Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697723129197.pdf (Canada)
1198 COMMONS DEBATES November 16.

1978 The Budget-Mr. Chritien Mr. Knowles (Winnipeg North Centre): Mr. Speaker, ear- lier today there was some discussion about this and it was that the hon.

member for Nickel Belt (Mr. understood Rodriguez) was tied up in committee this afternoon and so would not be able to proceed with that bill.

Perhaps there is another one.

If there is no other bill to take, this would be a good day for the House to take my bill to abolish the Senate.
Mr. Speaker: Do I understand then that the bill standing in the name of the hon.

member for Nickel Belt will not proceed at this time and will stand?

Some hon.

Members: Agreed.

Mr. Baker (Grenville-Carleton): Mr. Speaker, perhaps I could help the government out of a dilemma.

There is a bill on the order paper in my name dealing with lobbyists.

I think there may be some way of having us proceed with private members' bills.
If we cannot do that, or if it is inconvenient to do that, I would think, since this is budget night and many members are preparing themselves for budget night, that it would not be inappropriate if we called it six o'clock.

Mr. Speaker: Is that agreed?

Some hon.

Members: Agreed.

Mr. Speaker: Agreed and so ordered.

It being six o'clock, I do now leave the chair until eight o'clock this evening.

At 4.59 p.m. the House took recess.


(2002) AFTERRECESS The House resumed at 8 p.m GOVERNMENT ORDERS businessmen, labour leaders, economists and laymen.

Every- where I have been told that my budget must be responsible, that it should create an atmosphere of stability and certainty in the country and that it should aim at lowering costs, including the costs of government.

[English] The General Economic Situation and Outlook Let me begin by reviewing our current economic situation.
The economy in 1978 made much progress, although the results have fallen short of my earlier expectations.

It is true that employment has risen strongly.

In October, 362,000 more Canadians had jobs than a year earlier.

A larger proportion of Canadians is working now than ever before, but unemployment is still too high.

The increase in the gross national product in current dollars is likely to be close to the I I per cent I forecast in the April budget.
But prices have risen by more and output has gone up by less than was forecast a t that time.

The prices of the things we produce are likely to be up about 6% per cent.

The growth in output should be close to 4 per cent.

We had a slow first quarter when the United States economy was depressed by the coal strike.

We have not been able to catch up fully since.

The consumer orice index rose more sharolv than had been expected.

In ~ e ~ t k m b e r , it was 8.6 per cent h i h e r than a year earlier.
This renewed outburst of inflation was not the result of any acceleration in our own incomes or our own domestic costs.

It was the result of higher food prices and the decline in the dollar.

- This faster rise in the CPI reduced the growth rate of real income and real purchasing power of Canadians.

The result was that consumer spending rose by less than had been expected, and this was the main reason for the shortfall in growth.
Consumer spending has risen this year, in real terms, by 3% per cent to 4 per cent.

Employment is higher and personal income taxes have been cut.

A special stimulus has been provided by the temporary reductions in provincial sales taxes, largely financed by my April budget.

But higher prices of food and other imported consumer goods have weakened the impact of these expansionary forces.

[ Translation] T H E BUDGET FINANCIAL STATEMENT OF T H E MINISTER OF FINANCE Hon.
Jean Chrktien (Minister of Finance) moved: That this House approves the budgetary policy of the government.

He said: Mr. Speaker, I welcome this opportunity to place before the House an assessment of the state of the Canadian economy and my proposals for improving our economic performance.

In recent weeks I have travelled to many parts of Canada.

I have talked to many Canadians-my [Mr. Speaker ] Since the Bonn summit, several countries have taken meas- ures to stimulate their economies.
Growth is expected to be rather more rapid in 1979 than in 1978 outside of North America.

But it will slow down in the United States.

The outlook is for expansion in Canada at a greater rate than in the United States next year.

But because our most important trading partner will be growing more slowly, it will be hard for us to reduce the slack in our economy.
Moreover, our trade balance will not improve as rapidly as it should, given our improved competitive position, although it will be higher this year.

In these circumstances, we must get better access to the markets of other countries, especially those which continue to run very large trade surpluses.

The success of the Tokyo provincial colleagues, Round of trade negotiations remains critical to us.
In our November 16, 1978 COMMONS DEBATES 1199 bilateral relations with other countries, we will press hard for greater opportunities to trade.

We have been through a period of great disturbance in international financial markets.

The American dollar has come under severe downward pressure.

