that would be a fair statement. What I am saying is that they are not visibly and vocally telling us that across the table. They are not saying, "Your tax rates are too damn low; we are not going to subsidize for you." They just come in with the perversity factor.

The Northwest Territories is facing the same situation, as the Member opposite is well aware. We are trying to come up with an option, and I think the Northwest Territories came along with an option of a one-time buy-out of the perversity factor. Get rid of it. That may be another argument we could use and we are looking at those things. Again, what it really boils down to now at this stage in our history is that the federal government is strapped for cash. The federal Finance Minister is saying to me that they are not going to give us any more money. The position I am taking, and I do not know whether the Member opposite will agree with me or not, is that I do not want any more money at this time, but I do not want to be penalized for any volume increases in the tax system.

I am not asking for any more money. I just do not want to be penalized for the monies that are paid here with volume increases in tax. It is going to take the Minister to realize it and instruct his officials to look at it in that context, because officials are certainly not going to do that at this stage. I do not think there is any chance in the world of getting the federal officials who are dealing with our officials to make recommendations to the Minister to remove or downgrade the perversity factor. It is just something that will have to be done at the ministerial level, and I want to assure the Member that I am going to continue to make as strong an argument as possible to federal politicians that it is in their best interest not to penalize us like this, that it would be better to allow us some relief and some room so we can invest that money to become more self-sufficient in the future. This is an argument that I am going to continue to make.

Mr. McDonald: I am happy to hear that last point, because I think there are obvious - and some very subtle - repercussions to the perversity factor that have not yet begun to play out in terms of the full impact on the territory.

I acknowledge that the federal government may not have made it clear to Finance that they wanted to have a thorough discussion about our tax rates. However, the federal Minister's letter, which I do not have in front of me, did seem to be pretty clear that, no matter what, we are not going to spend more, and we may spend less, but there has to be some perversity factor. I am paraphrasing, because he did not call it a perversity factor.

The fact that he noted that that had to be a feature in the agreement suggests that he has thought about our tax structure and passed judgment on it in some way. Obviously that is something for the federal Liberals, or Liberals in general, to wear. I acknowledge, in this particular case, that this is something that the Yukon Party and the NDP happen to agree upon.

The Finance Minister indicated that he is not asking for any more money. It may or may not be a surprise to him, but that is not exactly a new position taken by Finance Ministers of the Yukon.

The concern about federal pressures has been at play at national levels for some time. When one faces lapses, but is sitting on year-end surpluses, one can hardly make a credible argument to federal officials that money should be increased. Certainly, I have never had the face to do that, even though I do care about the finances of this territory very much. I could not justify it as a Canadian.

Can I ask the Minister this question: when he says that he has not asked for more money, besides asking that the diversity factor be eliminated, has he asked that there be no less money in the transfer?

Hon. Mr. Ostashek: Yes, that is exactly what we are asking. We are asking that some corrections be made to the formula, but that it be maintained. We know that the federal Minister has already indicated to the provinces that there is going to be at least $1.7 billion in cuts coming, and I believe that we are going to have to pay our share of cuts on a per capita basis as well. That does not mean that we change the formula. We will have to absorb the cuts, like the rest of Canada must do, but the position we are taking is that we want to maintain the formula. We want to fix what is wrong with it, not take less money.

Mr. McDonald: The Minister has indicated that the federal government has sent a signal that there should be a $1.7 billion cut. This would presumably apply to the following year, not the immediate year, as there is a freeze on.

Can the Minister tell us what that would be on a per capita basis, if it was calculated in that manner for the Yukon?

Hon. Mr. Ostashek: This is just a quick calculation, but it would be about $1.7 million on a per capita basis. I think that may be of benefit to us if it comes to cuts and if we can convince them that they have to do it on a per capita basis. It may be of benefit to us that we have a small population.

I think that if they are going to be equitable with their cuts, they have to be made on a per capita basis. If they are talking about cuts to establish program financing or cuts to the CAP and health, social services and education, it should be on a per capita basis. I do not think that we can scream and holler too much if, in fact, they make cuts on a per capita basis, along with the rest of Canada.

