May 7, 1974

LIB

Pierre Elliott Trudeau (Prime Minister)

Liberal

Mr. Trudeau:

Yes, Mr. Speaker, I suppose that would be a better slogan. One might look at the economic performance of Canada viewed by people outside the country. I shall not bore the House by quoting again the opinions of the OECD, the IMF, the Wall Street Journal or the Financial Times in respect of Canada's economy. I shall not even invoke the Canada Year Book, which is something of an authority, for the hon. member for Peace River. But, Mr. Speaker, I think if anyone looks impartially at the various reports they will have to admit that in a troubled economic world, Canada is doing relatively well.

In a troubled political world, particularly if we call to mind the comparisons that were made after October, 1972, respecting a stable Canada and its minority government, and the great majority of the President of the United States and the successful elections of the President of France and the Chancellor of Germany, it is interesting to look back 18 months later and to see how Canada fared in political terms and that Canadians are also doing relatively well and there has been pretty sensible political stability in the past 18 months.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
?

Some hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
LIB

Pierre Elliott Trudeau (Prime Minister)

Liberal

Mr. Trudeau:

As I was saying at the beginning of my speech, essentially I should like to show the consequences of dissolving parliament now and try to impress on the opposition and the country the effects of interrupting the business of the nation to have this expensive election of which the leader of the Creditistes spoke-interrupting the economic momentum which is making Canada a more successful economic country than other countries. And

May 7, 1974

The Budget-Mr. Gillies

interrupting all this for what reason? For the manoeuvr-ings of the opposition.

This creating of uncertainty for political reasons, the deprivation of the relief that the budget would provide to the needy, this renunciation of the tax on huge corporations is all brought forward for political motives. As I indicated in the earlier part of my speech, this has been motivated by the well defined reasons of the NDP and of the Tories. My final word on this-

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
?

Some hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
LIB

Pierre Elliott Trudeau (Prime Minister)

Liberal

Mr. Trudeau:

-is that the least we can say about this timing is that it is irresponsible. There will be other occasions later in the spring when the government can be defeated. We know that there are more opposition days coming with no-confidence votes.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
PC

Thomas Miller Bell (Official Opposition House Leader; Progressive Conservative Party House Leader)

Progressive Conservative

Mr. Bell:

You had your chance.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
LIB

Pierre Elliott Trudeau (Prime Minister)

Liberal

Mr. Trudeau:

It is very unusual to defeat a government on its budget. I can understand why, because even though the budget may not go as far as the expectations of the various parties, yet it does bring relief to people, it does redistribute in one way wealth from the rich to the poor; and that is why we believe this particular timing, with these pieces of legislation on the order paper, is particularly irresponsible.

There is one final effect which I neglected to mention, and that is that the election expenses legislation, which has been demanded for so long by the leader of the NDP (Mr. Lewis), has not yet been passed. Finally, when they have a chance to have an election under this new legislation, they prefer to pull the plug before we are caught up in that legislation.

Mr. Speaker, may I say in concluding in a very clear and final way that the Liberal government-and I think I said it often enough-does not want a general election at this time. We want to serve the mandate we were elected for by the people of this country and we share the opinion of the Social Credit Party in that respect.

Having said that, Mr. Speaker, I would like to add that we will look forward to the vote on the proposed amendments. We are ready for the vote on the budget. If the Tories and the NDPs want to put an end to this 29th Parliament we will make it a point to see that they answer for it before the people of this country. Not only do we undertake to show the Canadian people that the Liberal party was ready to have all measures on the order adopted, but we promise them that they will see a Liberal party ready and able to fight in an election and to lead to victory all its candidates across the country whose heart is beating, whose brains are thinking and whose hands are working for freedom and justice.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
PC

James McPhail Gillies

Progressive Conservative

Mr. James Gillies (Don Valley):

Mr. Speaker, I did not realize, when I first got to my feet, that I had so many friends on the other side of the House, nor did I realize that I would be making the second speech in a political campaign. At any rate, I am delighted that the Prime

Minister (Mr. Trudeau) joined in the debate this afternoon, although he did not have much to say about the budget. His participation explains a great deal about what has been going on and what has not been going on in the government. For the first half hour this afternoon the Prime Minister asked, why an election now? He said, "We have done this, we have done that. Why now?" The answer, of course, is quite clear. It is now, because the Canadian people really want something done about inflation.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
?