The United States govern- ment has taken steps to rectify the situation, including sharp increases in interest rates.
Our own situation has necessarily been made more difficult by the higher interest rates that have accompanied our efforts to control the rate of monetary expan- sion and maintain an appropriate relationship with interest rates in other countries.

[Translation] Laying the Basis for Future Growth While recognizing the setbacks and difficulties we have encountered, I want to emphasize that Canada has made great progress since the introduction of the Anti-Inflation Program in 1975.
We have been getting the fundamentals right and laying the basis for sustained growth in the 1980s.

In the last three years the Bank of Canada has gradually reduced the rate of growth of the money supply.

It has set target ranges for monetary expansion, successively reduced them and consistently succeeded in staying within them.

Expenditures by all levels of government have been brought under tight control.
The growth of total federal outlays has been held to less than the growth of the gross national product since 1976-77 owing in large part to the tough leadership of my colleague, the President of the Treasury Board.

The ceiling on total outlays for next year has been estab- lished at $52.6 billion, an increase of 8.9 per cent over this year's ceiling.

This increase is well below the expected growth of the GNP.
Many programs will have to make do with a lower level of real resources; some activities have been elimi- nated.

We are having to cut back on the rapid growth in our transfers to the provinces.

Even so, our expenditure budget is coming under great pressure from the rising cost of our statutory programs, especially interest on the public debt.

There can be no weakening in our determination to keep expenditures under tight control.
Average increases in wages and salaries have been brought down from a high of 15 per cent to 6 per cent in the last year of controls.

I do not attribute all of this to our prices and incomes policy, because no doubt there would have been some slowdown in any event.

But I am sure that controls made a contribution to the process.

That appears to be the view of economists who have closely examined the record.
While domestic costs were being brought under better con- trol, the decline in the exchange rate reversed the loss of competitiveness which we suffered earlier in the decade.

Canadian firms are now in a good position to increase their sales in foreign markets and win back the share of our domestic markets which they had lost to foreign competitors.
This is already happening: The good September trade figures The Budget-Mr. Chre'tien suggest that we will have a record trade surplus this year of close to $4 billion.

Industrial Policy Mr. Speaker, our manufacturing industries are benefiting most from this improvement in our competitive position.

They suffered most when we priced ourselves out of world markets.

The decline in manufacturing output and employment was a major concern, but the latest data show a turnabout in the past year.
Manufacturing production in August was 7 per cent higher than a year ago.

New orders have risen sharply.

Capacity utilization is back up to 86.4 per cent, which is above the long-term average.

Manufacturing employment in October was up 110,000 or 5.7 per cent over a year ago.
The government has recognized the strategic importance of the manufacturing industry and provided assistance to it in many ways-through the tax system, through the Export Development Corporation, the Federal Business Development Bank and the ~ n t e r ~ r i s e Development Program.
In the reallo- cation of government expenditures announced September 8, we set aside an additional sum of $300 million to assist industry to exploit new markets, to develop new technology and to reorganize to meet the challenges which lie ahead.

This will reinforce the measures contained in the last two budgets which have provided generous tax incentives for research and development.

I am frankly sceptical about the search for a single grand industrial strategy in a competitive market system.
But we must have a set of sensible industrial policies, designed to provide a healthy framework for all industries and specific incentives tailored to particular needs.

This government has gone a long way to putting these in place, and I will go further tonight.

The effective process of consultation between business, labour and government launched by my colleague, the Minis- ter of Industry, Trade and Commerce (Mr. Horner) is wn- tributing to the further development of our industrial policies.
[English] Energy There is good news from another critical sector of the economy--energy.

The massive increase in world energy prices in the early 1970s created severe difficulties for all consuming nations.

Because we are relatively rich in energy, we have been able to cushion the shock by phasing in higher prices gradual- ly.

At the same time, we have provided generous incentives to spur the development of new energy sources and we have put in place a number of conservation measures to restrain demand.
Our policies are working.

In contrast to the perspective only two years ago, the outlook for energy self-reliance and the 1200 COMMONS DEBATES November 16, 1978 The Budget-Mr. Chre'tien sector's contribution to our economic performance are most encouraging.

This is true of all the main energy sources, but particularly of oil and gas.
According to the National Energy Board, domestic oil ship- ments to Montreal can continue until at least 1995 and exports of light oil could be maintained at 55,000 barrels per day for three years.

Compared with the Board's 1977 forecast, the new figures indicate the basis for an improvement in our trade balance of more than $2 billion in total over the next three years.

Hon.
Hon.

members will be aware that the Natioral Energy Board is holding hearings on the supply and demand for natural gas and is expected to report in February.

