Hansard Transcripts 1977-Apr-19 | Legislative Assembly of Ontario

Hon. Mr. McKeough: Mr. Speaker, before beginning my budget presentation tonight I would like, first of all, to acknowledge the presence in the House of my deputy minister, Mr. A. R. Dick; the Deputy Minister of Revenue, Dr. Terry Russell; and the Secretary of Management Board, Mr. William Anderson. These gentlemen, along with their excellent staffs, deserve full credit for their efforts in preparing the budget, writing it and making it happen. On behalf of my colleagues, the Minister of Revenue (Mrs. Scrivener) and the Chairman of Management Board (Mr. Auld), I’d like to express our collective and heartfelt thanks.

Mr. Breithaupt: Don’t blame them.

Hon. Mr. McKeough: I’m also delighted that in your gallery tonight, sir, are three very distinguished gentlemen who are former Treasurers of this province -- Mr. James Allan, Mr. Charles MacNaughton and Mr. John White.

Mr. Reid: They were BD -- before deficits.

Mr. Breithaupt: They didn’t have any deficits, as I recall.

Mr. Foulds: Is that a trinity or a triangle?

Hon. Mr. McKeough: Mr. Speaker, this is the fifth budget that I’ve had the pleasure to present to this House as Treasurer.

Mr. Sargent: All deficits.

Hon. Mr. McKeough: Through you, Mr. Speaker, to the gentleman on my right, despite any protestations that my own budget maker may have, and she is also in the gallery tonight, I might say I have every expectation of delivering at least five more in the service of this government.

Mr. S. Smith: A budget a day for the next week?

Mr. Breithaupt: Hope springs eternal.

Hon. Mr. Davis: Applaud that.

Mr. Sweeney: The province couldn’t afford it.

Mr. Laughren: There’s something that you learners should learn, Jim.

Mr. Speaker: Order, please. On with the business.

Hon. Mr. McKeough: Mr. Speaker, the 1977 budget, which I am presenting tonight, will reduce Ontario’s cash requirements by $311 million. This large reduction will be achieved by constraining the growth in our spending to nine per cent or $1.1 billion, while revenues will increase by 12.9 per cent or $1.4 billion. This responsible fiscal plan builds upon the gains of last year, uses our finances to maximum benefit and frees up resources for the private sector to ensure the continued prosperity of the Ontario economy.

The government has instituted tough measures over the past two years to reduce the growth of public spending in Ontario. These measures have been successful. I am pleased to repeat that our 1976-77 spending will actually come in $11 million below the original estimates, the first time since 1947 that this has been achieved. This demonstrates that government can cut costs, can set priorities, and can live within its means.

Mr. Roy: And can listen to advice.

Hon. Mr. McKeough: My colleagues and I believe we must hold firm to this course of restraint spending, not just for 1977 but for the longer run as well. This budget extends the government’s fiscal planning horizon beyond the traditional single year. It projects the revenue yield we can expect over the next three years without resorting to tax increases, and it sets out the spending limits we can afford if the budgetary deficit is to be progressively reduced and ultimately eliminated. Our objective is to have the capacity to balance the Ontario budget by 1980-81. This is not an inflexible commitment --

Mr. Singer: No.

Hon. Mr. McKeough: -- indeed, economic conditions or social needs may make it inappropriate or even impossible to achieve this target by 1980-81. Still, we must make every effort to move steadfastly towards a balanced budget. That will require determined self- discipline --

Mr. Sargent: What do you mean, a balanced budget?

Hon. McKeough: -- and day-to-day resistance against the temptation to spend and to borrow.

Mr. Sargent: Never in your life.

An hon. member: He’s never balanced a budget.

Hon. Mr. McKeough: Canada needs at this time a long-term solution to the very basic problems that have become impediments to our economic future. To focus exclusively on short-term remedies for fundamental ailments will lead us right back to the position we are in now --

Mr. Martel: How did you get there, then?

Hon. Mr. McKeough: -- a condition of excess tax and debt burdens for Canada and Canadians --

Mr. Martel: What brought us to that position?

Hon. Mr. McKeough: -- compounded by a further weakening of our ability to match foreign competition.

Mr. Sargent: You put us there.

