November 26, 1979 (31st Parliament, 1st Session)


William Gordon Ritchie

Progressive Conservative

Mr. Gordon Ritchie (Dauphin):

Mr. Speaker, at five o'clock on Thursday I was discussing the budget and the nine envelopes which are involved in the budget. They are: fiscal transfers to the provinces, $3.6 billion; public debt charges, $9.8 billion; economic development and support, $8.4 billion; social affairs, $23.5 billion; justice and legal affairs, $1.2 billion; external affairs, $1.6 billion; defence, $4.9 billion; Parliament $100 million; and government services, $3.9 billion. And if there is a rise in OPEC oil prices, there will be a further drain for oil compensation payments.
This bill will go some way to allow money to remain in local hands and allow the local authorities a wider discretion in spending at the municipal level. Critics of this bill have said it will cost the federal government some hundreds of millions to billions in lost taxes. That is so, but it will also open up for the local governments an opportunity for higher tax revenues at the local level.
Municipal politicians are the only ones left who have any fear of the voters as to the handling of financial affairs of the citizens. It has been said both here and in Washington, in the U.S. experience, that the federal mandarins do not like this system of taxation with tax rebates for taxes and interest. Of course they do not like it because it reduces the federal government and the central executive, and hence the scope of the central executive of our government, to embarking on the massive and grandiose plans that so many centralists want to have. I have always said that the local municipal authority can spend taxpayers' money three times as profitably as Ottawa and twice as profitably as the provincial administrations. There is always much more return for the dollars spent of taxpayers' money when it is spent by municipal officials than by either federal or provincial officials.
Bill C-20 will open up for municipal officials greater taxation fields, and with the close scrutiny that municipal officials are subjected to in the spending of taxpayers' money it should be a decided advantage. And, of course, Ottawa will have less money to spend on its grandiose schemes. I am sure not many Canadians would miss the CBC budget being reduced somewhat.
Mr. Speaker, this measure will encourage home ownership. It will encourage Canadians to have a stake in their community and the country. Of course, this does not go well with the opposition who would much prefer a socialized housing stock. Nearly everyone for at least a portion of his life would like to own his house and to have the sense of security that ownership brings. Inflation has heightened the fact that home ownership is one of the best methods that a modest individual can use to prevent the ravages of inflation. Home ownership is considered a savings by our economists and we cannot hold the ideal too high. Savings are necessary if our society is not to become entirely owned and operated by the state.
This bill goes a long way to promote the ideal that home ownership is a good thing and should be spread widely over the
November 26, 1979