Some hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
PC

James McPhail Gillies

Progressive Conservative

Mr. Gillies:

Having seen the budget that was brought down on Monday night, they realize that the government has neither the heart, will, courage nor the ideas to tackle the inflation problem in this country. Like hundreds of thousands of other Canadians on Monday, I waited to see what the government would do about the inflation problem. Through my mind went a variety of scenarios of things the government might try to do or suggest. Differential pricing was a possibility. Some sort of selective price controls, backed by high subsidies, such as the government has been trying in past months, might work for a time. But the one scenario that did not occur to me was that the government would come forth for another year with the same old policies and ideas and suggest that these were a modern, contemporary approach to dealing with inflation in Canada.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
?

Some hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
PC

James McPhail Gillies

Progressive Conservative

Mr. Gillies:

It never occurred to me that we would again be in a budget debate in the House of Commons, after a year in which we had one of the most rapid increases in prices in the history of Canada, still trying to get the government to recognize that not all inflation comes from abroad, that we do have domestic inflation and that it is indeed a pervasive, significant, almost destructive force in Canada at the present time. The report of the Department of Finance which was tabled before the budget shows that with respect to the OECD figures which the government likes to quote, using a price deflator which the report indicates is the best measure of inflation, only one other industrialized country in the world, Japan, had more inflation last year than Canada. I certainly hope that the Prime Minister and the Minister of Finance (Mr. Turner) will not be wandering around the country saying we have had a great record in this respect. We have had a terrible record. The statistics in the government's own report, at page 31, show without doubt that the rate of increase in inflation in Canada in 1973 was higher than in England, higher than in the United States, higher than in France, and that the only country which had a higher rate was Japan, which had its problem with oil.

I used to try to figure out why the cost of living increase was about the same in the United States and Canada. I would call my friends in the United States and ask how much of their inflation came from oil price changes. They would tell me it was 22 per cent to 24 per cent. Mr. Speaker, we did not have to cope with that problem in this country. It is clear that we have inflation throughout the entire economy. It is a mistake to suggest to the Canadian people that we cannot do anything about inflation. For

some time the Economic Council of Canada has said that our goal should be to have an inflation rate not more than that of our trading partners. I have never accepted that. It is an absolute surrender to accept that sort of proposition. But the fact now is that our inflation rate is much higher than that of our trading partners.

However, the real issue is not what our inflation rate is compared with Japan, the United States or Great Britain: the real issue is what inflation is doing to hundreds of thousands of Canadians right now. They are seeing their savings destroyed because of the amount of inflation, 10 per cent this year, 10 per cent last year, and no one yet knows how much it will be this year. Hundreds of thousands of people are finding it hard to live on fixed incomes when faced with the rapid rises in the cost of living. The escalation in social security payments does not begin to compensate for increased price levels. Since last July the average hourly increase in wages has been less than the rate of increase in prices. For the first time in recent Canadian history, the average Canadian workman is falling behind because of inflation.

The Minister of Finance likes to talk about disposable income. Of course he knows it includes profits, dividends and other things. Real income is what concerns the man who is working and it is being wiped out by what is happening in our economy at the present time. The Prime Minister likes to say he is worried about what might happen to the low-income group because of some type of incomes policy. Yet he is presiding over a government that has allowed a massive redistribution of income against low-income groups because of inflation. This is a situation that is really intolerable.