There is mounting evidence that our reserves of natural gas are signifi- cantly more than estimated just a few years ago.

The indica- tions are that there may be more than enough to meet our foreseeable domestic needs.

But the whole magnitude of our reserves remains to be determined.
Primary emphasis must be laid on expanding the use of gas in Canada, and this in itself will displace imported oil.

The favourable trade effects of the new gas outlook will be substantial.

For example, an additional 500 millions cubic feet per day, whether used to displace imported oil or for exports, would improve our trade surplus by $500 million a year.
Growing Confidence in the Economy All of these developments are building the greater confi- dence in our medium-term prospects which I found in my pre-budget consultations.

There is a growing faith that Canada can launch itself on the sort of sustained expansion which I portrayed for the February meeting of first ministers.

We should not underestimate the strength of the expansion- ary forces that are at work.

A powerful stimulus to sound economic growth is now coming from a more competitive dollar.
This will not only improve our trade performance: it will also lead to more investment as Canadian firms increase their productive capacity and modernize their equipment in order to take advantage of the new opportunities.

A recent survey showed that 300 large corporations are planning to increase their spending on plant and equipment next year by 16 per cent.

Allowilig for rising costs, this represents a substantial increase of about 8 per cent in the volume of investment.
I welcome this evidence that firms are pressing ahead in 1979 with the investments we will need in the 1980s.

We should do all we can to encourage this develop- ment.

We must respond to the particular problems confronting individual sectors of the economy.

We must strengthen our efforts to encourage investment and growth in the less favoured regions.
The Outlook for Costs and Prices Our most immediate challenge, however, is to hold onto the gains we have been making in our competitive position, as we come to the end of mandatory controls over prices and incomes.

Decontrol is not an easy business a t the best of times; our phased approach was designed to reduce the chances of a [Mr.

Chrttien.]

post-control bulge.


It is all the more difficult when we have been through a surge in the cost of living, caused not by any acceleration in our domestic costs, but by the rise in food prices and the fall in the dollar.

These unfavourable influences are coming to an end.

We have already seen some decline in food prices in August and September which brought about a welcome pause in the rising cost of living.
A great deal more stability is expected from now on if crops are normal around the world.

There is good reason to believe that the major adjustment in the exchange rate that was required to restore our competitive position has been completed.

This can only have a lasting effect if the feedback on the domestic economy from the higher price of imports and export-related goods does not result in a fresh outbreak of large, leap-frogging wage and price increases in Canada.
Steadier food prices and a steadier exchange rate will mean that we have every chance of a much lower rate of inflation emerging even though we will probably see a jump in the cost of living for October.

This will be mainly because of the ending of provincial sales tax cuts.

But that should be no more than a temporary interruption of the trend unless we Canadi- ans become unreasonable in our income demands.

In the last year, wage increases in Canada have been lower than those in the United States.
So far, post-control wage settlements are showing only a very modest acceleration.

I commend labour and management for the responsibility they have generally shown; increased competitiveness means more jobs.

The federal and provincial governments agreed in Febru- ary that compensation in the public sector should follow rather than lead the private sector.
While I urge Canadians to exercise self-discipline in their income demands, I would stress the fact that Canadian work- ers have done well in the last three years.

Real disposable income per employee in Canada has increased by over 7 per cent.

In the United States real disposable income per employee has declined by nearly 2 per cent in the same period.

Even so, there is some risk that we will launch ourselves again on a price-wage spiral which will undo all the progress we have made.
We must reduce the rate of inflation to 6 per cent as soon as possible, but it will not be good enough to stabilize the rate of inflation at that level.

Inflation must keep on declining if we are to expect really good economic performance.

[Translation] Fiscal Policy Choices I have now spelled out in some detail the economic back- ground to this budget as I see it.

In considering what action I should take on taxes, the obvious question is how much room do I have.
A wide range of views on this question has been put to me in my recent talks.

I have been urged to cut taxes massively in November 16, 1978 COMMONS DEBATES 1201 The Budget-Mr. ChrPtien order to stimulate the economy.

Given the expansionary forces Unemployment Insurance Premiums which are already at work, I do not think this would be wise, particularly when our cash requirements are so high.

Employees and employers will also benefit from a cut in unemployment insurance premiums.
On behalf of my col- league, the Minister of Employment and Immigration, I am On the other hand, I have been told that I should do nothing pleased to announce that the weekly employee rate for 1979 to add to the $9.7 billion of cash requirements already forecast for 1979-80.