Hon. Mr. McKeough: Higher tariff barriers and industrial subsidies are not the answer, nor are larger government expenditures. One has to be impressed with the wisdom of one respected politician who said recently, and I quote: --

Mr. Lewis: Suddenly respected.

Hon. Mr. McKeough: -- “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candour, that that option no longer exists, and that in so far as it ever did exist, it worked only by injecting bigger doses of inflation into the economy followed by higher levels of unemployment as the next step. That is the history of the last 20 years.”

That statement was made by someone who is most familiar with the problems of public sector growth, the Rt. Hon. James Callaghan, Prime Minister of Britain’s socialist government.

Mr. Martel: You just about choked on that word.

Hon. Mr. Davis: Don’t ask, “Where is Britain?”

Interjections.

Hon. Mr. McKeough: Members will be aware that this government has given its maximum attention to tackling the longer-term challenges.

Mr. Sargent: It’s a financial nightmare.

Hon. Mr. Rhodes: Somebody must have been buying.

Hon. Mr. Kerr: How did he make an evening session?

Hon. Mr. McKeough: We remain convinced that the highest priority has to be allocated to a strategy for the 1980s and that this strategy should embrace in a comprehensive way the key aspects of our economic and social life. This is not the time to slide off into makeshift remedies because they will come back to haunt us and our children for many years.

What is needed is a determined effort to tackle the larger structural problems of achieving balanced growth with full employment and price stability. The basic issue before us is, after controls, what? If we are to successfully avoid the errors and difficulties of the past, we shall need to address four facts of fundamental importance to our prosperity.

First, governments must discipline themselves and avoid draining from the economy an unreasonably large portion of national and provincial resources. Second, we must improve the climate for investment in Canada. Third, we must persuade or influence industry in Ontario and Canada to concentrate its resources in those activities where we are able to compete in international markets.

Mr. Sargent: What are you doing about it?

Hon. Mr. McKeough: Fourth, in the labour market, we must de-emphasize the adversary environment of labour-management relations.

It is no accident that Canada’s image as a place to do business has suffered somewhat in other industrial countries. We have badly tilted our economic and fiscal policies towards social overmanagement and let go the responsibility of encouraging the economic growth that feeds us.

In the past 10 years, we have seen programme after programme to redistribute income, which is perfectly valid and necessary, but we have seen not nearly enough effort at the national level to keep the economy alive and well to generate the income for such redistribution programmes. In my judgement, it has been a process of constant leeching on private sector initiatives that has brought us to a condition of virtual non-competitiveness in so many areas of our economy. The answer must lie in self-discipline across the whole public sector.

Mr. Lewis: That’s sort of defiling the private sector.

Hon. Mr. McKeough: In the matter of achieving restraint, Ontario’s record stands as an example for all governments in Canada. We have every intention of maintaining that posture for the future.

Mr. Foulds: Posture is right.

Hon. Mr. McKeough: It is the only way we can pump resources into the private sector and permit free enterprise to move forward and generate the jobs and incomes we expect and need.

Mr. Sargent: There’s more than $1 billion deficit. You owe $11 billion.

Hon. Mr. Bernier: Go fly your airplane.

Hon. Mr. McKeough: This government has made investment and free enterprise central concerns in all of its activities. Without profits, there is no investment; without investment, there are no new jobs, no productive and non-inflationary jobs. It’s easy to create inflationary employment but quite another matter to create the conditions for productive jobs that increase the wealth of the nation and its people.

One of Canada’s major priorities in marshalling its investment capacities must be that of increasing the level of equity funding in our industries. While I recognize and support the role of internal corporate financing of our large-scale industrial activities, I would like to see government, industry and the financial community take positive steps to substantially increase the role of small investors in our economy. It isn’t enough to expect the public to be sensitive to the needs of the business climate in an abstract way. The average citizen needs and deserves to have a much greater opportunity to participate in the rewards of investment and economic growth. Only when more citizens have a direct stake through their own private investments can we hope to develop broadly based public understanding --

Mr. Reed: It took you a long time to figure that out.

Hon. Mr. McKeough: -- of the importance of investment and growth in a free economy.

Mr. Sargent: Sure you do.

Hon. Mr. McKeough: In this regard, I am encouraged by the increase in the dividend tax credit announced in the recent federal budget.

Those who believe, as a matter of blind faith, that all business is bad, never, of course, see any connection between private sector investment and job creation.