Not only are individuals being badly hurt, but we are reaching a stage in this country where many of our institutions, many of the things that are fundamental for the well-being of the country are beginning to break down and be destroyed. Has there ever been a time before when industries such as the steel industry have had to open up their collective bargaining agreements in the middle of a contract to pay their employees more because inflation was so great? What will become of general collective bargaining agreements if this continues? Have we ever been in a situation in this country where the government has had to pay a bonus to people to get them to buy Canada Savings Bonds? At traditional interest rates the government has not been able to sell these bonds.

We are in a situation in which one of the most important institutions in the country, the whole institution for the channelling of savings into the investment market, is gone. Today in the stock market, price earnings ratios are as attractive, if you can imagine it, in terms of investment as at any time since the thirties, yet nobody is buying common stocks. Why? It is because no one has any faith that the government can get inflation controlled.

Clearly, we cannot ask people to pay ll'A per cent for housing loans and 14 or 15 per cent for consumer loans. Yet last night the Minister of Finance brought down a budget which, in its basic policy prescriptions, in its basic approach to inflation is precisely the same as the budget brought down a year ago; and that budget is one of the

The Budget-Mr. Gillies

massive failures in economic policy implementation in Canadian history. It was a budget that failed in any way to halt the increase in inflation in the last year.

The minister is correct when he says that the solution to inflation has to be an increase in supply. Everyone realizes that is the critical problem, although we sometimes forget that prices are set by supply and demand and excessive demand in an economy can create problems as well as can shortage of supply. But even here the logic is somewhat mixed. The minister says that our inflation all comes from abroad and we will solve it by increasing domestic supply in Canada. I do not believe we can increase our domestic supply sufficiently, Mr. Speaker, to solve the inflation problems of the world, and I am sure the minister would agree.

The critical problem, the reason that we are in difficulty in regard to inflation in this country today and the reason the policies put forth by this government will not work, is simply that the policy for increasing supply involves placing demand into the system. What we have now is an increase in aggregate demand, but the supply it is expected to generate will not be for some time. The problem is, how do you bridge the gap? Everyone knows that if supply improves, the inflationary situation will improve. But what happens in the meantime? That is why you need a policy for the short run.

It is foolish to deny that is the situation. Examine housing. In the city of Toronto prices are increasing 20 per cent to 30 per cent and the amount of new housing being constructed is equivalent to new family formations. There is no way you need increases of 20 per cent or 30 per cent to stimulate housing supply. Prices are escalating because of the decline of investment opportunities in other areas, and particularly with the rise in inflationary expectations people are investing in the real estate market. You cannot advance any reason why housing is rising as it is, except for inflationary speculation. Such price increases do little to generate more supply in the economy, and unless you are willing to deal with the problem of inflationary expectations now, no policy will work. This country is full of inflationary expectations today, creating one of the major problems of the economy. Why else is the price of gold at $200, if it is not for inflationary expectations?

The second thing that is equally true is that once you have inflationary expectations, all kinds of imperfections develop in the market. The basic premise under which the budget was brought down a year ago and under which the budget was brought down last night is that we have normal expectations and we have perfect competition in our markets. Neither is true, Mr. Speaker. As long as neither is true we will not be able to solve the inflationary problem in the economy unless we deal with the two things directly and completely. If we had perfect competition in the marketplace, one could easily see that rates of increases in profits would be equivalent to rates of increases in sales, times past profit margins, plus increasing costs and productivity changes. The present rate of increase in profits is an indication of the imperfections in the marketplace and of groups being able to capitalize on the basis of the situation as it exists now.

What is the government going to do about the situation? Ignore it? Something must be done to prevent non-com-

May 7, 1974

The Budget-Mr. Gillies

petitive situations from creating abnormal increases in prices which Eire not justified by any sort of competitive situation in the market. That is why we suggest an incomes policy-an incomes policy designed first to work against inflationary expectations and second to protect people from prices that result from the market because of lack of competition. You may say that there is a better way of dealing with this problem. I doubt it. I do not know what it is. But you cannot ignore the problem. If you are serious about solving the inflationary problem in this country, not by moderating demand but by increasing supply, you simply have to have policies to deal with the transitional phase, otherwise there will be as much inflation as we have already-10 per cent last year and 10 per cent this year. The tragedy in this budget is that it does not recognize this fundamental proposition.

