Proceedings of the Standing Senate Committee on
National Finance
Issue 16 - Evidence
OTTAWA, Wednesday, October 30, 1996
The Standing Senate Committee on National Finance met this day at 5:15 p.m. to examine the Supplementary Estimates (A) laid before Parliament for the fiscal year ending March 31, 1997.
Senator David Tkachuk (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, this is the first meeting of the committee to examine Supplementary Estimates (A) which were laid before Parliament for the fiscal year 1996-97.
Tomorrow will be the last appearance before this committee of Mr. Norm Everest. He has been a member of the Estimates Division of Treasury Board for 17 years and a witness before this committee during at least six of those years. Over the last three years, I have had the pleasure of meeting with him. We will miss him and his expertise.
Thank you on behalf of this committee, Mr. Everest.
Mr. Miller, please proceed.
Mr. David Miller, Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada: Mr. Chairman, the first Supplementary Estimates of the 1996-97 fiscal year were introduced in Parliament on October 24, 1996. They seek new authority to spend approximately $1.5 billion.
From a fiscal planning perspective, these amounts were set out in the last budget of March 6, 1996. They represent reallocation of funds within and among departments and agencies or seek Parliament's authority to discharge liabilities that were set out in the deficits of previous fiscal years.
An additional purpose of Supplementary Estimates is to inform Parliament of the latest forecasts of spending under certain statutory authorities. These Supplementary Estimates identify a net decrease of $600 million.
Some of the major items for which appropriations are requested include $432.8 million for 44 departments and agencies to meet operational requirements originally provided for in 1995-96. This amount reflects a feature of the government's approach to operating budgets which has been discussed by the committee previously and is intended to reduce year-end spending and improve cash management. This feature allows managers to carry forward from one fiscal year to the next an amount of up to 5 per cent of the operating budget of the previous fiscal year. The operating budget includes salaries, operating expenses and minor capital expenditures.
The next item is $132 million for Human Resources Development Canada for increased grants under the Atlantic Groundfish Strategy. These expenditures do not increase the total $1.9 billion cost of the program that began in May 1994. This is an example of the reallocation of funds that we have throughout the Estimates, in this case from the Department of Fisheries and Oceans.
The next item is $118 million for Transport Canada for severance pay related to commercializing the air navigation system.
The next item is $117.7 million for Agriculture and Agri-food Canada for grants and contributions to individuals and organizations related primarily to changes in the grain transportation system and the marketing of Canadian agricultural products.
There is $100 million for Canadian Heritage as a contribution to the Canadian Television and Cable Production Fund that will be established as an independent, private, non-profit corporation to expand and enhance Canadian television programming; and $73 million for Industry Canada for Technology Partnerships Canada, contributions to support technology development in the environmental industries, enabling technologies and aerospace and defence sectors.
The $550 million balance is spread among a number of other departments, agencies and Crown corporations mentioned in the Supplementary Estimates.
As I mentioned previously, the statutory adjustments in the Supplementary Estimates (A) reflect a net decrease in expenditures of $559.6 million from the amount in the 1996-97 Main Estimates. These adjustments are consistent with the information contained in the economic and fiscal update of the Minister of Finance released on October 9, 1996.
The major items are a decrease of $1.3 billion in public debt charges due to more favourable interest rates than forecast in the 1996 budget, and a net decrease of $471 million in transfer payments to provinces made by the Department of Finance. This net decrease primarily reflects changes in the forecasts upon which these payments are based, such as provincial tax levels, population and tax revenues.
There was a decrease of $254 million in forecast payments from the Employment Insurance Account resulting from the reforms included in the Employment Insurance Act; a $961 million transfer payment to the Atlantic provinces for sales tax adjustment assistance under Part VII of the Budget Implementation Act of 1996; and, finally, an increase of $467 million in payments made by Agriculture and Agri-food Canada, including payments under the Farm Income Protection Act and $309 million in spending originally forecast for 1995-96 under the Western Grain Transition Payments Act.
Mr. Chairman, honourable senators, this concludes my opening remarks. I would be pleased to respond to any questions you may have.