Mr. McDonald: I would agree with the Minister. The concern we have had in the past is that, while we have benefited from special treatment, we have also suffered from being treated differently, from time to time.

I will ask the Minister this: in the federal Finance Ministers meeting, which is coming up at the end of this month, is this matter a subject for discussion? Is it the government's position that it will be pursuing cuts to transfer payments, to be made on a per capital basis?

Hon. Mr. Ostashek: First of all, I can inform the Member right away that we received a call this morning that the meeting will be postponed. It probably will not be held until the middle of February. For some reason, they have asked for another date.

In response to the Member's question, it is a position that I have already taken at the meetings that I have had with the federal Finance Minister. We want to be treated the same as the rest of Canadians. We do not want to take a bigger hit.

The problem with not getting a new formula, which was supposed to take effect April 1, is that they want to implement the cuts in this fiscal year here and in the Northwest Territories. The bureaucrats took the position that we are part of DIAND. I would not accept that; neither would the Northwest Territories. We took a trip to Ottawa and convinced the Minister that we should take our hit at the same time as the provinces and not one year ahead of them.

Mr. McDonald: I am surprised that the government, under the new Liberal regime, would be taking such an outrageous position, suggesting that the governments of the Yukon and the Northwest Territories would actually be a subsection of DIAND. They need some education on that score. I would recommend that perhaps we send, at public expense, the Liberal Member to Ottawa to work on that task. It would appear that he has a lot of work to do.

I am interested in the question about tax harmonization. I know that the federal government and some provincial governments have attempted to harmonize their sales taxes across the country. The Minister knows what I am referring to, and I wonder if he could give us some definitive statement about the Government of Yukon's position on that request?

Hon. Mr. Ostashek: I certainly do not have any difficulty in giving him a definitive statement about the position of the Yukon government. I believe that the issue was raised at the first meeting, just after July 1, in Vancouver. A bombshell was dropped by the federal Finance Minister, to the effect that they wanted to harmonize the GST with sales taxes across the country. From day one, we have taken the position that we are already harmonized. We do not have a sales tax, and we do not want one, and neither does Alberta or the Northwest Territories. We are united in that, and we have been fighting it every inch of the way. At the Finance Ministers meeting in Toronto, there was a proposal put forward by Ontario and another put forward by Manitoba, and we did not support either of those proposals. We have taken the position that we think this is a foolish route for the federal government to be taking now. While the GST was probably one of the most hated taxes at the time it was implemented in the country, business people have gotten used to it. We believe that the federal government could do more to make it easier for small businessmen. However, for them to try and live up to a promise in their red book to eliminate the GST by rolling it in with the sales tax is something that I do not think Canadians are naive enough to accept as elimination of the GST.

Chair: We will take a brief recess at this time.


Chair: I will now call Committee of the Whole to order. Is there further general debate on Bill No. 3?

Mr. McDonald: In this particular area, I would like to ask the Minister a small, detailed question that, I believe, has not been asked. It has to do with the Auditor General's report that was tabled last fall, which refers to the problems identified in the transmittal letter to the House about the accounts. There were two problems: the overspending of votes, of which we are all well aware and is, obviously, not a new problem; and the issue about the concerns the Auditor General had that a bill was not brought into the House in order to clear a debt.

Can the Minister tell us whether or not that was - in his words, at the time - a technicality, or was it simply not illegal? I understand the latter to be the latest position.

Hon. Mr. Ostashek: I suppose we could probably go on with this for hours. I do not know how long the Member wants to talk about it.

Finance officials did not think it was required; that is basically why it was not done. The Auditor General felt that it was required. In the discussions after he made that decision, we corresponded with him and asked him what we should do to rectify the situation. He said: "Nothing now; it would be stupid to do anything now.''

While he is making note of it, we will look at it. We have legal opinions on it and they were mixed. Technically, it could be illegal. I still say that it is a technical issue. It is not something for which the Auditor General refused to sign the report. If anything, it is something that he made comment on; that is his job as Auditor General. He felt that there should be another bill brought forward. I said here, the other day, that I wondered what the tone of the debate would have been if we had brought in a bill on March 31, 1994 for a loan to cover that transfer of assets from the Yukon Development Corporation to Finance.