I am sure no one in this House is more dedicated than my party to the proposition that the way in which we get maximum use of our resources is through a free competitive market operating under normal expectations. But we do not have that, Mr. Speaker. The real question is, how can we get to such a situation? I am desperately frightened that as long as we continue to have inflation at the rate we have we will be involved with 12 per cent interest rates and 15 per cent interest rates, the equity market not working and the decline of all confidence in the economy. It seems to me that we are going to be in for some difficult times that cannot and will not be solved by the temporary kind of band-aid or cosmetic-although I do not like those words-that the minister is advancing. We cannot solve the problems of poverty in Canada, the problems of housing, the problems of income redistribution and the problems of regional disparity until we do something about inflation. And, Mr. Speaker, we cannot do something about the inflation problem under the present policies being followed by this government. We must have a totally new approach if this problem is to be brought under control.

In this party we have never suggested-and I say this for the leader of the New Democratic Party (Mr. Lewis)- that there is any simple, easy solution to inflation. Of course there is not. It is a most difficult problem and it is not going to go away. But it is not going to be solved by the sort of policies that we have used in the past, because traditional policies do not work. For example it has been suggested that one of the ways to slow down the rate of inflation is to raise interest rates. But that does not now slow down inflation, at least not with the level of expectations that we have at the present time. Who would have thought that mortgages in Canada would command 12 per cent? Who would have thought that we would have a plethora of consumer lending at over 15 per cent, 18 per cent and up? Who would have thought that with interest rates at current levels for prime loans we would have as much capital investment as we have?

High interest rates today are not anti-inflationary; they are inflationary because they are looked on as a cost and are passed on in the price people pay for the products. The fact is, the traditional policy tools are not working. I would hate to try to speculate on what level you would have to put interest rates in this country to start an anti-inflationary movement. The government is caught in a trap. It is suggested that the rate of inflation can be

slowed down by slowing down the rate of increase in the money supply. But how can you slow down the rate of increase in the money supply when inventories, for example, have to be financed at very high prices and with money borrowed at very high rates of interest? We are caught in a very difficult situation, one which can only be solved, I suggest, by adopting substantially new approaches.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
LIB

John Napier Turner (Minister of Finance)

Liberal

Mr. Turner (Ottawa-Carleton):

The hon. member is saying that there has to be a better way. That is the sort of speech one hears all the time.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
PC

James McPhail Gillies

Progressive Conservative

Mr. Gillies:

I do not subcribe to the theory that inflation has been caused because, suddenly, all over the world there is a shortage of supply and suddenly the world is not producing as many goods and services as it produced in the past. If one examines the historical perspectives of inflation-the Minister of Finance mentioned this in the early part of his speech last night-one will see that inflation has come about from the great increase in world liquidity. The fact of the matter is that ever since the 1930s, and certainly since the 1940s, all governments have been willing to spend much more than they are taking in from tax revenues and other sources. They have been financing programs by printing paper money. It is as simple as that. We have seen this rate of increase in inflation and the decline in the value of currency all over the world as a result of such policies. The only way, generally speaking, to curb inflation all over the world is to bring some discipline back to government spending.

I find it incredible that in Canada, in the year in which we have inflation rates at 10 per cent, the government has increased spending by the dimensions we have witnessed. According to the budget this year, the government is to increase the tax take by 25 per cent. Yet, while taking that amount out of the economy, we are to operate with a modest deficit. One would think that if there were ever a time when expenditures might be kept down and revenues might be in surplus, that time might be the present.

The Liberal government has been operating its economic policy in the last 25 years under the modern Keynesian theory under which there is a budget deficit with slower economic activity and a surplus with higher economic activity. The fact is that the government has made no attempt at all to slow down the rate of government expenditure. Actually, never before in peacetime has Canadian government spending been growing so fast. It seems incredible to me that the government has not made a major effort to attempt to control government spending. How long can you continue to take as much out of the economy as is being taken by this government and applied to the sorts of activities which are being carried on at present, without diminishing the true productive capacity of the economy?