Senator De Bané: About the western grain transition payments, is it true to say that we are talking here about an increase of 77 per cent more than what was originally expected? If so, what caused this large discrepancy from the original estimate?
Mr. Miller: The total cost of the transition payments was $1.6 billion, but that was divided into two fiscal years, fiscal year 1995-96 and the current year. Our forecast requirements for 1995-96 were $1.2 billion, but because of some changes that were introduced and some extension of deadlines for actually applying under the program, not all of that money went out during the 1995-96 year.
We are simply adjusting the allocation between the two fiscal years within that overall total of $1.6 billion.
Senator De Bané: The next item is a $143-million item with regard to the Farm Income Protection Act. Can you give us some details about that program? Who does it serve and what are its goals? Are there any limitations on the amount of the payments provided? Finally, why were there no original Estimates provided for this item in the Main Estimates?
Mr. Miller: I should look it up in the Estimates to find the exact reference.
Senator De Bané: It is within Agriculture and Agri-Food.
Mr. Miller: The Farm Income Protection Act.
Senator De Bané: Exactly.
Mr. Miller: This item deals with the safety-net companion programs. The intention of the entire grouping of programs in Agriculture and Agri-Food was to provide a certain minimum income protection for producers. There are two cornerstone programs, the Net Income Stabilization Program, or NISA, and the crop insurance program.
There were a number of other things that we wanted to do in order to ensure that there was minimum protection and coverage, and many of these programs were directly in concert with what was going on at the provincial level. In other words, these amounts represent companion programs introduced to help supplement some of those special programs within each province.
Quite honestly, the reason there was nothing in the Main Estimates is that these particular programs were not approved until June 1996, after the fiscal year began. Thus, this is the first opportunity we have had to come to Parliament and to discuss the implications, all of which fall under the authority of the Farm Income Protection Act itself.
Senator Stratton: There was an increase of roughly $144 million for Heritage Canada. There was about $100 million in contributions to the Canada Television and Cable Production Fund.
Mr. Miller: That is correct.
Senator Stratton: What is that fund?
Mr. Miller: I have a detailed note on it. The 1996 budget announced that the Minister of Canadian Heritage would be examining ways to more effectively promote the production of Canadian culture by the CBC and private producers. The purpose of the Canada Television and Cable Production Fund is to increase the amount of Canadian television programming available and to enhance the quality of Canadian shows. The federal government will be contributing $250 million over the next three years, which will be combined with other private- and public-sector financial support in a coordinated effort to produce much needed Canadian programming and to solidify the domestic TV production industry.
The fund will be established as an independent, private, non-profit corporation managed by a board of directors. Many players in the creation and exhibition of television programming in Canada, as well as federal government representatives, including the Deputy Minister of Canadian Heritage and the Executive Director of Telefilm Canada, will sit on that board.
Senator Stratton: Do they determine how the funds will be allocated?
Mr. Miller: That is correct. There are some guidelines. There will be very tight arrangements associated with the contributions; however, effectively, the board will determine which specific activities will be funded.
Senator Stratton: In other words, if someone wishes to produce a television show, they may make an application and receive a grant?
Mr. Miller: It is termed a contribution because there are several conditions associated with the payment of that, whereas a grant is really unconditional.
Senator Stratton: They need private funding, et cetera.
Mr. Miller: What I would expect would happen is that people would come forward with a legitimate business case. The idea of these funds is to give them that kick-start to allow them to get to the development stage or the production stage, which would then allow them the bridge financing necessary to turn to another venture. There are restrictions as to having these particular productions aired on television within a certain length of time to ensure that we are not doing things that have a constant shelf life. Effectively, it is open to drama, children's programming, variety, performing arts and documentaries -- just about any concept within the television field.
Senator Stratton: Is there a limit as to the amount for which someone can apply?
Mr. Miller: Unfortunately, I do not know that, but I imagine that there are restrictions.
Senator Stratton: Are the contributions repayable?
Mr. Miller: No. In this particular case, because it was looked at as an opportunity to get the production under way, we had limited expectations. It was to encourage Canadian production and development. Therefore, these are not refundable contributions.
