November 17, 1978 (30th Parliament, 4th Session)


Max Saltsman

New Democratic Party

Mr. Saltsman:

I see there are many members who agree with that statement. So there is no longer, if there ever was, any pressure from wage demands on inflation.
I was rather surprised to see the following statement in the minister's opening sentences in the budget speech, to give some verisimilitude to a somewhat misleading document:
In recent weeks I have travelled to many parts of Canada. I have talked to many Canadians-my provincial colleagues, businessmen, labour leaders, economists and laymen. Everywhere I have been told that my budget must be responsible.
While the minister does not say so in so many words, he certainly implies that he has the support of labour for this kind of budget, or that labour would consider this budget responsible. I think he must know that on both grounds he is wrong. Labour would not support this kind of budget; labour would not support a budget that does nothing to cure the high unemployment rates in this country, does nothing to increase growth in Canada, and does not concern itself about the future. Labour would certainly not endorse this budget, nor in fact would labour consider that the minister's budget was in

any degree responsible. So the minister should not try to make it appear as if he had the support of labour, because he certainly does not have it. Obviously labour is not pushing in any way that would contribute to inflation.
If we look at the other factors that were blamed for inflation, we find that energy prices have settled down. We do not have the quantum leap, the quadrupling of energy prices which you had a few years ago.
Agricultural prices, after being set back sharply for many years, have recovered some of their position, and there does not seem to be a great push on food prices projected into the future-the minister acknowledges that in his budget speech. The worst of inflation, which has been created by the increased cost of imports arising from the devaluation of the Canadian dollar, is over. I do not think the Canadian dollar will be going down much further than it is now, and, if it does, it is just a fluke, and it will not stay there.
A much greater problem that faces the government-if it is problem at all-is not that the Canadian dollar will go lower but that it will start to rise pretty soon because it is undervalued now, and when it starts to rise it will ease the inflationary pressures in Canada.
What I am putting forward in enunciating these four items is that these are the four main components which go into any assessment of whether things will be more or less inflationary in the future. I think the evidence is stark, it is quite clear, that the past basis for the surge in inflation is over. The government really does not have to pin its whole policy on fighting a situation which is settling down. The war is not over in any absolute sense, there are always problems with inflation, but it is settling itself down.
To say that you cannot stimulate the economy, or you cannot move to provide employment, because you are afraid of inflationary pressure, is not only the wrong analysis of the situation but a dishonest statement about what is happening in our society, and a way of avoiding the necessity of taking responsibility for getting people back to work and getting this country growing again. It is shocking to see this sort of juvenile economics used in arguments put forward by the government.
Again the message is quite clear in the budget, that while the government has tried to show that labour, provincial premiers and businessmen have all asked the minister to present the kind of budget he presented last night, what is quite clear is that the only ones who wanted him to present such a budget are some of the business people who have been advising the government, and to whom the minister has been talking. It was quite clear, from the comments and the reaction after the budget speech last night, that the minister has struck a responsive note and is now competing with the Conservative party for the affection of business in Canada. They have been wrong before. These are the people who have been advising governments over and over again and getting this country into nothing but trouble.
November 17, 1978