But action is needed now to encourage invest- will be reduced from $1 .50 per $100 of insurable earnings to $1.35.

The employer rate will be reduced from $2.10 to $1.89.
ment, to respond to the needs of sectors and regions, and to keep our costs competitive, while reducing our cash require- The effect of this will be to increase take-home pay and reduce ments from the present high level.

costs to employers by about $300 million in 1979.

I believe I have some room because of the efforts we have made to reduce our expenditures.

I think we should share these savings with the public.

I would like now to turn to the tax measures that I am proposing tonight.
Let me begin with personal income taxes.

Personal Income Tax Mr. Speaker, an outstanding feature of our personal tax system is the inflation indexing of personal income tax exemp- tions and brackets.

Canada is one of the very few industrial- ized countries that provide such indexing.

since its introduc- tion the taxes paid by Canadians by billions of dollars.
in 1974, indexing has reduced The built-in reductions in personal income tax, the increase in the employment expense deduction, and the cut in unem- ployment insurance premiums will improve the take-home pay of Canadians by about $2 billion in 1979.

The great majority of Canadians now recognize the inflationary impact of too rapid a rise in money incomes.

I am confident that they will these improvements in disposable take into consideration income in setting their income demands over the year ahead.
[English] Tax Structure Changes Mr. Speaker, I tax changes.

A stable tax system is essential for economic growth and development.

It must be equitable.

It must reward initia- tive and enterprise.

Defects in the system and unchecked abuses lead to unfairness.

Special tax incentives that miss their target do more harm than good.

For these reasons, tax system stability cannot mean leaving the system unchanged.

now I would like to announce that the indexing factor for 1979 will be 9 per cent.
As a result, for example, the total personal exemptions for a family of four will increase by $490 to $5,970.

This indexing adjustment will also increase the $200 child tax credit to $2 1 8 per child payable in the spring of 1 980.

We have to keep the tax system under constant review.

I am releasing tonight two major studies made by my officials.

One is a study that lay behind the decision of the government to introduce the refundable child tax credit.
The second makes a Indexing will reduce federal taxes paid by Canadians by comprehensive comparison of the Canadian and United States about $1.2 billion for the 1979 taxation Year.

It will also tax sytems.

Mr. Speaker, this second study destroys a myth.

It reduce provincial income taxes in those provinces with tax shows conclusively the Canadian personal tax system compares collection agreements by some $400 million.

As a result of most favourably with that of the United States.
I have also found that our business taxes are fully competitive.

Our system these built-in reductions, Canadians will pay a lower share of is basically sound.

There is, however, need for certain their total income in taxes next year.

changes-some of a relieving nature and some not.

I have a further announcement to make with relation to .

(,,,,, personal income tax.


Taxpayers are currently permitted an employment expense deduction of 3 per cent of wage and salary income with a maximum deduction of $250.

I am proposing to double the maximum for this deduction from working as they should.

$250 to $500 for 1979 and subsequent taxation years.

Commodity Taxes This change will benefit most working Canadians, It is estimated that it will reduce their taxes by $270 million in 1979-80.

Hon.
Hon.

members expressed concern at the time of the last budget over the taxation of registered retirement saving plan proceeds.

This concern was directed toward the situation where both parents die, leaving behind minor or disabled children.

I undertook to review the situa.tion.

I now propose that the ~rovisions be amended for the benefit of these children.

First, certain changes are needed in federal sales and excise taxes.
Some tax measures designed to conserve energy are not In my view the special 10 per cent excise tax on marine engines and private aircraft and the 5 per cent tax on motorcy- cles are having adverse economic effects.

The contribution of these taxes to energy conservation has been minimal.

I there- fore propose to eliminate them, effective tonight.

At the same time; I want to put all non-commercial users of gasoline on the same basis.
I am therefore extending the special 7 cents a gallon excise tax on gasoline to aviation fuel for non-commer- cial uses.

,,tomatic TO enco,rage energy conservation, storm doors, windows timer-control devices were exempted from fed- eral sales tax.

These exemptions have proven extremely dif- ficult to control and to administer.
For example, most glass 1202 COMMONS DEBATES November 16, 1978 The Budget-Mr. Chritien used in new construction is now exempt from tax, even though it is less energy-efficient than solid-wall construction which is taxable.

The exemptions will therefore be withdrawn effective tonight.

Also, the sales tax exemption for insulation materials will apply only to items with genuine insulating properties.

Solar-powered water heaters will be exempted from tax.
These measures will increase the effectiveness of the government's energy conservation program.

