Mr. Gillies:

True.

Mr. Johnston (Westmount):

I am often off the Hill. It is apparent to me that the people I talk to do not feel that way at all.

Mr. Gillies:

Neither one of them?

Mr. Johnston (Westmount):

I think that the Tories must talk to each other and the Liberals must talk to the people.

Mr. Gillies:

The only Liberals we can find are on the Hill.

Mr. Johnston (Westmount):

The only ideas I heard read into the record by members of the opposition have come from

February 13, 1979

Currency Devaluation

McLeod Young Weir, and Mr. McLaughlin. Mr. Gillies did not refer to anyone specifically.

Mr. Deputy Speaker:

Order, please. I remind the hon. member that he should not refer to another member by name, but by his constituency.

Mr. Johnston (Westmount):

Thank you, Mr. Speaker. That is one of the problems of being a new member. The hon. member for Don Valley (Mr. Gillies) referred to those who say that the dollar should be between 88 and 90 cents. 1 do not think he suggested it was his idea. We have heard from McLeod Young Weir, Mr. McLaughlin, Saturday Review and others, but we have yet to hear from the opposition.

I am disappointed in the comments made by the hon. member for Don Valley because I had anticipated we would hear something constructive from him, an examination of different policies. Our position is on record but nothing of any substance was put forward by opposition speakers, nothing specific that we could grasp. Only one single idea was forthcoming from the Leader of the Opposition (Mr. Clark), and I will deal with that in due course.

The reasons for the fall in the value of the dollar back in 1976 are no secret. We all expected the dollar would fall at that time. It had been widely predicted that as soon as interest rates shifted and the differential between Canada and the United States disappeared, it was bound to happen. The situation was compounded by the victory of the Parti Quebe-cois, to which reference has been made on a number of occasions during this debate. In addition, it is well known that labour costs in this country rose dramatically in 1975, settlements in the first half of that year being in the neighbourhood of 18 per cent. Subsequently settlements were reached at lower levels. The competitive position of Canada was the subject of wide debate, and it was broadly felt and recommended that the dollar should find a lower level.

I, for one, see no evil in the devalued dollar. I am surprised that it seems to be an article of faith among the opposition that it should be at a higher level. Naturally, we do not want to see the dollar fall any further.

Mr. Gillies:

Why not?

Mr. Johnston (Westmount):

There are other factors involved. Mention has been made of the recent policy review of the C. D. Howe Institute which pointed out that a further decline in the value of the dollar could set off another round of price and wage inflation in the country. This is not something Canadians want to see. On the other hand, as one finds when addressing oneself to the business community, there are considerable benefits attached to the present level. Some quotations to this effect were read into the record by the Minister of Transport, I believe. It is perfectly clear that a large and representative cross-section of the Canadian business community is pleased that the Canadian dollar is hovering somewhere in the 83-85 cent range. The evidence is clear for all to see.

Our trade balance of $3.6 billion in 1978 bears testimony to the benefits which the lower dollar has brought.

The opposition suggests the value of the currency should rise, that we are in some kind of crisis. Perhaps it will rise. The C. D. Howe report suggests it will do so. The Minister of Energy, Mines and Resources (Mr. Gillespie) indicated this evening that the dollar would undoubtedly rise in due course. But we do not want it to rise too quickly, placing us in the same position as Japan and Germany which are fighting at the moment to deflate their currencies and expanding their monetary aggregates and money supplies in order to bring this about. This is not the answer for Canada. It seems to me it is extremely irresponsible to talk in terms of a national crisis. The hon. member for Don Valley said it was probably the most serious crisis in the economic history of this country. I say that when an economist, as he is, discusses this issue and offers no solutions then he is fully aware that there is no crisis of the proportions he describes.

There are, nevertheless, difficult policy decisions to be made. The choices are not easy. This is a very serious matter and I agree with the last speaker for the opposition that the subject is not one to be taken lightly. I certainly do not take it lightly, because I am concerned about the dollar plunging below its present level. I am equally concerned about its rising too rapidly to higher levels, which would again leave us unable to compete on world markets. The dollar, as it is, is laying the foundation for a strong industrial sector throughout the eighties and, I suggest that to follow any other policy at the moment than the one suggested by the governor of the Bank of Canada would be utter folly. In any event, the opposition has placed no other policy before us for examination, although that is what I had hoped to hear today.

The opposition has had ample opportunity to examine the governor of the Bank of Canada.

That is not true.

Mr. Johnston (Westmount):

There was nothing to prevent any member of the opposition holding discussions with anyone they chose. They are quite entitled to talk to the Canadian Bankers' Association, to economists, to analysts with the C. D. Howe Institute or the Economic Council. They can talk to anybody they please, and they are quite capable of putting questions to responsible ministers based on the information they obtain. But they have not done so. Basically, they are trying to create an inflammatory political situation out of a serious economic matter which the government has openly put forward for examination.