The Chairman: Is the $100 million money to be spent or is it a $100-million fund, with the interest or investment money being made available to those who qualify? Why is it in a separate corporation? Why is there not some sort of agency or board to allocate the funds?
Mr. Miller: My understanding is that an attempt was made to set aside a certain amount of funds that definitely will be available to the board of directors of a corporation for them to allocate.
The Chairman: Who are they again?
Mr. Miller: It will be made up of a cross-section and a variety of people involved with television, on both the production and development sides, along with the Deputy Minister of Canadian Heritage and the head of Telefilm Canada.
The Chairman: In a way, then, they will be giving money to themselves.
Mr. Miller: No. I do not think they qualify for receiving money as members. I cannot vouch for the private-sector individuals on the board, but the intent is that they would look at individual projects and approve those. The funding is set aside. There is an understanding that they are accountable for the use of those funds through the contribution arrangement with Canadian Heritage. Beyond that, I am not sure myself how individual projects will be assessed.
The Chairman: How are they different from Telefilm?
Mr. Miller: Actually, this is a combination. It includes the production funding that was available to Telefilm Canada.
The Chairman: How much was that?
Mr. Miller: My understanding is that it was $50 million. They had a Telefilm Broadcast Development Production Fund of $50 million, which will be part of the funding put into this new corporation.
The Chairman: Therefore, the total is not really $100 million. The sum is made up partly of the $50-million fund that was previously available for television via Telefilm, correct?
Mr. Miller: That is correct.
The Chairman: Is the other $50 million from other funding, which is just thrown into the one pot to create a $100-million fund, or is it new money that was not available prior? Obviously, $50 million was available before, so we no longer have a $100 million fund.
Mr. Miller: As a point of clarification, that $50 million was over the three years of the federal funding for that part. In terms of incremental funds, $50 million came from the Telefilm Broadcast Development Production Fund and $50 million came from the private sector cable production fund.
The Chairman: That was already available before.
Mr. Miller: Yes, that is my understanding. Again, as to the remainder of that fund, which would be the federal money, there was provision for that in the 1996 budget.
The Chairman: Let me get this straight. I am confused. The $100 million that we have in the Estimates that are before us had been allocated previously to Telefilm Canada. Were they given $50 million a year or $50 million every two years?
Mr. Miller: I do not have the exact numbers as to what Telefilm received. My understanding is that their contribution out of the fund would be $50 million over the three-year life of the program. As to where the $100-million fund came from for this year, again, I would have to verify that. However, it was for the start-up. It may have been all federal money this year. I am not sure how those funds are being amalgamated over the three-year life of the program.
The Chairman: Is the money available to the cable industry for production purposes now being thrown into that fund?
Mr. Miller: That is correct.
The Chairman: Could you obtain for us some details on that?
Mr. Miller: Certainly.
The Chairman: Is the board of directors to be made up of government and industry representatives?
Mr. Miller: Yes.
The Chairman: When you say industry, would that include CBC, CTV, Global, or industry in the form of private producers?
Mr. Miller: Certainly, private producers would be included. I do not know whether or not the ones who are buying that programming would be represented as well, but I think that would be a good idea. In other words, they could assess the marketability at the point that the projects were being approved. There are stipulations which apply once the production is done; that is to say, it must be aired within a certain time. There would have to be some arrangements made beforehand which would be used to qualify.
The Chairman: This would be to produce pilots. What will happen if a pilot is made and it is not aired? For instance, let us say that Global says, "This is horrible and we do not want to run it."
Mr. Miller: It would not be for pilots, necessarily, as much as it would be for a documentary or children's programming aimed at a particular target. It would be for individual programs, as well as pilots developed through the networks.
The Chairman: Will it be something along the lines of what the National Film Board used to do?
Mr. Miller: That is correct.
The Chairman: Is money from the National Film Board thrown into that pot?
Mr. Miller: I do not believe they have money for that purpose, unlike Telefilm which had such a fund.
The Chairman: You stated that this will be a non-profit corporation because of private sector involvement. In what way do you mean that?