Air Transportation Tax An air transportation tax is currently used to help finance a widening range of airport services.

Unfortunately, the costs of these services have been increasing rapidly.

I have been asked by my colleague, the Minister of Transport (Mr. Lang), to take steps to improve cost recovery.
For flights within Canada and to the United States, I am therefore proposing an increase in this tax to 15 per cent of the air fare, with a maximum of $15.

For international flights, the tax will be increased to $12 with provision for a subsequent increase to $15.

This is another step in an ongoing process to shift the costs of airport services from the general taxpayer to those who use the airports.

These increases will come into effect after March 31, 1979.
Tariffs I am not proposing to make any tariff changes in this budget, partly because the multilateral trade negotiations are now at a critical stage.

I do expect to be introducing in the near future a new schedule of tariff rates for fruits and vegetables.

I announced in my last budget that we were entering into negotiations on these products with our trading partners, following an exhaustive study of the industry by the Tariff Board.

These negotiations are well advanced and should be concluded shortly.
Corporation Income Tax Let me turn now to several important structural changes in the area of corporation taxes.

As a result of tax benefits introduced by this government over the past few years, small businesses in Canada enjoy very favourable tax treatment.

Small Canadian-controlled private corporations pay federal income tax at less than half the normal corporation rate.

The dividends they pay qualify for the generous dividend tax credit.
As a result, the total tax on income from small incorporated businesses is below the level of personal tax on the same amount of wage and salary income.

Mr. Speaker, the very generosity of the measures makes it essential to ensure that they are effectively targeted.

Some individuals have rearranged their affairs simply to make their personal, professional and investment income eligible for taxa- tion at the low small business rate.

It would be wrong to allow such practices to continue.
I am introducing changes to the Income Tax Act to ensure that the application of the low corporate tax rate is reserved for those small businesses for whom it is really intended.

These will include those engaged in manufacturing, processing, mining, construction, farming, fishing, logging, transportation, [Mr. ChrCticn.1 wholesale and retail trade and other businesses as may be prescribed.
In this way the generous tax incentives will be maintained for small businesses that need capital to expand and create jobs.

The new measure will apply to taxation years starting next year.

I have also concluded that it is essential to amend the Income Tax Act to change the treatment of income debentures and term preferred shares.

These securities are currently treat- ed as equities for tax purposes, even though they are essential- ly debt obligations.
As a result, income earned on such securi- ties by banks and other financial institutions is tax-exempt.

For the most part they are used for the financing of a relatively small number of multinational and large Canadian corporations.

Their use has resulted in a very substantial loss of revenues to the federal and provincial governments.

This has been of concern not just to me but also to my provincial colleagues, as we held discussions last week at the finance ministers' meeting in Ottawa.
The proposed amendments will generally apply to any such securities issued after tonight.

They will not apply to issues outstanding or committed.

Nor will they affect the tax treat- ment of common and ordinary preferred shares.

I a m proposing other structural changes of a technical nature in the Notice of Ways and Means Motion which I am tabling tonight.

One of the more important of these is a broadening of the deductibility of security underwriting expenses.
Sectoral and Regional Policy Mr. Speaker, a strong industrial structure is vital to Cana- da's future.

I have benefited greatly from the sectoral consul- tations I have already referred to.

The recommendations of the 23 industry task forces and the report of the Second Tier Committee have been carefully reviewed in my department.

The supplementary material con- tains a summary and analysis of the tax proposals in these reports.
In response to some of these recommendations of business and labour, I wish now to propose measures to improve efficiency, to lower costs and to promote a better distribution of economic activity across regions.

Investment Tax Credit My first proposal concerns the investment tax credit.

Since 1975 this credit has supported expansion and modernization of business.

It is scheduled to expire on June 30, 1980.

I am now proposing to extend the credit indefinitely.
This will provide benefits to manufacturing, the resource sector, farming and fishing.

But I want to go further.

I therefore propose that the basic rate of the investment tax credit be raised from 5 to 7 per cent, effective immediately.

I also want to give increased support to regional develop- ment.

For investments in areas designated under the Regional Development Incentives Act, other than in the Atlantic Prov- inces and the Gasp&, the credit will be raised from 7.5 per cent to 10 per cent.
These areas include most of Quebec, all of November 16, 1978 C O M M O N S DEBATES 1203 Northern Ontario, Manitoba and Saskatchewan, parts of Northern Alberta and British Columbia and all of the Yukon and Northwest Territories.

For Atlantic Canada and the GaspC, the investment tax credit will be doubled from 10 per cent to 20 per cent.