In the Auditor General's opinion, it was not handled in the manner that he felt was proper. The advice that I had from Finance, when we were doing it, was that was the proper manner in which to handle it.

Mr. McDonald: I am puzzled by the government's response, and I am not necessarily passing judgment on whether or not I believe it was legal to do things the way the government did them. I have already made my thoughts clear about how the government has handled a variety of year-end matters in the past couple of years, and I do not need to repeat them again. Well, I may need to repeat it again depending on what happens at this year-end, but I do not necessarily want to enter that debate right now.

When the Auditor General's report was made public - and I think this time I made it public because, for some reason, the government was not doing so - the Minister responded in the media that it was a technicality. That means that it might be minor, but it is still not legal. Now the government's position is that it was not legal but the government will take steps not to do it again. At least, that is what the Minister said a couple of days ago.

I would just like the Minister to be aware, as he obviously is, that it ought to be the case that these year-end matters are handled not with haste but with care and, ultimately, that they be handled legally. As I went back through the transmittal letters and public accounts for as long ago as I have public accounts, I do not recall seeing that kind of citation in a transmittal letter by an Auditor General. I do not want the Minister to leave the impression that this is something of a minor nature that hardly ever happens, or that it is not important. It is probably important, and it is of concern that the Finance officials and the Auditor General's staff could not resolve it prior to the Auditor General taking the not-so-ordinary step of referring to it in his letter to all of us. I just make that point.

Hon. Mr. Ostashek: I have a couple of comments. I do not think that we want to spend hours or days on this issue. I just want to say to the Member opposite that it is almost impossible to get an opinion from the Auditor General prior to the publishing of his report. He is there to publish a report on the transactions, as he sees them.

The Member opposite alluded to the fact that we were not making the report public. I believe that the last time we had the report it was not made public until it was tabled in this Legislature. I do not think that we were trying to hide anything by not making the report public. I believe the previous procedure was to table the report in the Legislature, and at that point it became public. I know it is a public document when it is distributed to everybody, but I do not see that as an issue.

I just want to say once more to the Member that the Deputy Minister of Finance did not believe that it was required. We did not act in haste. When I say "we", I am talking about myself and Finance officials. We did not think of it as a loan. In addition, how can there be a new loan on a consolidated basis when the Auditor General signed off the consolidated statements? The loan was already there; it was in the consolidated books.

In our opinion, the transfer receivable from one part of a consolidated entity to another part of a consolidated entity does not result in a transaction. That is where the difference in opinion comes. The Auditor General felt that there should have been a bill introduced in the Legislature for it. I have a lot of faith in my deputy minister, and he is still of the opinion that that is not required.

Mr. McDonald: I am not going to make a legal judgment myself; I do not feel capable of doing that. I do know, generally speaking, how discussions take place between the Auditor General's staff and government officials. There is an abundance of caution; there is usually a lot of discussion and, as the Minister admitted, concerns are telegraphed well in advance of any wrist-slapping or any extraordinary measures, so it concerns those of us who care about these things that it could not be resolved. There is obviously a very severe difference of opinion about this matter. I would argue that, in effect, the Auditor General has said that the government has broken the law, and it was said in a very diplomatic way; nevertheless, it amounts to the same thing.

With respect to making the Auditor's Report public, I remember that there was a lot of hoopla. We were not sitting at the time, but as soon as the Auditor's Report came down in 1993, which dealt with the 1992 accounts, the government could not wait to get that report into the hands of the media. When I received the report, I wondered why it was not given the same treatment this time. It may not have been intentional, but it certainly piques one's curiosity when the Auditor General's account of bookkeeping is dealt with in a major press announcement one year, and then the next year nothing happens at all. Then, when one reads the transmittal letter, one sees that the government is being slapped on the wrist. I think that it is tempting to draw the conclusion that the government does not want to highlight this particular event in their relations with the Auditor General, and it is time that I said so.