We hear charges that there is secrecy. There is no secrecy here, Mr. Speaker. There is nothing secret about the situation of the Canadian dollar. Nothing is undisclosed. The only secret, Mr. Speaker, and perhaps the best kept secret, is what the opposition's policy is with regard to the dollar, and, for that matter, with regard to other economic measures which they hope to implement, such as the stimulative deficit, about which we have heard so much, and such as laying off something in the order of 60,000 public service employees without

F ebruary 13, 1979

anyone getting hurt by such a move. There are many aspects of the policies of the opposition which really are shrouded in mystery and secrecy. But that is not the case in so far as the government is concerned in relation to the dollar.

Long term solutions are obviously necessary. We have to work together in a non-partisan way to arrive at long-term solutions which will ultimately resolve the problem of the dollar and the other attendant difficulties flowing therefrom. Low productivity presents a serious problem in this country. Reference has been made to the situation in the United States, where productivity is also a serious problem. In fact The Economist recently published material which indicated that of the seven largest OECD countries the increase in productivity in the United States was the lowest. Britain was second, and we are the third lowest. That is not a good record. And that is where we have to make a start. We need to establish long-term economic objectives, and I am sure we will do so.

Mr. Gillies:

You have had 15 years.

Mr. Johnston (Westmount):

I take the view, obviously not shared by members of the NDP, that we require more foreign equity in this country. We have too much debt. One reason why our foreign account balance is in such a deficit position is the tremendous interest burden we must bear. But many object to foreign equity and, as a consequence, there has been a patriation of foreign equity, something which has not helped our dollar situation either. We ought to adopt a series of sound fiscal measures to attract capital into the industrial sector.

Mr. Gillies:

Again, you have had 15 years.

Mr. Johnston (Westmount):

The government has introduced such programs. This is the kind of thing we should be discussing during the debate today. We also need to control the money supply carefully. I believe the Bank of Canada has done an admirable job in this respect holding the money supply within the limits of the narrowly defined Ml. Perhaps the time has come to consider larger aggregates of money supply. These are matters on which it is legitimate to submit a number of varying ideas for consideration by this chamber.

I have not heard any ideas from the opposition except one, and I would like to deal with it very briefly. This afternoon the Leader of the Opposition told us that the program of the Progressive Conservative party to stimulate the economy is to cut taxes. To my knowledge we have heard only one concrete proposal emanating from the official opposition with regard to that tax cut, and it takes the form of mortgage interest deductibility and real estate tax deductibility within certain limits. I, for one, would not say that that is a ridiculous suggestion because at one time I proposed it myself. However, careful examination of that proposal, which I would have thought would have been made by the Conservative party, indicates that it would be a tragedy to inflict it upon the Canadian people.

Currency Devaluation

In terms of the productivity this country requires, and in terms of attracting capital for us to develop the competitive industrial sector which will ultimately result in our dollar's achieving a level which would be satisfactory to all of us at some future date, I submit that that policy is sheer folly.

In the course of the last week a number of us journeyed to Washington to discuss with Americans their experience in this area. I would say that any informed observer-certainly every representative of the U.S. government and every economist of note-was virtually horrified at the prospect of our introducing such a measure in this country. They would do anything to get rid of such a measure in the United States because of the inequities it creates, the social problems inherent in it, and the variety of negative impacts it has upon the American economic scene. Those negative impacts would probably be greater here in Canada. The Americans have lived with this, not really by choice but through inheritance, since 1913, and here we are with the prospect of having it foisted upon the Canadian public by the Conservatives, should they ever attain office.

I do not propose here to review in any great detail the problems with that measure because I do not consider it to be germane to this debate except in one specific area. Specifically, the deduction of mortgage interest and real estate taxes clearly favours high income groups. This proposal would create disposable income, discretionary income for a privileged group which is less likely to invest it in the commodity sector and which might very well be tempted to invest it outside the country. In fact this proposal might encourage the acquisition of more expensive real estate, to the detriment of the industrial sector.

Reference was made to the problems with which our American friends are wrestling. This is one of them. In the United States the amount of capital devoted to the business sector as a percentage of gross national product is something like a third or less than that of Japan. I urge all to look carefully at any plan of this kind, which is the only one which has been put forward by the official opposition. It would not only have a disastrous effect on the country but also on the dollar because it would not accomplish its intended purpose, even if put forward in good faith.