The importance of transportation was strongly emphasized by the first ministers last February.
A modern and efficient transportation system is fundamental to prosperity throughout this vast country.

I a m therefore proposing that investment in equipment for rail, air, water and long-haul road transporta- tion now qualify for the basic 7 per cent investment tax credit.

All these changes in the investment tax credit will confer benefits of $500 million in the first full year of application.

This is $150 million more than under the present system.
Research and Development A common theme of the industry task forces to which I have already referred was the importance of adequate incentives for research and development.

The government has already moved a long way in this direction.

A 100 per cent write-off of these expenditures has been in place for many years.
The March, 1977, budget introduced tax measures to extend the investment tax credit to both current and capital expenditures on R and D. In April of this year I provided a new 50 per cent deduction for firms which increase their research and development.

The government has also announced a package of direct grants and subsidies for industrial R and D. I am proposing to do more.

The basic investment tax credit for research and development will be doubled, from 5 to 10 per cent.
In the Atlantic provinces and the Gasp6 this credit will be 20 per cent.

However, I want to provide a special measure of assistance for small business corporations.

These corpora- tions in all parts of Canada will qualify for a research and development tax credit of 25 per cent.

[Translation] Resource Taxation Let me turn now to the resource industries, and mining in particular.

Federal and provincial finance and resource ministers have just concluded an in-depth review of the tax situation in mining.
The federal tax system has been found to be basically sound.

However, some changes could be introduced to spur the development of new ventures.

1 want to take the lead here.

Following our recent meetings.

I feel confident that provinces will do their part.

I propose that the current write-off for development expen- ditures in mining incurred after tonight be raised from 30 per cent to 100 per cent.
Furthermore, I am proposing that for new mines, the costs of associated townsites and social assets earn depletion.

1 a m also extending indefinitely the fast write-off for pollution The Budget-Mr. Chrhtien control equipment, which will be of particular benefit to mining.

Also, Mr. Speaker, the regional increases in the investment tax credit are also of special value to this sector.
I want to assure the industry of the federal government's intention to pursue the spirit of federal-provincial co-operation established during the review.

It is not my intention to initiate tax system changes that would create uncertainty.

Nor will I offset the benefits from tax reductions that provinces may introduce.

In the area of oil and gas, there has been a significant response to the incentive for drilling funds.

This incentive expires on June 30, 1979.


I have concluded that we must continue to encourage a high level of exploration activity.

I therefore propose that the incentives be extended to Decem- ber 31, 1981.

Pulp and Paper I am anxious that the pulp and paper industry take advan- tage of the very favourable situation created by the lower value of the Canadian dollar.

It should use this opportunity to modernize and so guarantee its future competitiveness.
The federal government and a number of provincial governments are working together to reduce the high cost of wood supply.

They are also studying ways to strengthen and modernize the industry.

Two of the measures in this budget will contribute to these efforts.

The increase in the investment tax credit, and its enrichment in slower-growth regions, will be of considerable benefit to the pulp and paper industry.
In addition, the indefi- nite extension of the two-year write-off for water pollution abatement equipment is particularly helpful.

Housing I want to announce two measures to reinforce the govern- ment's support for housing.

First, the tax incentive for multi- ple-unit residential buildings will be extended for one year.

Second, developers will be allowed to deduct the carrying charges incurred after tonight on their land inventory.
[English] Manufacturers' Sales Tax I now come to one of the most important tax measures in my budget.

I am proposing to reduce the 12 per cent manufactur- ers' sales tax to 9 per cent, effective tonight.

This will affect all goods now subject to the 12 per cent rate with the exception of alcoholic beverages and tobacco.

Some hon.

Members: Hear, hear!

Some hon.

Members: Oh, oh!

Mr. Chrbtien: I do not smoke and 1 do not drink very much.
Gasoline is not subject to the 12 per cent ad valorem rate and will not be affected.

Construction materials will continue to be taxed a t the low 5 per cent rate.

1204 C O M M O N S DEBATES November 16, 1978 The Budget-Mr. Chre'tien This sales tax measure will reduce taxes payable at the manufacturers' level by $280 million this fiscal year and by $1 billion in 1979-80.
In accordance with standard practice, my colleague, the Minister of National Revenue has asked me to give notice that no claims will be entertained for refunds of tax in respect of goods on which the 12 per cent tax has been paid.

Unlike provincial sales taxes which apply at the retail level, the federal tax is levied on sales by manufacturers and import- ers.

I want this cut to be passed on to consumers.