Mr. Deans: Who believes that?

Hon. W. Newman: You sure don’t.

Mr. Shore: The member for Wentworth should have been here this afternoon.

Hon. Mr. McKeough: I think the realities of several years of irresponsible and irrational criticism of everything businessmen do are coming home to us. Unfortunately, as is all too often the case, it is ordinary working people who suffer -- those whose jobs rest on investment and healthy industries, not those whose pious rancour has driven investment from the marketplace.

[8:15]

Interjections.

Mr. Speaker: Order, please. Other members will make their contributions later.

Mr. Deans: Thirty-four years in office.

Mr. Renwick: Thirty-four years and you are just telling us now.

Mr. Speaker: Order, please.

Hon. Mr. McKeough: To assist the process of understanding profits and their essential contribution to the growth process, the government has established a committee to examine inflation accounting.

Mr. Lewis: That’s wonderful.

Mr. MacDonald: We will write a book.

Hon. Mr. McKeough: The recent federal budget acknowledges the importance of this area of concern by introducing some changes in the method of taxing inventories. I welcome this move as a positive contribution, but I think we have to go further and examine in considerable detail the adverse effects of inflation on business investment capabilities and job creation. Therefore, I am asking the inflation accounting committee to look at the recent federal tax changes and to assess their impact on investment in Ontario.

One of the largest single concerns in Canada’s economic future is the matter of the government’s role in financing the retirement incomes of the rapidly growing number of pensioners. Ontario has established programmes for supplementing the incomes of the elderly, in response to the difficulties many pensioners were experiencing with price inflation. However, the emergence in the public sector in recent times of indexed pensions at high levels of benefit, raises questions concerning the capacity of our economy to withstand the massive financial burdens implicit in these public pensions.

Accordingly, in the Speech from the Throne, the government has made known its intention to establish a royal commission to inquire into this matter. Since pension plans are a major source of investment savings for our economy, it is essential that we have a financially-sound pensions framework.

There are many industries in which we enjoy the benefits of world scale and a world level of productive efficiency. However, I am concerned that in a growing number of instances, we are being forced out of world markets and are losing our grip on domestic markets. Despite the fact that Canada is an industrial nation, we import far more manufactured products than we export. We have become a capital intensive economy, and I think we may be squandering our precious capital resources by fostering inefficient industries. Ontario’s policy remains one of resisting subsidization and featherbedding.

Mr. Lewis: Featherbedding -- what do you call the new ministry?

Hon. Mr. Bernier: Make sure that’s in Hansard. You will eat those words, Stephen Lewis. I am going to enjoy it.

Mr. Speaker: Order, please.

Mr. Breithaupt: It is not a problem in Brampton.

Mr. Speaker: Order, please. The hon. Treasurer has the floor.

Hon. Mr. McKeough: We want healthy, efficient and productive industries. I am convinced we could have more of them if we could achieve a change in our attitudes towards productivity and profits.

On the matter of the current negotiations in Geneva on international trade and tariff policies, I have to repeat Ontario’s concern that the federal government is proceeding on the basis of no known strategy. It is clear that Canadian industries and Ontario manufacturers cannot be protected forever by high tariffs. Yet the day of tariff cuts gets closer and closer, with no sign from Ottawa that Canada will be ready with adjustment programmes which will enable our industries to roll with the punches.

I am not in favour of high tariffs. I think we can do better for our consumers, but we need a national policy with some vision of the economic future to help us see where we should be going. One of the key aspects of a national industrial policy must be to focus our efforts on those industries where Canadians have special skills and talents. As a beginning, I would like to see national policies which make full use of our unique talents in the following areas:

Automobiles: Over 120,000 Canadians earn their incomes in this highly productive industry, so Canada’s role and share of the auto trade pact has to be a matter of great concern to us.

Steel: We have developed an efficient industry which deals effectively in world markets as well as being important as a source of growth in the domestic economy. We need to develop more consciously those industries and skills that can build on this industrial base.