Mr. Miller: I am not honestly sure. At this point I do not have the details as to how it will work; nor am I sure that it has been established yet. However, we can find out for you.
The idea was to provide encouragement. It was to act as leverage in order to get these productions under way. That is one of the reasons these amounts were not looked at as being repayable. That gave the initial effort to get the production under way and to get the private sector investment in the film to be able to complete it. It was to ensure financial viability and completion of the production.
The Chairman: What do they expect to leverage? Do they expect ten times, five times or three times?
Mr. Miller: We are hoping that we could support between $600 million and $700 million worth of production out of the $200 million available.
The Chairman: How much does the CBC spend on production today? Is that not their total budget?
Senator Stratton: It is a little higher than that.
Mr. Miller: I did not bring the Main Estimates with me today, Mr. Chairman. What appears for the CBC is the amount they receive from the federal government, which has been subject to some fairly dramatic reductions. My best guess is that their costs were about $1.3 million.
Senator De Bané: Mr. Perrin Beatty was complimentary about this new fund.
The Chairman: I am sure he was, now that he is chairman of the board of CBC. I do not care much about what Perrin Beatty thinks.
Senator De Bané: He is the president and CEO of the CBC. Instead of giving just to the CBC, it is preferable to have a fund from which money can flow to any network, whether private or public.
The Chairman: Yes, or to cable.
Senator Stratton: This is primarily for producers.
Senator De Bané: Yes, it is.
Senator Stratton: It does not have to be CTV. It could be a small, independent producer who has a commitment from one of the networks to put a show together. He can pitch it to the network, which may agree to do it. He can then apply for the money to put the production together. It could be me, or it could be a small production outfit with two or three people and a good idea. That is what is intended as encouragement.
Mr. Miller: My understanding is that this money would not be available to the large networks.
Senator Stratton: No, I did not think so. It is for small independents.
The Chairman: I know that Telefilm and the National Film Board had some difficulty spreading the money around. It came from two ways. For example, the indigenous industry in the prairies was not as strong as it was in Ontario, so they did not get what would be considered their fair share. That is to say if we took the population and other matters into account. Part of it was because the federal government did not promote it enough; part of it was because there was not a large enough industry to take advantage of it.
Are there any plans for marketing this all across the country rather than just centrally? Is there any sort of regional aspect to it at all?
Mr. Miller: I do not have any direct knowledge of that in terms of allocations by region. Given the amount of coverage that the media provided when this item was announced by the minister, along with the understanding and encouragement given by the CBC and supporters of the industry, I would be surprised if there are any potential producers who are not aware of its availability.
The Chairman: I have some questions about an interesting program of the government which is found on page 35, namely, the Canada Information Office.
Under the item "Professional and Special Services" there is an amount of $4 million, which sum makes up a good chunk of the $19.6 million total. What would that amount be for?
Mr. Miller: I am speculating here, Mr. Chairman, because I do not have any details of the budget below the level indicated in the Supplementary Estimates.
When we look at the elements in there, it could be professional services in the sense of hiring specialists in informatics, or in accounting, or in any type of service. It is a broad category.
The Chairman: Could it include advertising agencies?
Mr. Miller: No, that would normally be included in "information", the category above it.
The Chairman: Are you referring to the other $4 million amount?
Mr. Miller: That is correct. The bulk of information is either for that or for production of documents and dissemination of material, although printing and publishing could be included also under the rubric "Professional and Special Services".
The Chairman: Were there calls for proposals or tenders for these services?
Mr. Miller: There are clear limits, both because of international agreements such as NAFTA and the government's own contracting regulations. This agency adheres to that as well.
The Chairman: Under the rubric "Information", is it possible to obtain a breakdown of those two amounts?
Mr. Miller: This is a specific question dealing with professional and special services. It indicates that, because this organization is just starting up, they are unable to staff it completely, which would be included in the personnel costs. They have hired a lot of people on a temporary or term nature, and that comes under the standard object of professional and special services.
The Chairman: This $4 million will become $2 million, then. In other words, they will be contracted and then they will become personnel. Is that the point?