That is why I have made a cut of significant size with no terminal date.
Experience suggests that such tax cuts are passed on.

I am appealing to manufacturers, wholesalers and retailers-I am surprised to see the hon.

Leader of the Opposition (Mr. Clark) smiling.

If he believes in the marketplace, he will conclude that the tax cut will be passed on.

Some hon.

Members: Hear, hear!

Mr. Chretien: I a m appealing to manufacturers, wholesalers and retailers to make sure that the consumer gets the benefit.
As well, I am asking my colleague, the Minister of Consumer and Corporate Affairs (Mr. Allmand), his department, the Anti-Inflation Board and the Centre for the Study of Inflation and Productivity to monitor the situation closely.

Consumers themselves, by seeking out competitive price reductions, can help to make this measure effective.

Impact on the Economy I estimate that the cut in the sales tax will reduce the increase in the consumer price index by one-half of one per cent.
This comes on top of the proposed postponement of the oil price increase and the reduction in the gasoline excise tax announced in August.

These two will have a similar impact.

These measures will have a direct effect on wage costs through cost-of-living clauses in wage contracts.

More impor- tant, a somewhat lower rate of price increase will be helpful in moderating new settlements.
The cut in income taxes as a result of indexing, the improved employment expense deduc- tion and the reduction in unemployment insurance premiums will also help to relieve the pressures for large increases in money incomes.

I therefore believe that this budget will make a significant contribution to the containment of our domestic costs in the post-control era.

This will enable us to take full advantage of the improvement in our competitive position that we have achieved.
My budget measures will, of course, provide a more direct stimulus to growth.

Investment will be stimulated by the enriched investment tax credit.

Consumption will benefit from the increase in the real spending power of Canadians as a result of the income and sales tax cuts.

the consumer price index will average 6% per cent above the 1978 level, but the increase from the fourth quarter of this year to the fourth quarter of next year should be under 6 per cent.
My revenue forecasts are based on an increase of I I per cent in the current dollar value of the gross national product.

The Fiscal Position Mr. Speaker, I would like now to table projections of the government's revenues and expenditures, the Notice of Ways and Means Motion, supplementary information giving details of the measures proposed tonight, and the two studies I mentioned earlier.
I would also like to ask for the consent of the House to include in Hansard the usual tables on the government's accounts together with the explanatory notes.

Mr. Speaker: Is the House agreed?

Some hon.

Members: Agreed.

Mr. Speaker: Agreed and so ordered.

[Editor's Note: For tables referred to above, see Appendix.]

Mr. Chrktien: This fiscal year I expect financial require- ments, excluding foreign exchange transactions, to total $12.1 billion.
The increase from the $1 1.8 billion forecast in Septem- ber is due to the sales tax cut and other measures announced tonight.

I am forecasting financial requirements for 1979-80 of $10,750 million.

This is an increase of $1,050 million from my previous forecast of $9.7 billion.

The loss of revenues from the measures I have announced tonight which had not been ref- lected in the previous forecast amounts to $1,380 million.
But there is some offset arising from the favourable impact of these measures on the economy and from other minor adjust- ments since the last forecast.

The financial requirements in 1979-80 will thus decline by $1,350 million or 11 per cent from this year's level.

If account is taken of the special factors relating to Canada Savings Bond interest, financial requirements would increase by about $350 million.

The deficit on a national accounts basis is forecast to increase by $200 million.
These financial requirements are large, but their size must be kept in perspective.

They are lower than this year and they are being incurred at a time when unemployment and interest rates are high.

Morever, the provincial governments are pro- viding rather less stimulus than in the past, mainly because of the substantial surpluses of the resource-rich western prov- inces.
With faster growth in the private sector in prospect over the medium-term, coupled with continuing expenditure restraint, significant reductions in the deficit can be expected.

I am confident that our financial requirements this year and next can be met without causing undue pressures on financial markets.

Concluding Remarks I am projecting an increase in real output next year of between 4 per cent and 4% per cent.

I would expect the number of jobs to increase by at least 250,000.
I expect that Mr. Speaker, in the last three years Canadians have worked hard and responsibly to regain our competitive position in world markets.

We are starting to reap the benefits.

Our costs [Mr.

Chdtien.]

November 16, 1978 COMMONS DEBATES 1205 are now competitive and we have seen recently a great improvement in our balance of trade and a firming of invest- ment plans.
~t the February first ministers3 meeting and in discussions among government, labour and business an important consen- sus has developed.