Certainly there are many prominent businessmen whose advice is very useful, but to listen to only one side of the argument-because it was only to business that the government was listening-not to labour because labour's priorities are different, not to the provincial premiers, because their priorities are different and they differ among themselves, and to say this is a consensus budget is wrong. I think that the advice the minister is getting is bad advice and will not get the country going.
Let me talk about some of the incentives that are in this budget. The government proposes that the investment tax credit be extended for an indefinite period of time and that it be raised beyond its present 5 per cent level. There are two points about that. First, is it really necessary at this time? The government itself says in its budget address that the indications are that plant utilization is increasing.
A recent report is that a low of 80 per cent to 82 per cent plant utilization has now increased to about 87 per cent. What that means is that when plant capacity starts to approach 87 per cent of utilization, they will expand anyway without incentives. They will not expand at 82 per cent, and all the incentives the government offered in the last two budgets to get them to expand at that level have fallen. All this has accomplished is to fill the coffers of the various corporations which took advantage of those tax plans to depreciate allowances. It has not got the economy going.
Now they may say, because we improved these tax arrangements for business, the economy is starting to move again." I think it will start to move again, but the truth is it will move again because plant utilization has increased, not because of what the government has done with tax incentives, and the consequence is that money will be given away for virtually nothing.
I want to go back to what I said about the rather questionable simile which I used at the commencement of my remarks about my little nephew in the bathroom. If you are going to give incentives all over the place-and we in this party believe there are times when you should be giving far more in the way of incentives to certain kinds of business-you have to do that within the context of an industrial strategy. If you are going to give incentives, you have to do it within the context of knowing that certain industries, if they receive benefits out of public funds, will use those benefits to create jobs, to innovate, to do research, to do something specific for the benefit of the country, rather than to simply make a welfare payment to them through the tax system. That is what an industrial strategy is about, to pinpoint those areas of greatest usefulness for the future development of Canada. Without that, just to give these incentives across the board is like going all over the bathroom. You do not know what it is going to hit and what good it will do.
We have gone through this before with incentives and all the evidence we have, as a result of giving across the board incentives and increases, has been that it has not accomplished the purpose for which the incentives were intended. Quite the contrary, there is now some evidence to suggest that as a result
The Budget-Mr. Saltsman
of government generosity, as a result of industry being given benefits and the absence of investment opportunities, much of those benefits have resulted in cash surpluses for industry which start to move back and forth across the Canada-U.S. border in search of higher interest rates. Many of the problems we are facing, because of the outflow of capital from Canada, arise from the excess generosity of the government giving them more money than they can use. Therefore we find ourselves in this unbelievable position, as a consequence of government action and misplaced generosity which was designed to help industry and create jobs in Canada. We must take action against this misplaced generosity. We must raise interest rates to keep capital in Canada. In the course of raising interest rates, the opportunities for industry to expand and jobs to be created are cut down. The government has created a circular piece of mischief.
I had hoped that somewhere in the budget the minister would have given form to words he has expressed on many, many occasions. He is a very straightforward minister. We have heard him indicate in the House and on public platforms that the level of savings in Canada is too high. He has not said the following but I will extrapolate for him: the tax system has been so generous to people with higher incomes, or industries which could not use their cash flow, that problems of surplus savings have been created. These surplus savings are used to seek nothing but higher and higher interest rates in Canada or the United States. Then a yo-yo-ing back and forth and a jockeying for interest rate preferences occur between one country and the other. If ever there was a government policy which was a clear failure, it is this one. Yet it is included in the present budget.
Does the Minister of Finance and his advisers want this kind of situation? I do not think so. Their industrial strategy and planning are no good. They say the government should stay out of the economy; we should curtail our spending and let the private sector move in. It is a commitment to ideology which causes the problem. That is at the heart of the failure of the budget. The government cannot see this problem. Public policy will fail without planning, intervention, strategy, a setting of priorities or evaluation. The government feels that it must be scattergunned all over the place, without knowing the consequences, benefits, costs or losses.
Strangely enough, while I think the performance of the economy will leave a lot to be desired in the next five or six months, or until the next budget, a kind of statistical optical illusion may take place as a result of some of the measures in the budget. From what we have seen in this budget, I am not too hopeful that any other budget will make any difference or result in much of an improvement. The cut in manufacturers' sales tax from 12 per cent to 9 per cent will do some good. This is something we advocated. We are sorry the government did not pick up more of our package. It only picked up part. To the extent that the government has picked up part of it, one must acknowledge that it will be of some value. As pointed out by the minister in his budget speech, its chief political value

November 17, 1978
The Budget-Mr. Saltsman
probably will be a drop of one half of 1 per cent in the consumer price index.
In reviewing some of the factors which have led to inflationary pressures in the past, one comes to the conclusion that the consumer price index will start to decline, particularly if the Canadian dollar starts to move up. I do not think the government wants it to move up rapidly, but it will start to move up and there will be a very convenient decline in the consumer price index somewhere just prior to election time.
Another measure which will provide a statistical illusion of well-being is the changes in unemployment insurance. Those changes will knock a lot of people out of the visible labour market and into the invisible one for which no statistics are kept. Even with the government uncommitted to the creation of jobs and admitting that it will create 100,000 fewer jobs this year than in the past year, unemployment figures may drop. Again it is a statistical illusion conveniently appearing some time before the next election. By the government's own admission, the employment effect will be less than last year. Unemployment figures will drop, not because of increased employment, but because a lot of people have been thrown out of the labour force as a result of the changes made in the Unemployment Insurance Act.
Despite the government's effort, the exchange rate will start to rise. Again this will give the illusion of things improving. Today the government argues very vociferously that every time the exchange rate drops it is very good for the economy. But I am sure the government will find a congruous argument as soon as the exchange rate starts to rise, an argument demonstrating how that is even better for the economy. In my estimation, many of the measures in the budget are not very effective and are grossly inadequate to solve the problems we face. Yet these measures will show up as statistically charming in time for an election.
The general public, the taxpayers, the voters and the citizens of Canada are concerned about government spending. They feel that care should be exercised in government spending. These concerns are legitimate ones. Much of what the government has done to persuade those concerned people has been nothing more than an exercise in public relations. Even though my friends on my right have expressed concern about public expenses, they are engaging in a public relations exercise as well. As a matter of fact one of my friends in the Conservative party expressed concern about what the government was doing in relation to Petro-Canada. His concern was that by enlarging the role of Petro-Canada the government is making it impossible for his party, when it forms the government, to sell Petro-Canada, because the stock market will be disrupted too much. Thus, I would say to my friends who have been berating Petro-Canada up and down that they should be careful and heedful of that. Perhaps they will end up being the custodians. Who knows, perhaps the hon. member for York-Simcoe will be made commissar in chief of Petro-Canada? Then he will have to eat some of his words, as the present Prime Minister (Mr. Trudeau) had to eat some of his words about the Liberal party

on another occasion, and as all of us have to do from time to time.

Subtopic:   THE BUDGET
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