Mr. Miller: It would be a different set of individuals, but if you are hiring secretaries or people to answer the phones and those kinds of things, eventually that would be changed. Our staffing process is not the most efficient. The idea was to get the organization up and running as soon as possible. Therefore, people from temporary personnel placement agencies are being used until others are hired full time.
The Chairman: Therefore, next year it will be $6 million, correct?
Mr. Miller: No. The professional side should be much lower while the salaries portion would be much higher. The overall cost will be the same.
The Chairman: Will it be $6 million?
Mr. Miller: Of the $19.6 million, yes.
Senator De Bané: Tell me about the reduction in servicing the debt. You said that it is about $1.3 billion less in terms of expenditure.
Mr. Miller: That is correct, senator.
Senator De Bané: Is the reduction in servicing the debt due only to lower interest rates or is it also because you expect borrowing will be less than expected?
Mr. Miller: My understanding is that almost the entire amount is due to borrowing requirements, which is about 130 basis points lower now than it was at the time the budget was put together.
Certainly, there may have been a slight change in the mix of debt instruments, which may have an impact, but it is the short-term interest rates that have had virtually the entire impact.
Senator De Bané: Why is it that you expect a reduction of about $500 million in federal-provincial transfer payments?
Mr. Miller: There are a series of factors which are fairly complicated which are identified in legislation that relate to the capacity of the individual provinces to generate tax revenue, the population of the individual provinces and how they migrate, as well as the overall taxes imposed at the provincial level. All these factors come together through a complicated form that is identified in the legislation. For this particular year, a lower level than forecast at budget time last February was achieved.
[Translation]
Senator De Bané: You also anticipate an amount of $961 million for harmonizing the GST with the provincial sales tax in the Atlantic provinces, except for Prince Edward Island. Is this agreement now finalized with the provinces concerned?
[English]
Mr. Miller: Yes. I believe an announcement was made at the end of last week by the federal Minister of Finance in conjunction with the ministers of finance for the provinces that the agreement is now completed and is essentially the same as that outlined at the time of the budget last February.
[Translation]
Senator De Bané: Do you know whether, under this agreement, the combined provincial sales tax and GST will reach 15 per cent?
Does that mean that, for the signatory provinces, that is Newfoundland, Nova Scotia and New Brunswick, if one of these provinces wants to change its provincial sales tax, it will have to obtain the consent of the two other provinces, or is that excluded from that agreement?
[English]
Mr. Miller: I have no idea about that. Again, from my understanding, for any province to change the rate, it would require cooperation not only at the provincial level but at the federal level, since they are part of that.
Quite honestly, I do not have with me the details of the agreement that would identify that kind of thing.
[Translation]
Senator Rizzuto: I would like to have some clarifications concerning the Department of Canadian Heritage. This is a 29.5-per-cent increase over the original amount in the Main Estimates. What is the purpose of this fund and who are the expected recipients of these contributions?
[English]
Mr. Miller: Excuse me for a moment until I find the right piece of paper.
[Translation]
Senator Rizzuto: I believe it can be found on page 32.
[English]
Mr. Miller: The increase relates to the entire department. Is that the figure you wanted?
[Translation]
Senator Rizzuto: Yes, because there is a reference to an item of $119 million, as compared to lower appropriations, which means an increase of 29.5 per cent.
[English]
Mr. Miller: The largest part identified is the $100 million for the Canada Television and Cable Production Fund. The remainder of the items relate to a series of other changes, including some minor adjustments for operating budgets and some other programs.
Certainly, the bulk of that is the Canada Television and Production Fund, which we discussed a few minutes ago.
[Translation]
Senator Rizzuto: On several occasions, we heard the Minister of Canadian Heritage mention supplementary funding to maintain certain radio stations abroad or in some areas of Canada. Are these funds part of the $119 million that are being requested as a supplementary amount over the original estimates?
[English]
Mr. Miller: Of the $119 million, $100 million is for Canadian production. This will encourage small producers with good ideas to bring them forward to meet with, for example, one of the networks and then receive some contributions toward the actual making of a film or television show so that it is totally geared toward Canadian production and content.
The Chairman: As a follow up to my line of questioning on the $50 million and the $100 million amounts, is the $50 million amount over three years?
