Mr. Donald J. Johnston (Westmount):

Mr. Speaker, my question is for the Minister of Finance. 1 have in front of me

an article from the Toronto Star dated February 28, entitled "Would a Tory Win Help the Dollar?".

Mr. Donald J. Johnston (Westmount):

Mr. Speaker, my intervention in this debate will be quite limited. I have been concerned, as have other members of my party and of the government, about the insistence by hon. members in the opposition, and I do not refer to the NDP, on the value of the mortgage interest and real estate deductibility program in having a stimulative effect on the housing industry, and in achieving the great American dream, as the hon. member for Ottawa-Carleton (Mrs. Pigott) is often wont to call it, of owning your own home. I do not suggest that because 1 think their hearts are not in the right place, but because I believe that, on serious examination of the type we have conducted on this side of the House, they will see the program is not one that will achieve those objectives.

Housing

It is reasonable to presume that we in Canada would not even be considering such a plan or program were it not to exist in the United States and not to have been popularized, if you like, by our American neighbour to the south. Because of that I welcomed the opportunity to visit Washington several weeks ago in a bipartisan parliamentary group consisting of, from our side of the House, the hon. member for Stormont-Dundas (Mr. Lumley); from the other side of the House the hon. member for Ottawa-Carleton, the hon. member for Vancouver Quadra (Mr. Clarke), and the hon. member for Broadview (Mr. Rae). We had the opportunity of examining in depth with a very wide cross-section of American officials who are responsible for the administration of this particular law and, of course, all other fiscal laws. For example there was the Commissioner of Internal Revenue, the policy division of the Department of the Treasury, the Congressional Budget Committee, the Joint Committee on Taxation, as well as independent economists from the Brookings Institution, the American Enterprise Institute, and various other experts in the field.

This was done in the spirit of objective examination to determine whether or not the deductibility of mortgage interest and real estate taxes is a valuable device in achieving the objectives that have been put forward by the opposition for examination, namely, home ownership, stimulation of the economy, and perhaps some fiscal relief to create more tax neutrality in the income tax system.

I think that I can say, without fear of contradiction, that the opinion of all informed observers in the United States is to the effect that mortgage interest deductibility and real estate tax deductibility does not accomplish any of those objectives and that those objectives can be better achieved by other techniques. Going further than that, I believe it is important for us in Canada to understand why interest in the United States is deductible in computing income and why real estate taxes are deductible. I would like very briefly to provide this House with some of the background of the American experience.

Beginning with the Internal Revenue Code of 1913 it was recognized that interest in general, not just interest on mortgages, all interest, should be deductible, as well as local taxes. Hence it was built into the very structure of the American income tax system from the outset. That, to begin with, is to be contrasted dramatically with the situation in Canada where local taxes are not deductible. So, it is apparent to even the most unsophisticated observer that rendering real estate taxes deductible, for example, would automatically at the local level create a shift of local taxation into real estate taxes.

It seems to me that nothing could be more obvious, and it was pointed out to us by our American observers that such would inevitably be the case.

But over the years, because of these deductions, our U.S. neighbours have designed standard deductions across the board applicable to U.S. taxpayers. I believe that at the

March 1, 1979

Housing

present time in 1978 or 1979-I may be speaking in 1978 figures, I am not certain-a single taxpayer in the United States is entitled to a basic $2,300 deduction, and a married couple is entitled to a $3,400 deduction. That deduction absorbs this wide variety of local taxes and interest which they would otherwise have to itemize and, hence, 75 per cent of U.S. taxpayers who file returns in the United States file them on the basis of unitemized returns taking that basic deduction. On the other hand, 25 per cent of the returns that are filed are filed on the so-called long itemized return.

We were advised by the internal revenue authorities that in such cases the returns are necessary because of these specific deductions, that the deductions for mortgage interest and real estate taxes push people into such high deductions that it is worth their while to claim these deductions on the long form. In fact were it not for these specific deductions the entire U.S. tax system could be considerably simplified. I might add that the cost to the U.S. treasury in 1978 for this specific deduction was estimated to be $12.8 billion.

Before dealing with some of the specific problems which are inherent in the scheme, I think it is very important to underline the fact that in the United States 63 per cent of housing is owner occupied and 37 per cent is rented. The figures, of course, vary from area to area. For example, in New York state the rental percentage is higher and the ownership percentage is lower. It struck all of us in the group, interestingly enough, that those figures corresponded indentically with the numbers that have been furnished to us by Statistics Canada 1976, namely, 63 per cent of the housing in this country is owner occupied and 37 per cent is rented. Again there are variations from region to region, and in my particular province the percentages are almost 50-50. As a matter of fact, I believe the figures are 49 and 51.

It is interesting to note that notwithstanding the existence of this so-called benefit of mortgage interest deductibility over all these years, owner occupied housing in this country has kept pace with that in the United States, and we were further advised, although I have not verified these numbers, but I intend to do so, that upon their analysis in the United States the lower income groups in Canada had a higher percentage of home ownership than in their country, and the reverse was true, of course, in higher income groups. All of this speaks well for the experience that Canadians have had in housing people in this country and in providing that great American dream which the hon. member for Ottawa-Carleton refers to, namely, home ownership.

I for one subscribe to the value of home ownership and I think that most of us do. It is not something which can be defined. Again, in the course of discussions with economists and others who had conducted an analysis in this area, it was felt that there was no demonstrable evidence that home ownership per se had inherent value. Nevertheless, my own feeling is that home ownership is a good thing. I think that a stake in our country and our communities, an asset of that kind, is bound to create and encourage stability and responsibility.

Let us assume that members on all sides of this House are in agreement that home ownership is a desirable objective. As I have said, I certainly endorse that principle, as do, I am sure, all members of my party. But how can it best be achieved? That is the question to which we must address ourselves. I have noticed that in most of the comments made by the hon. member for Ottawa-Carleton in the press she has stated on many occasions, and I think sincerely and basically with the best of good will, that home ownership is desirable and that this plan is designed to achieve home ownership. Let us look at the plan for a moment and let us determine whether it really does accomplish its purpose.

Mr. Donald J. Johnston (Westmount):

Mr. Speaker, I rise, under the provisions of Standing Order 43, on a matter of urgent and pressing necessity.

Considering that the major socioeconomic change in Canada since 1867 has been industrialization and urbanization, that the majority of people of Canada are metropolitan dwellers and that the Science Council has estimated that 90 per cent of the Canadian population will live in an urban environment by the year 2000, that municipalities are required to provide an ever-increasing number of essential services to our population, and that municipal governments are closer to the people and provide more essential services to their respective populations than any other level of government, I move, seconded by the hon. member for Stormont-Dundas (Mr. Lumley):

That this House call upon provincial governments to invite the Canadian Federation of Mayors and Municipalities to participate in the ongoing process of constitutional reform with a view to entrenching powers in the constitution so as to provide municipalities with the powers and revenues necessary to permit them to effectively discharge their responsibilities and to provide the services expected of them by the Canadian public.

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. Johnston (Westmount):

-and that off the Hill there is no one who believes the Minister of Finance has any credibility.