I occasionally refer to a few authors, as do other hon. members. We talk about where the Canadian dollar should be. The hon. member for Don Valley has said that some people tell him it should be between 88 cents and 92 cents. We know the level of our dollar today. Many observers are inclined to use a somewhat more objective yardstick than a gut feeling, pride, or what they can buy eggs for across the border. I have before me, for example, the February edition of "The International Bank Credit Analyst". In it there is a table entitled "Unit Labor Costs", which one can find in a number of other publications as well. One can see that labour costs per unit in output in Canada, adjusted for the exchange rate, are very marginally less than those in the United States today, making us almost dead-on competitive. So, I suggest that it is no accident that the Canadian dollar is fluctuating between 83 cents and 85 cents. That is not a crisis. The only people in

February 13, 1979

Currency Devaluation

Canada who see this as a crisis and dwell upon it daily are members of the opposition.

I think an objective study would suggest that when the dollar begins to be sold at 83 cents or less, it would be undersold. On the basis of that I would be very surprised to see the dollar drop to the level of 79 cents, which 1 believe was mentioned by the Leader of the Opposition this afternoon.

1 do not think there is any reason to panic. This is a time to roll up our sleeves and get to work. It is a time to sit down and debate with members of the opposition who are quite capable of debating these issues, who are knowledgeable in these areas, like the hon. member for Don Valley-to sit down and engage in intelligent debate, not the kind of amusing comic relief we heard from the hon. member for St. John's West (Mr. Cros-bie). Admittedly, the hon. member did provide some relief to what I believe was, unfortunately, a rather dismal performance by the opposition in this debate today.

Mr. Gordon Ritchie (Dauphin):

Mr. Speaker, in the few

minutes at my disposal I would like to join in this debate. I am disappointed that the government feels that this motion should not have been brought forward and that discussion about what level the Canadian dollar should be at should be reserved for the financial pages and for the tourist when he buys his American or British money at the bank.

Our dollar is at its lowest level in 46 years. Forty-six years ago we were at the height of the great depression. Even then the dollar remained so low only for a few months. During the time of the depression the Canadian economy was agricultural and agrarian in nature, but then our economy was much smaller than those of other industrialized countries of the west.

I think it is significant that our dollar is devalued to 83 cents and that many knowledgeable people argue that it could drop to 79 cents. I think this is something for us to worry about or, at least, discuss. Whatever we may think, what the traders of the world think of the stability of our economy and how good it is, is important.

We have had deficits in the billions in federal budgets for the last few years. Ministers of finance have consistently underestimated their budgetary deficits and inflation rates. The Anti-Inflation Board said that inflation would be down to 4 per cent, but it is more than double that amount. I think it is nonsense to make such predictions in the first place. There does not seem to be a light at the end of the tunnel. If there were, we would be much happier.

The government has made much of the fact that our trade surplus is $3.5 billion. If we examine this, we find that that is really only the percentage increase as a result of the fall in the value of our dollar. Unless the government gets the economy in order, this surplus will soon be lost. It is no secret that we can buy Japanese and German appliances and other products at a cost of only a little more than previously. That is certainly not because the value of our dollar has decreased. Businessmen supplying our markets from outside are not necessarily at much of a disadvantage.

Now, Mr. Speaker, what is essentially wrong? Essentially, too many dollars are being printed, and they are being printed too fast so that domestic inflation is rampant. We have been keeping our interest rate high, as the government of the Bank of Canada has mentioned. He had hoped to control inflation, but it now becomes debatable whether or not the inflation can be curtailed by a high interest rate while at the same time the supply of money is being expanded too rapidly.

There is no doubt that the impetus of the present inflation was fueled by the minority government between the years 1972 and 1974 when the Liberal administration sought to stay in office by buying off, at all costs, the demands of the NDP. These expenditures were not met by borrowing in the money markets but by printing money which in those years financed some 75 per cent of the deficits of the government.

Reliable American estimates show that we have to plan for a 7 per cent inflation so far as the United States is concerned. It is suggested that almost certainly the deficit in the United States will be much bigger, in excess of $30 billion, and will end up closer to $40 billion. But the American position seems good compared with ours. The rule of thumb relating to an economy ten times our size involving $40 billion, would indicate $4 billion, but our deficit is some two and a half times the projected American deficit. Our balance of payments problem is even worse than theirs. They have some $29 billion, ours is closer to $4 billion or $5 billion, which in their terms would be $40 billion or $50 billion.

The message for all of us is clear. Governments must control their spending. It is no use borrowing huge sums of money to be paid back at a future date when we have this gigantic deficit.

Can we consider the indexing problem and the built-in outlay in government expenditures? Governments must control expenditures even when that is socially undesirable. Even when expenditures are politically very desirable, their total effect on the economy must be assessed. In periods of rapid inflation, total indexing should be brought into question. In Canada! governments at all levels are involved in vast transfer payments, not only right across our society but across all the regions of the country.