Mr. Miller: That is correct.
The Chairman: Would it be one-third of that for this fiscal year, and then one-third and one-third thereafter; is that the way it works?
Mr. Miller: No. In fact, that is the point I was not sure about. Given the entire amount devoted to this, at what time will the total contribution be made? It may be one-third per year or it may be one-half in one year.
The Chairman: There were some questions with regard to the Canada Information Office and, in particular, professional and special services and information. Could you provide us with a list of the people who would be going into personnel, as you suggested, as well as details with regard to the contracts that would be given out, which might include contracts for advertising, communications, public relations and advice-type contracts?
Mr. Miller: I would be very surprised if we could not provide further details that identify down to the level, for example, of the planned printing, communication and distribution of publications and those types of costs. Certainly, we can provide that information to you.
Senator Stratton: Page 70 deals with the Department of Industry and shows a sum of approximately $146,948.000. Beside "Contributions under Technology Partnerships Canada" we see a sum of $73 million. How would that amount of money be arrived at? Is that for a new program or something in addition to that which is already required?
Mr. Miller: This is a brand-new program. I believe the first four or five projects under this program were announced within the last few days. I can give you some further information on exactly what will be involved in that regard.
These projects are geared toward environmental technologies, including pollution prevention and control, water treatment, recycling, enabling technologies, such as advanced manufacturing, advanced materials, biotechnology, selected information technologies and aerospace and defence industries, avionics, flight simulators and aircraft communications.
The total cost of the program for the first three years is $600 million. At full maturity, program funding is estimated at $250 million annually.
Senator Stratton: Are these grants? How are they arrived at? Do you know? I have to go into this again because I want to find out how it is arrived at.
Mr. Miller: No. As indicated by the Estimates, these are contributions.
Senator Stratton: They are just straight-out contributions?
Mr. Miller: That is correct. Of course, when we say "straight-out contributions" these ones are normally repayable. I am not sure of the specifics on that. We would need to check the terms and conditions. Certainly, they are subject to a lot of scrutiny both in terms of pre-authorization or pre-eligibility for the contribution. Although the federal government does not receive anything back directly, the recipient of the contribution effectively has a product to produce. It may be a public good. It may be something directed toward one of these advanced industries or investments in that area. However, they would have to prove to us that they satisfied those conditions in order to keep the money.
Senator Stratton: Is this open to any level of corporation as long as the corporation is viable and comes forward with a good, marketable idea?
Mr. Miller: Yes. It certainly includes major companies as well.
Senator Stratton: That is what I am getting at.
Mr. Miller: I believe Bombardier was a recipient of one such amount.
The Chairman: I have several questions regarding the $961 million, the sales tax adjustment assistance. Is that the subsidy to the provinces in Eastern Canada that have taken advantage of the new harmonized GST?
Mr. Miller: That is correct. I believe it is now referred to as the harmonized sales tax. Because of the impact of harmonization, there was consideration provided to those provinces that effectively comes down over a period of time. This then allows them to adjust to a harmonized tax which is considerably less than what they were imposing before.
The Chairman: The provinces are saying that by expanding their tax base, they will still take in less money than the old numbers they used to take in under the sales tax they used to have in place. Is that the way it will work? If they now harmonize, that means they now charge tax on services, which they probably do not do under their existing sales tax regimes. Are they saying they will make less money?
Mr. Miller: That is correct.
The Chairman: Is that true for each province? Will each of the three provinces receive less money?
Mr. Miller: My understanding is they will all receive less money. Perhaps I can identify for you exactly how much is involved.
The Chairman: Could you break down the figures for the three provinces?
Mr. Miller: Nova Scotia will have to reduce its rate by 4.8 per cent, while Newfoundland and New Brunswick will realize a reduction of 3.3 per cent. The payments of $249 million, $348 million and $362 million, respectively, are in consideration of that revenue loss.
The Chairman: Let me get this straight. Let us take New Brunswick as an example. What is the rate of sales tax now in that province?
Mr. Miller: I assume that it is 8 per cent, plus. Therefore, it will be 11 per cent to 12 per cent.