Hon. Mr. Ostashek: The Member is on the record on that. However, I think that, in the year of the $64 million deficit, there was a lot of anticipation in the Auditor General's report. There certainly was none in this Auditor General's report. For the record, the Deputy Minister of Finance talked to the Auditor General the day after Thanksgiving, and this issue was not raised as a concern by the Auditor General.

Mr. McDonald: There is a problem in the relations between the Auditor General's department and the Auditor General, and the government. This seems to be a fairly extraordinary measure, in my view.

Given even the most mild criticism in the Auditor General's review of government accounting, and given that the Auditor General's staff has a tendency to try and negotiate - if I can use that word - elements of their statements in terms of their judgments about the government's actions, I find it odd that the Auditor General would decide to spring something on the government. Nevertheless, perhaps that is something we should raise with the Auditor General and ask him what his view of the situation is.

Hon. Mr. Ostashek: That may be the appropriate approach to take. However, I can tell the Member opposite that, when I picked up the Auditor General's report and saw the statement, I contacted my Finance officials immediately. I am sure that they were not aware of it; none of them had raised it with me prior to the Auditor General's report coming out. It may have been an issue raised by staff in Ottawa at the last minute. I do not know. Perhaps we should take it up with the Auditor General.

Mr. Penikett: Like my colleague, I would like to ask a few questions about the revenue side of the budget. I would indicate to the Government Leader that some of the questions may seem a bit technical. If that is the case, I would appreciate it if he would take notice of them for the main estimates debate on the Department of Finance. At that time, I would hope to return to any issues that had not received a complete response by then.

I would explain to the Government Leader that what has piqued my curiosity are the tax revenue numbers contained in the supplementaries and the main estimates, particularly the numbers for commodity taxation. I look in the 1995-96 budget, for example, and I see that corporate income taxes have a fairly flat trajectory.

There is a significant increase in revenue predicted for this coming budget year over the current year, for both diesel and fuel oil tax - other. I note that there is an increase in the year previous, which makes sense to me, because we had the tax increases in the first budget of the Members opposite. That is not an increase in volume; it is an increase as a result of an increase in rates. I do not understand, however, the estimate in next year's budget, which shows a very significant increase.

Again, this may be information the Government Leader does not have at his fingertips. If he could indicate that that is the case, I might just continue with my questions and get them on the record. If the Government Leader can respond at this time, I would be happy to sit and ask my questions one at a time.

Hon. Mr. Ostashek: I believe that we can provide most of the information requested by the Member opposite, or at least the information pertaining to the supplementary estimates. As he said, income tax was down by $4.1 million. That was based on the latest data provided to us by the federal government. There was a decrease in all personal income taxes, which is currently shown as being down $5 million. This was offset, to some extent, by a $900,000 increase in corporate income tax. The decrease is probably a result of the federal government's models beginning to reflect the Curragh closure. The federal government projections of our income taxes are based on current returns as they are processed and our share of the national income tax yield, which is about one-tenth of one percent.

Fuel oil taxes are up in the supplementary by $344,000, or, approximately six percent. This increase is based on renewed activity at Faro and strong receipts to date.

Investment income is also showing an increase of $304,000 based on anticipated higher interest rates and money being available for investment due to higher cash balances the government is now carrying in the bank.

Licences, fees, registrations and permits are up by $297,000. This increase is largely in commercial vehicle licence fees.

There are several other small changes, but that should account for the majority of changes in the supplementary estimate.

Mr. Penikett: Let me at the outset state my larger concern and then I will go through a number of what may seem to be detailed questions to the Government Leader, but I would like to get them on the record now, so that we can have the answers by the time we get to Finance mains.

I understand that it is complicated for an Opposition MLA with few research resources to work through this. I understand that the Government Leader, in his first budget, raised fuel taxes. I also understand that in our first budget, when we were in government, we lowered the taxes, or we did away with the taxes for off-road use. That makes the crude calculations, which though possible for us, are difficult to do. I am having trouble making sense of the trends, going back several years in terms of patterns of the use of fuel oils and the revenue from them, and likewise with tobacco and alcohol that come out of these taxes. For example, the Government Leader shows a very flat trajectory on liquor tax.