The indexing of personal income tax raises serious problems. The possibility that an indexed income tax would make a government more aware of its responsibilities and more prudent in its budget managing makes it desirable, if governments would heed warnings. It is obvious that the tax structure is out of balance. Perhaps it should be realized that decades ago we lived in a very stable economy when taxes were raised through consumption taxing.

In the last two decades the exchequer collected money largely through the income tax system. This was based on the theory that those who earn more should pay more. This was considered a fair tax. Now some 60 per cent of total federal and provincial revenues are raised through the income tax vehicle. But this has its disadvantages. A heavy tax discour-

February 13, 1979

ages productivity, and all our indices indicate that the productivity in our country is not rising as rapidly as previously. Furthermore, the income tax is inflationary in itself, and having enriched the government tax coffers it has given false signs of a healthy economy. High marginal income taxes encourage the underground economy. It operates outside the tax system and gives benefits to individuals without requiring them to pay their share of the tax.

Now, Mr. Speaker, the falling dollar is of great concern to all of us. Although we have a surplus of over $3 billion in our merchandise trade, it is still not enough to cover our foreign exchange deficits. The falling dollar makes the payments of dividends and interests to foreign borrowers expensive. The government has intervened to the extent of some $5 billion this year, and I understand the minister is now going to Japan to incur a further large loan. Furthermore, foreign borrowers cannot be paid off by debasing the currency. A $1,000 Canadian government bond of 1971 was worth $500 at the end of 1978.

There are one or two things I would suggest, in the short time I have, on the balance of payments problem. We should be looking at the short-term natural gas exports to the United States. To those who suggest we should not export energy, I would answer that energy is a commodity like any other. We are exporting a large amount of energy in the form of food and grain. Furthermore, in western Canada we have a large amount of grain on our farms. If we can get it to the ports, it can be sold, thus helping our economy.

The government might consider facilitating the inflow of money to Canada. One suggestion would be the abrogation of the 15 per cent withholding tax of short-term money, say up to five years. This action would not incur retaliation by our trading partners as might occur if foreign exchange controls were instituted. The government and the minister should be much more vehement that foreign exchange control not be put in place. Last week in Brussels we were told by bankers that the very thought of foreign exchange controls would mean that Europeans would withdraw their money.

In order to give my NDP colleague a few minutes in which to speak, Mr. Speaker, 1 will conclude my brief remarks. I appreciate very much having had the chance to put my ideas on record.

Mr. Bob Rae (Broadview):

Mr. Speaker, in the very short time remaining to us I want, first of all, to express my appreciation to the hon. member for Dauphin (Mr. Ritchie) for his courtesy in allowing me the three minutes in which to wind down the debate.

The purpose of my intervention is simply to draw attention to a couple of very important discrepancies in the case presented by the government throughout today. Of all the debates that I have had the pleasure of attending in my short time in the House, this has been one of the most painful and partisan experiences through which I have suffered. The government is saying on the one hand that the opposition and events outside its control are responsible for the fact that the dollar is in such

Currency Devaluation

a terrible state, and that we should all be good citizens and support the Minister of Transport (Mr. Lang) and the Liberal party because to speak out against the economy is to speak out against the country, and to speak out against the Liberal party is also to speak out against the country. It is all that confusion and arrogance that will be the downfall of the Liberal party in this country. Their confusion consists in thinking that the Liberal party and the state of health of the Liberal party are the same thing as the state of health of the people of Canada.

The fact of the matter is that this government has produced a policy which it cannot justify and explain to Canadians. It is a policy which it has evolved by chance and by happenstance. Now it is attempting to tell Canadians, "We did it all on purpose." They are telling us that they have a floating dollar when they have given it a pair of $5 billion water wings in order to allow it to float. That is the phoniest float I have seen.

Orderly markets.

Mr. Rae:

Orderly markets? That is rubbish, and you know it is rubbish. They know they have engaged in a high interest rate policy because, as the Minister of Energy, Mines and Resources (Mr. Gillespie) said, they have no choice because our economy is dependent on the U.S. and tied to the U.S. economy. This government has done nothing about that condition of our economy for 15 years.

The hon. member for Westmount (Mr. Johnston), who travelled with me to the United States, I am glad to say, gave a very accurate account of our findings there with regard to the Tory mortgage interest deduction proposal, but had the gall to come to the House and put forward certain suggestions as if this government were facing the future with a bright face when in fact it is a tired government which has produced no new ideas. The Liberal party has had 15 years in which to address itself to the structural problems which were so ably described by my leader earlier today.