The Chairman: Are you saying that they now have an 11 per cent sales tax?
Mr. Miller: That is correct.
The Chairman: They will go down to 8 per cent. That is a 3-per-cent difference. However, they get to charge 8 per cent on all these new items on which they were not charging previously. They are charging 8 per cent on the services of accountants, lawyers, engineers and all these products and services to which the sales tax does not presently apply. Will they still be that much short?
Mr. Miller: I should not have worked backwards. Obviously, they do not have a tax rate which works in little dividends. Their tax rate was probably more like 13 per cent or 14 per cent as opposed to 11 per cent or 12 per cent.
[Translation]
What is the provincial tax?
Senator Landry: I believe it is 10 per cent.
[English]
Senator De Bané: Is it only 10 per cent? It must be more than that.
The Chairman: That is my point. I do not think it is. I have never seen a province with a 13-per-cent sales tax rate.
Senator Stratton: Newfoundland's is around 14 per cent or 15 per cent.
The Chairman: That is how much they will be short. This is not a contribution on the basis of the reduction, but a contribution on the basis of their shortfall in revenue, even though they have expanded the tax base.
Mr. Miller: That is my understanding. That is why there is a dollar amount associated with that. It represents the expanded tax base, but at a lower rate.
The Chairman: I find that hard to believe, but I guess it is possible. Has the federal government satisfied itself with the numbers? What happens if they do not lose money?
Mr. Miller: Because of complications that also involve equalization, which will be going down because of this change, it is not so straightforward. I do not pretend to be an expert in the area of provincial taxation. I certainly know that the Department of Finance has spent a lot of time negotiating with the provinces on reaching this agreement.
Again, it is my understanding that Statistics Canada has a series of information which we will use to help assess the implication of moving to a harmonized rate.
The Chairman: I heard Minister Martin say that the harmonized tax will generate more economic activity and a little more business. I asked a question in the Senate of the Leader of the Government in the Senate with regard to that statement. To me, all that means is more sales tax revenue, because now with the harmonized tax you cannot escape it. It is everywhere. I am trying to assure myself that there are no inducements for them to join the new tax regime but that this is simply a replacement of the money they will be missing.
Mr. Miller: I know for certain that the implications of the conversion were based on historical information rather than expectation. To the extent that individual provinces would benefit from a harmonized rate through increased economic activity and, therefore, a larger tax base, that was a hidden inducement. However, it was not completely hidden. Because of all the other variables that could occur within the economy, the assessment of the Department of Finance was based on historical information. In other words, what had happened in the past and how that would be influenced if there had been a harmonized rate was taken into consideration. I certainly hope that there is increased economic activity. I understand that part of the reason for provinces entering into it had to do not only with interprovincial implications but also that it would encourage investment overall.
The Chairman: Is the theory of increased economic activity based on the fact that the taxation rate is lower?
Mr. Miller: No. They did not try to anticipate what may happen as a result of the harmonized rate. They based it strictly on historical information concerning the impact had the rate been harmonized in the past and what would have been the loss in revenue associated with that. There are so many other variables in the economy that it would be impossible to isolate one factor from the fact that interest rates are at a 40-year low or that unemployment is at a certain level. They simply assessed historically the economic activity of a province and determined, if we had a blended or harmonized tax at a lower rate, what the implications would have been in that situation.
The Chairman: I am simply trying to get to the justification of why we have increased activity because of the lower rate of taxation. If you drive that argument further, if you lower it a little more, would it also increase activity?
Mr. Miller: People are hopeful that the rates would generate that, but it was not taken into consideration in the calculation since it is based simply on historical, actual information.
The Chairman: Thank you for your appearance tonight.
On October 7, we heard witnesses from the Department of Transport to review the Main Estimates 1996-97. At that time, questions were asked of the witnesses who undertook to respond in writing at a later date. Those responses have been received and distributed.
Senator De Bané: I move that we allow the Chair to present the committee's report on Supplementary Estimates (A) to the Senate.
Senator Rizzuto: I second that motion.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: The motion is carried.
The committee adjourned.