The population, I assume, with the re-opening of Faro, is going up again. I heard the president of the Liquor Corporation on the radio the other day talking about consumption being down. There are two revenue streams from alcohol: one is the profits that we make from Yukon Liquor Corporation, and two is the taxes. I am not sure I understand the fairly flat-lined projection. If the Government Leader has an answer, he can answer that. If he does not, I will come back to it.

Hon. Mr. Ostashek: Some of the reason why it is a flat-line trajectory is that capital is deducted from revenues. We did built the new facility in Watson Lake, which was in excess of $1 million.

Mr. Penikett: That does not completely answer the question. In fact, I did notice - I do not have it in front of me - in the last Liquor Corporation annual report there was a very large transfer that I am curious about, but I will wait to get to that when we get to the Liquor Corporation debate.

Let me switch to fuel taxes. I am going to ask a number of questions, but first, the most basic question I want to ask is this: does the Department of Finance have annual figures for the volumes of imports of fuel into the territory by year, expressed either in terms of dollars or volume of imports?

Hon. Mr. Ostashek: My understanding is yes, we have them and we have them both in volume and in dollars.

Mr. Penikett: I would very much appreciate it if those could be tabled. If they are available for the last five years, it would assist me in making the kind of inquiries I want to.

For the record, can the Government Leader remind the Committee on what basis the fuel oil taxes are calculated? Are they calculated on the basis of the retail price or the wholesale price for diesel and for other fuels?

Hon. Mr. Ostashek: They are calculated on the wholesale price, and that is how one gets the retail price.

Mr. Penikett: It is one of the ways. The national organization's report on fuel prices still shows that we actually have the highest markup at the retail level in fuel prices of any jurisdiction in Canada, except the Northwest Territories, but that is another issue we will get back to another time.

Assuming that the same situation applies with respect to tobacco, can I ask the Government Leader how the Department of Finance knows, or how it can check, that it has an accurate account of the imports of commodities like tobacco and fuel oil? What is the process for doing that?

Hon. Mr. Ostashek: The Member is quite right. This question is getting very technical, and it might be better if we gave him a written reply to that.

Mr. Penikett: That is fine. I have a number of other questions that may be similarly technical. Would the Government Leader prefer I put them all on the record now, or would he like to do them one by one?

Hon. Mr. Ostashek: Whichever the Member chooses - put them one by one, or put them all on the record and we can respond to them in writing, if he wants, or whatever ones we can answer, we will try and answer.

Mr. Penikett: If any question is so obvious and simple, or if the Government Leader has mastered the subject, or it does not need a technical answer, and he can answer it now, perhaps he could so indicate, and I will be happy to sit down.

I asked the technical question about how the government monitors the volumes of imports of commodities such as fuel oil and cigarettes, and so forth. If that process of monitoring is covered by some regulation, then I could be directed to the regulation so I can read it. As Minister of Finance, is the Government Leader comfortable or confident that, at the moment, the government is collecting 100 percent of the amount of the commodity taxes that are owed it?

Hon. Mr. Ostashek: No, we do not have the bodies on the ground to be able to monitor efficiently enough to make sure we are getting it all.

Mr. Penikett: Does the government have an estimate of the shortfall in collections that may be taking place?

Hon. Mr. Ostashek: No, we do not.

Mr. Penikett: The numbers that we have in the budgets are estimates on the amounts that are being collected, or will be collected, rather than estimates of the amounts that may be due - is that an accurate statement?

Hon. Mr. Ostashek: Yes, that would be an accurate statement.

Mr. Penikett: The reason I asked about the amount of the shortfall is obvious. If the sums involved in the gap between what is owed to us and what is collected are significant, it raises questions about the staffing levels and whether it might not be economic to have enough people to make it worthwhile to make sure that we are collecting it all.

Hon. Mr. Ostashek: There is the perversity of the situation. For every dollar we collect, we lose $1.50 in transfer payments. That is the reality that we are faced with; we do not know how much we may be losing. Do we staff those positions and diligently try to collect that money so that we can have $1.50 in transfer payments deducted from us? That is the question we have to ask ourselves. We keep telling the federal government about the unfairness of this situation.