population. We have recognized the value of home ownership in our treatment of capital gains, now ravaged by inflation. We are allowing a once in a lifetime sale of a principal residence without capital gains and are allowing rollovers from one dwelling to another where the owners must move in order to carry on their occupation. This legislation very much complements the capital gains treatment of houses already in effect. Housing was essentially exempted from capital gains as a means of encouraging savings in home ownership. This legislation only endorses this.
I should like to read into the record an extract from this week's Newsweek of November 19, a comment by Mr. Milton Friedman on what the eighties will bring for the United States; 1 think it could be applied to Canada, also. Speaking of inflation, unemployment and big government, he said that while these were important they were only manifestations of more fundamental issues-the values that will shape our society. He went on to say:
Individual rsponsibility, equality of opportunity, personal freedom, limited government-these were the values of our Founding Fathers. Their counterpart is an economy organized predominantly by free-market capitalism and a government that is small and decentralized.
These values have been giving way to a very different set: social responsibility, equality of outcome, personal welfare, paternalistic government. Their counterpart is an economy organized predominantly by central direction and a government that is large and highly centralized.
The conflict between the two sets of values was at first not evident, but is now plain. No one can fail to recognize how greatly the role of government has changed, how much of our lives it controls.
There is concern about the family. Defenders of the new values blame capitalism. Its emphasis, they say, on rational calculation, material sucess, competition, exchange, undermines traditional nonrational institutions such as the family and church. But why should these effects show up only now, when capitalism is on the decline? The growth of government has done far more to undermine the family in the past 50 years than these amorphous effects did in the preceding millennium.
The conflict affects every aspect of our life: family vs. government; private vs. communal property; free v fair in speech, employment, trade; free choice as consumers vs. government protection of ourselves from ourselves.
The key issue of the 1980s is whether we shall be able to do so, and thereby reinvigorate the human freedom and economic freedom that together have made the U.S. a magnet for the poor and oppressed people of the world-or whether we shall succumb to creeping collectivism and become a totalitarian society.
I suggest that this bill regarding home ownership goes a little way toward making it possible to allow individuals to own their own homes.
There has been a great deal of discussion and argument that this proposal puts renters at a disadvantage. I cannot follow that argument. 1 believe it is specious. After all, when the renter gives his monthly rent to the landlord, the landlord is allowed to deduct local taxes, utility costs, maintenance costs, depreciation, and interest on any mortgages he may have on his property, before declaring his net income to be taxed.
It is well recognized that rental housing must return a net return to the landlord if housing stock is to be built. As much of housing stock is financed by large institutions such as insurance companies, workers' benefit funds and registered retirement funds which are the savings of millions of Canadi-
Mortgage Tax Credit
ans, these institutions must have a return on their investments which they put into rental housing in order to provide the pensions and savings by which the millions of individual Canadians, through these institutions, expect to meet their daily necessities when they can no longer work.
So, in effect, this legislation gives to the individual home owner something which has long been available to the renter in any case. If local property taxes, interest on mortgages and utility costs were not deductible by the landlord before paying his income tax, the cost of renting would be enormously greater for the renter than it is at the present time. Obviously, by making home ownership more attractive to people who are now renting, this should have a moderating effect on rents in the next few years, until a new equilibrium is established.
Much has been made of the fact that since the election interest rates, having continued their upward climb which had started long before May 22, have cancelled out the value of this home ownership rebate plan. There is no correlation between the two. Interest rates are a response by the country to two things. The first is the set of conditions abroad, particularly in the United States where, for the first time in a decade, they are coming to grips with the inflation problem. In Canada, with the long years of Liberal government, particularly since 1968, and with deficit after deficit, particularly in the last five years, we have spent our way into inflation, which must be brought under control or we will face a catastrophe, destruction of our financial institutions and the loss of savings in our banks and other paper instruments, such as happened in Germany after two world wars.
Interest rates are high, but this only reflects the fact that inflationary expectations are also high. Long experience has shown that interest rates are a combination of the real rate of about 3 per cent and the expected inflation rate. It seems to me that the Bank of Canada was to set the rate somewhere in line with what market forces dictate. If the bank was too far out, market forces would dictate otherwise. If, for instance, the bank set a ridiculous rate of 25 per cent, on the one hand, or 5 per cent on the other, market forces would entirely disregard what the Bank of Canada had stated as the prime rate. The bulk of lending would be at rates which would totally ignore the bank. We have an example of this: certain mortgage institutions have lowered their interest rates.
Interest rates in themselves will not cure inflation unless there is a corresponding reduction through other means. One of the greatest things to reduce inflation would be for the federal government to get the federal deficit under control, and that certainly can be done.
The comment has been made that rising interest rates cancel out the home ownership rebate of taxes and interest. In fact, the two are not related in any circumstance.
When the Conservative administration took over from the Schreyer government in the province of Manitoba, provincial finances were such that almost $1 in every $3 that the provincial government was spending was being borrowed. Every year the difference between the taxes collected and the money spent by the Schreyer administration was widening,

November 26, 1979
Mortgage Tax Credit
and the increase of this was much greater than the growth of the province's economy. It is small wonder, then, that many prudent investors were having second thoughts as to the integrity of Manitoba bonds. It is an anachronism of Canadian politics that when a province pursues prudent financial courses its citizens are penalized in a tax way because the federal tax system is able to take a greater share of the tax income as the province's share diminishes.
If we are serious about fighting inflation, there are many things we can do, but they all amount to a reduction of credit in order to reduce the total spending of the country. This might be done now by the control of interest rates, by the control of new credit or by way of new directions in the economy.
It is widely said that the cure for inflation will increase unemployment. This measure will do something to stimulate house building. But it also may be said that the increase in inflation will also bring unemployment as the bad effects of inflation manifest themselves. In other words, unemployment will occur whether in the cure of inflation, in its containment, or if it is allowed to run rampant, as at present. But, as evidence in South America shows, inflation is particularly damaging to middle-class virtues and financial positions. Certainly home ownership is one method by which the middle class can to some extent guard against inflation.
I would like also to point out to those who question high interest rates that it should not be forgotten that for a long time the people of Canada have been finding that their savings are being eroded as inflation speeds up. For every borrower there must be a lender, and a sober survey would show that anyone who is in the 50 per cent income tax bracket would have to have a 20 per cent return on his investment to break even.
The government has made a start in attempting to control the financial mess of the last ten years. Through this bill it has shown that it understands the necessity of broad home ownership across the country and that a measure of fiscal elbow room will be allowed to municipal authorities so that this most efficient of the three levels of government in the spending of taxpayers' money, which it controls, can be allowed to function.

Subtopic:   INCOME TAX ACT
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