Surely, if there was ever a time to practice discipline in government spending, considering the rate of inflation that time is now. Governments do not exist for the purpose of collecting taxes and spending money. Governments exist to provide services for the people in an efficient and effective way. The fact is we face a very critical economic situation. There has never been as much peace-

time inflation as we are seeing at present. The government is still trying to attack it with budgetary policies which are singularly unimaginative, and is afraid to tackle the problem in any direct way. It has done nothing in terms of income policy, nothing in terms of a two-price system and nothing about controlling expenditure. Unless we do this, we will see much more inflation during the coming year than we saw during the past.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
LIB

Mitchell William Sharp (Secretary of State for External Affairs)

Liberal

Mr. Sharp:

Mr. Speaker, may I ask the hon. gentleman a question?

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
?

An hon. Member:

Sit down.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
?

Some hon. Members:

Oh, oh!

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
PC

Robert Jardine McCleave (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Progressive Conservative

Mr. Deputy Speaker:

Order, please.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
PC

James McPhail Gillies

Progressive Conservative

Mr. Gillies:

You cannot expect the Canadian people to believe or accept-nor should they-that in this country, considering our resources and energy, we must experience a rate of inflation comparable to that of other countries. The moment any government in Canada says that our rate of inflation is comparable to that of other countries, it is admitting failure. Considering the resources we have, the industrial base we have and one of the most productive agricultural communities in the world, not being able to keep our inflation rate down is totally unacceptable.

We have not seen, and I say this with great care, any imaginative approach to the problem of inflation. The government seems to believe that the economy today is operating in the same way as economies were operating in the early 1950s. Economies today are totally different. There is a change in terms of inflationary expectations in the economy. There is a change in market structures. But we are still tinkering around, thinking we can solve our problems by raising interest rates, which in themselves are inflationary, and by changing the tax structure, which can add to inflation and then wondering why inflation should be increasing and suggesting that it comes from somewhere else in the world.

If this problem is to be solved, there must be policies which recognize that if you are to use the supply increase approach and are not prepared to moderate consumer demand, you must introduce some kind of incomes policy or some policy to move the economy over the gap between the time when demand is stimulated and supply rises. If you do not bring in such programs, inflation booms, as we witnessed last year and this year. Because we lack such policies we are building all-pervasive inflation into this economy which will make ours one of the highest cost economies in the world. We are selling our products today because there is demand for our natural resources. But unless our rate of inflation is slowed down we will end up with a substantially higher cost economy than almost any of our trading partners. Will this not be tragic?

I know that government members do not believe the problem is as serious as some of us think. At least, they do not appear to believe the problem is that serious. You see, when some of our institutions are disappearing, such as the equity market, when government bonds cannot be sold because the rate of inflation is higher than the interest rate, when hundreds of thousands of people are fearful about what will happen, when people are concerned about

The Budget-Mr. Sharp

their insurance policies and about their pension programs, the country is facing a situation which needs action to bring it under control. The Canadian people have shown today, through their representatives in parliament, that they are no longer confident that the government has the imagination or the will to deal with inflation.

I listened to the budget speech last night more in sorrow than in anger because it is inconceivable that after following a policy for one year which led to our highest peacetime inflation rate, the government has come back with exactly the same sort of policy. It is absolutely incredible. The issue in this country today is inflation. It is an issue that affects everybody and is the one on which the campaign will be fought. This country needs confidence that it has a government that cares, which has imagination and which is willing to deal with inflation in a bold fashion. This government has lost the confidence of the people. It is using higher interest rates, changes in the money supply in the short run, putting a band-aid here or there to deal with inflation. The Canadian people are absolutely right in thinking such an approach will not work. What we need is a strong, new government to tackle the problem.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink
?

Some hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
Permalink

May 7, 1974