Mr. Penikett: The Government Leader is taking a great leap forward. I was coming to that point. If I could take the role of his seat-mate from the other Porter Creek constituency, we are also all Canadians here. It indeed could be a concern of the federal government if it thought that we were not aggressively collecting taxes that are owed and, in fact, if we were being passive in our approach to the collection of taxes. I would like to know what the Government Leader's policy is on that score. Is it passive collection, or does he believe that we have some responsibility as Canadians and as custodians of the public purse to aggressively collect taxes that are owed?

Hon. Mr. Ostashek: My staff feels that we are meeting the requirements of the act. The Member raises a very valid concern. We are all Canadians here and just because we are going to be penalized by 50 percent, we should not knowingly allow people to break the law, and I do not believe that is the case. It is my personal feeling that, in the Yukon, for the most part, diesel consumption is attributable to fairly large operators that have bookkeeping systems in place. I believe that we are collecting our fair share of taxes from them. There may be the odd private operator from whom we are not, but I would question the validity of making a decision for stricter enforcement or to hire people to do the enforcing. I am not sure that we would collect enough money to even pay their salaries.

Mr. Penikett: I am not going to ask the Government Leader to do it now, but I think that is a nice question and one that I think we should return to in the Finance estimates. If we can estimate, even crudely, the shortfall, and the House can be told what that is, it seems to me that the House could then make a reasonable judgment about whether it is worth our while to spend the money to do the collecting.

The reason that I raise the concern is not just as a Canadian, but also as a taxpayer of the Yukon. I have to be concerned about the fairness of it. If some people are not paying their taxes, it puts an extra burden on people who are, for example, the constituents of Whitehorse West who, for the most part, pay their income tax and pay their business taxes. What happens is if there is a shortfall, or people who owe us taxes do not pay them, the government then may have to raise our taxes in order to make up that shortfall.

Let me ask the Government Leader this: since he did not answer the question about whether he thought that we were aggressively or passively collecting the commodity taxes, do we actually send out monthly bills to the people who are importing fuel and tobacco and other commodities?

Hon. Mr. Ostashek: No, they report to us; we do not bill them. I just want to clarify this. I did answer the previous question. I said that we are complying with the regulations that are in place now. There has to be a range of compliance. Having no collection activity would not be meeting the requirements of the acts, whereas, having 35 to 40 people involved would clearly be more than what could be justified under any circumstance. We feel that we meet the requirements of the act, and we have received no complaints. I have not received any complaints from the Auditor General either.

Mr. Penikett: I am going to agree with the Government Leader. I think 35 or 40 more people to do this would be excessive. I want to be clear that I am not advocating that. It does not, however, surprise me that the government has not had any complaints. Of course, if someone is not paying their taxes and the government is not chasing them, I would not complain, either.

I would like to ask if it is now possible for someone who is importing fuel or tobacco, for example, to hold onto the revenue that is collected for the government for one, two or three months, and not pay any interest to us for transmitting it late?

Hon. Mr. Ostashek: Yes, that is possible in some cases. I want to go back to the previous question about not having received complaints. I am saying that we have not received any complaints from the Auditor General that we have not abided by the act.

Mr. Penikett: A long, long time ago, when I was Minister of Finance, I introduced a policy, which I thought was a very fair one. It was to have the government pay interest on overdue accounts to small business people. Would it not seem fair to the Government Leader that if we have people who are handling commodities, importing commodities and collecting taxes on our part that, if they pay us late, then they should pay interest on those late charges, just as Revenue Canada would insist on doing with income tax?

Hon. Mr. Ostashek: There is already a policy in place whereby anyone owing us money has to pay interest on it. What is being talked about here is a case where we may not be aware that information was held back and reports were not filed until a later date. We would not know the dates of the sales or whether money was owing. It would be very hard to collect tax on that.

If we see it as a problem and we have enough people to track this sort of thing, we would certainly take some action. However, it does not appear to be a big problem at this time. There is a program in place to pay the government interest on overdue accounts.