All sectors have come to recognize that to build a strong economy we must be competitive in internation- al markets.
The Budget-Mr. Stevens One of the aspects that 1 think is perhaps dearest to the heart of everybody in the official opposition is the employee accommodation benefit which the minister has proposed for January 1, which allows employees in this country to increase the amount that they can properly charge for their ongoing expenses from $250 to $500.
The minister will recall that only a few months ago in this House we on this side supported an increase in that expense allowance, but unfortunately we were So tonight I have brought down a budget to build further down by the government forces at that time.

~ r .

that we but they proposa1.

Some hon.

Members: Hear, hear!

confidence and to ensure continued competitiveness.

Everyone agrees that the future is very good for canadians.
Sinclair Stevens (York-Simcoe): Mr. Speaker, in ment to phase in our mortgage deductibility I am disappointed, as I am sure are many Canadians who are watching tonight, that the minister has refused to accom- Our resources, our people, our institutions, and our freedom modate our mortgage deductibility ~ r o ~ o s a l and our municipal two proposals, as we link tax make us the envy of the world.

Of course, there are problems.

them to meaningful expenditure reductions, are not only There always will be.
But the potential for even greater needed by Canadian add a prosperity is there, and I am confident that Canadians are to an otherwise rather stagnant economy.

Perhaps so we can continue to enjoy one of prepared to act the most unfortunate thing is that the government has not the highest standards of living anywhere, and to make sure accepted Our suggestion, for hiring that we pass on to future generations a free, united and 20,000 extra public employees per year over a period of three prosperous Canada.
years.

That alone would have saved the federal treasury about $1.7 billion, and over that period of time the savings on that one item alone would have been sufficient to allow the govern- and our making a few introductory remarks tonight in response to the municipal taxation plan as described by my leader in Septem- budget we have just heard delivered to the House, I should first like to congratulate the minister on the various aspects of it which 1 believe will be good for Canadians.
I could hardly believe my ears yesterday when I heard the Minister of State for Urban Affairs (Mr. Ouellet) in this The first thing I should like to refer to is the manufacturers' House categorically challenge the concept of mortgage deduct- sales tax reduction from 12 per cent to 9 per cent.

This is a ibility and municipal tax deductibility.

l n fact, he said that it move in the right direction.
We may in due course have was something for the rich, on the one hand, and would not comments to make as to the form the minister has chosen in help the tenant, on the other hand, 1 would like that minister which to make this reduction.
The minister will recall that over to come with me to downtown vancouver, winnipeg, T ~ the ~ e r i o d of the last three budgets we in the official opposi- Montreal or Halifax and tell people with $30,000, $40,000 and tion have pressed hard to have the manufacturing sales tax $50,000 mortgages that they are the rich people, the people reduced in this country.
The minister will also recall that in the government says should not get a break in this statements made earlier we indicated that we felt it would be more effective to have the manufacturing sales tax reduction in certain 'pecific areas as to reducing it across the board, as he has proposed tonight.

The minister of urban affairs yesterday referred to the tenants, the group which this government pretends to defend.
1 would ask that minister if he were in his seat tonight, why does he think the average tenant stays in an apartment building?

industry that needs this type of stimulus, and 1 am disappoint- Does he believe that that is his first choice?
The hard fact is ed the minister did not reduce the 5 per cent manufacturing that the majority of tenants would dearly love to move out of Sales tax that is still outstanding in respect of the construction their apartments if they could afford to buy a home in which industry.

to live.

That is the kind of program that a Clark government, after the next elect~on, will put in place.

In particular, we felt that the construction industry was an country, the capitalists which they do not want to help.
ber of this year.

(2102) Some hon.

Members: Hear, hear!

I would like to commend the government also for deciding to Mr. Stevens: Another area which the Minister of Finance go further in helping research and development in this country.

(Mr. ChrCtien) either glossed over or said very little about was This perhaps has been one of the greatest shortfalls of this the small businessman.

In earlier questioning to the Prime government for the past ten years.
The mining industry, if you add together the provincial tax portion and the federal tax Minister (Mr. Trudeau) we pointed out that ten years ago portion, has had a very heavy load to bear which has undoubt- there was one bankruptcy for every ten businesses in Canada.

edly discouraged development in this country.

Once again, mainly among small business people, today it is now seven bankruptcies in every ten as compared to the United States.
while it may be a bit late, 1 am pleased that the minister has This is the situation which the small businessman finds himself chosen tonight to accommodate at least that resource field further.

in, and yet in this budget there is no meaningful assistance for ~ ~ ~ ~ ~ ,