Mr. Penikett: I thank the Government Leader for his answer. In essence, what he has told us is that there is a policy in place, but the practice is not to collect, and he has conceded that there may be people who may not pay us for a month, or two, or three - they could be that late. So, if the government is paying small business people late, the Government Leader is saying we do not pay it because we do not have any way of knowing whether we are being paid late or not. Is that a fair restatement of his position?

Hon. Mr. Ostashek: No, I do not believe that is correct. I will try to clarify it for the Member. What I said was that it was conceivable that there are some people who are beating the system. I also said that there is a policy in place that is being enforced to collect interest on overdue accounts but, if we do not know the account is owing to us, if somebody is beating the system - and they could do that with any tax system - it would be very hard to assess a penalty on them.

Mr. Penikett: The Government Leader is right. There may be people beating any tax system, and I know what Revenue Canada audits a certain number of accounts periodically to establish whether people are paying the taxes that are owed. If one is in a higher income level, there is a greater chance of being audited. The government does that to insist on compliance.

The Government Leader - and I do not want to put words in his mouth - hinted, or admitted rather, that the level of voluntary compliance was not 100 percent; it was something short of that. I want to ask him: is there in place right now anything like a Revenue Canada audit - occasional, spot, periodic - of suppliers to check whether they are paying us?

Hon. Mr. Ostashek: I said it could conceivably be that some people are. We do not know that they are. And, yes, we do spot audits from time to time.

Mr. Penikett: This is a technical question but I would appreciate it if the Government Leader can come back to it. I would like to know who does those audits, how often they are done and, to ask the economic question, whether the audits are profitable and whether they have produced some recoveries for the government.

Hon. Mr. Ostashek: We will bring that back for the Member.

Mr. Penikett: I appreciate that very much.

I asked earlier for the volumes of imports, and the Government Leader indicated that he would bring them to us. Let me indicate the problem I have in trying to do some arithmetic here. I am having trouble reconciling what I would guess, based on the trend lines going back to the late 1980s, are the probable levels of imports with the kinds of revenues we are collecting, and that is the source of my concern.

Without Mr. Sanderson here, my information is incomplete. I have only publicly available sources of information. However, that is the issue I would like to pursue in the Finance estimates.

The Government Leader may not know this but if, for example, a hypothetical wholesale fuel oil dealer collects taxes from customers as a result of sales, but does not remit them to us, would those numbers show on the company's books? I guess this is a question about the audit. We have said that they would not show as payable on our books, because we do not know what they are. However, would it not be true that some fairly simple audit procedures, given the small number of companies involved in the Yukon, would establish that fact and those obligations?

Hon. Mr. Ostashek: Yes, they certainly could. It is a matter of weighing the results in terms of its cost-effectiveness. I am not trying to say that we should allow people to get away without paying taxes. However, we have to make a judgment call at a certain level.

Do we feel that it is an issue? If we do, what are we going to do about it? I think that is what the Member opposite is asking. At this point, we do not feel it is a very important issue, yet we do spot audits. The numbers the Member has alluded to certainly would show up on the bulk distributor's books. If he has a huge volume of imports and has no receipts for his tax-free off-road use, and could not substantiate it, then a very simple audit would turn it up.

Mr. Penikett: Let me deal with the macro-level. Obviously, if the Minister and Deputy Minister of Finance looked to the trend lines I am trying to establish, and saw a gap between the level of imports and the taxes that should have come from that and the actual amounts raised, it should raise a question about collection procedures, or something.

Would I be correct in saying that if we had delayed the collection of taxes, which would affect the volume figures in our accounts, it would have the effect of lowering our formula base? Would this not, in turn, have an effect on formula negotiations and the financial picture of the government? Is the Government Leader suggesting that the numbers are not so large that they would have that kind of an impact?

Hon. Mr. Ostashek: Obviously, the taxes go into the tax effort factor. The ones that are used are the ones that are on our books at the time. When we bring back the five-year history of the fuel imports for the Member opposite, and our rationalization of it, we may be better able to see them. The Member opposite may observe some large gaps that we have not seen.

I am sure, however, that if that happened, Finance officials would be talking to me fairly quickly, if they saw something that did not fit in with the trends, based on the economic activity in the territory at the time.

Mr. Penikett: The Government Leader earlier mentioned the problem with the perversity factor and the temporary financial advantage to us of the formula resulting in lower volumes of taxation. Could I ask the Government Leader if our collection procedures have had any implications in formula funding negotiations? He mentioned that the Auditor General had not complained about this. Has the federal government had any reason to complain?

Hon. Mr. Ostashek: My understanding is that the only difference in the formula is rates, not volumes. In the formula calculations, the tax capacity and the tax effort volumes are the same. The only difference is the tax rate, and that is what is used.

Mr. Penikett: Surely, I understand that. Our locally generated tax volumes are a matter which will be part of the negotiations. If we are pleading poverty, or an inability to generate any more revenue, that is surely going to have some bearing on the discussions.

Hon. Mr. Ostashek: No, because the volumes are irrelevent. The federal government is not concerned with what our volumes are. They take all the taxes and lump them together and say, "You have the ability to raise X number of dollars if you are taxing at the national average.'' That is a calculation that they use. They could not care less what we are taxing. They use that system so that they do not have to get into it and that is where the perversity factor comes from. If they say that we have the ability to raise $100 million on our own, and because our tax rates only allow us to raise $60 million, they are not going to make up that other $40 million.

Mr. Penikett: Is the Government Leader saying that, having gone to the effort as he did two years ago to raise the rates on fuel taxes, which is designed at least in part to impress the government with our seriousness about raising revenue, if we then were passive or unaggressive in collecting back taxes due to us, the federal government would not be taking an interest in that question?

Hon. Mr. Ostashek: Most certainly they would, but as I said they had no reason to because we are living up to the acts that are in place. As we said, even the Auditor General has not commented that we are not abiding by the acts. That would be the first indication - we would be getting a message from the Auditor General that we are not diligently doing what we are supposed to be doing under the auspices of the act.

Mr. Penikett: Let me finish with this general question in this round before we come back to it. The Government Leader earlier used the expression "conservative" as opposed to "liberal" in terms of the style with which we collect taxes. Formula financing is presumably based on estimates of revenues. Would it be true to say that the Government Leader, as Minister of Finance, has consistently conservatively estimated the revenues available to us from these commodity taxes?

Hon. Mr. Ostashek: I think that the Member opposite is aware that we use the best information that is available to us for doing the estimates. Finance would do that based upon the sales history. In a jurisdiction like the Yukon it is not that difficult to do, if an increase or decrease in economic activity is noted. As the Member opposite is aware, it has an immediate impact on our books, because we are such a small jurisdiction. So, it is not that difficult. It is not like being in an area of two million or four million people, where it takes a long time for any increase or decrease in activity to work through the system. In the Yukon, it is quite a bit more dramatic and happens much more quickly than in other jurisdictions with large populations.

Mr. Chair, I move that you report progress on Bill No. 3.

Motion agreed to

Hon. Mr. Phillips: I move that the Speaker do now resume the Chair.

Motion agreed to

Speaker resumes the Chair

Speaker: I will now call the House to order.

May the House have a report from the Chair of Committee of the Whole?

Mr. Abel: Mr. Speaker, Committee of the Whole has considered Bill No. 3, entitled Third Appropriation Act, 1994-95, and directed me to report progress on it.

Speaker: You have heard the report from the Chair of the Committee of the Whole. Are you agreed?

Some Hon. Members: Agreed.

Speaker: I declare the report carried.

Hon. Mr. Phillips: I move the House do now adjourn.

Speaker: It has been moved by the Hon. Government House Leader that the House do now adjourn.

Motion agreed to

Speaker: This House now stands adjourned until 1:30 p.m. tomorrow.

The House adjourned at 5:27 p.m.

The following Sessional Paper was tabled January 10, 1995:


Winter employment projects reflected in Bill No. 3, Third Appropriation Act, 1994-95 (Supplementary Estimates No. 1, 1994-95) (Ostashek)

The following Document was filed January 10, 1995:


Industrial Support Policy: NDP (cartoon satirizing) (Phelps)