Industrial Rationalization: We cannot afford, in many instances, with our relatively small market base, to have many firms competing in one sector. For this reason, my colleague, the Minister of Industry and Tourism (Mr. Bennett), fully supported the recent industrial consolidation of our electrical appliance industry which was achieved through the merger of the major appliance divisions of General Steel Wares and Canadian General Electric to form the Canadian Appliance Manufacturing Company. We need to encourage more of that kind of rationalization. In doing so, we can rely on imports to provide effective price competition to the benefit of consumers and we can take full advantage of the economies of scale which industrial rationalization brings.

Energy and Resources Development: Canadian engineering talents and specialization in the energy and resource industries have made us world famous. We can and should profit more from these attributes and attempt to restore the confidence of investors in these industries. That confidence has been badly shaken in recent years by conflicts over resource taxation, environmental matters and deterrents to foreign investment.

Transportation Policy: There can be no doubt that Canadian transportation costs are critical to the success of the economy. They are too high and the industry is characterized by a lack of effective competition. Government policies have to resolve this issue and the equally important issue of improved investment in the transportation facilities.

Agriculture: This is still one of Canada’s richest assets, but we badly lack a national policy of income and price stabilization which is fair to both consumers and farmers, and, better still, builds up the base for increased exports.

Small Business: In the Speech from the Throne, the Ontario government announced a wide range of initiatives to reinforce and guarantee an expanded role for small business in the economy. This is a vital aspect of maintaining a creative and efficient industrial economy. These actions will complement moves to bolster the efficiency of medium and large businesses.

Mr. Speaker, I could name many other examples. It is worth noting that Canada has also achieved a world-wide reputation in other fields where scale and size are important, notably banking and finance, and construction and engineering. I don’t believe we lack the skills or the commercial talents. Rather we seem too often to lack the will and the policy to fully utilize these talents and ambitions.

This budget continues to meet the challenges in the key areas of government restraint, investment and efficiency.

Mr. Sargent: Like what? Like what?

Hon. Mr. McKeough: A fourth aspect of our economic life which has to receive more attention in future years is that of moderating the atmosphere of confrontation in labour relations. The government’s intentions were made explicit at the Partnership-for-Prosperity Conference --

Mr. Bullbrook: That’s about time.

Mr. Sargent: What a bunch of nonsense.

Hon. Mr. McKeough: -- which was convened and chaired by the Premier, drawing together some 150 leaders and commentators from all aspects of Ontario life to discuss the problems of a post-controls economy. At that conference we released a study paper entitled Background to Decontrols which outlined the problems and policy options.

In the Speech from the Throne, the government put forward its views on the phasing out of controls and on the kind of consultative actions that would be necessary for a successful transition to a post-controls phase. We pointed out the need for a clear strategy to hold down inflation in the post-controls era, and the steps we would be taking as our contribution to this process. Budget paper D, which accompanies this statement, deals in some detail with the issues and options of decontrol.

Mr. Speaker, the responses to these four critical issues of national concern will be assembled and studied in a variety of ways. As part of that effort, Ontario is establishing follow-up working groups to the Partnership-for-Prosperity Conference to advise the government on practical approaches to monitoring the performance of prices, profits, wages and salaries in the post-control period.

Following the practice of recent years, I have engaged in extensive pre-budget discussions with representatives of many sectors of the economy. The advice I have received reflects a considerable range of opinion about economic prospects for 1977 and what constitutes appropriate fiscal policy. Many believe the economy should be stimulated, and just as many insist that inflation is still our number one problem. A few have even suggested that Ontario should jump in and do all those things which, in their opinion, the federal budget left undone. I have found these pre-budget consultations very informative, and would like to express my appreciation for this useful input.

For 1976 as a whole, despite some difficult obstacles, employment and real incomes continued to expand. I think there is every reason to be optimistic about the outlook for 1977. The United States economy, our own economy and those of the European Common Market, are all broadly balanced in the direction of expansion. The recent federal budget builds in considerable fiscal stimulation which, as I shall document later, will generate large increases in personal disposable incomes during the year.

The Ontario economy at this time is displaying signs of solid strength in several sectors --

Mr. Sargent: Sure it is.

Mr. Martel: What about the mines?

Hon. Mr. McKeough: -- which will produce positive results in terms of rising incomes and jobs as the year unfolds. For example, there is growing evidence that the large inventory of unsold housing is beginning to move well, and this is having an encouraging effect on the industry. Automobile production is running 10 per cent ahead of last year and sales are up more than double that rate.

Mr. Sargent: A billion and a half in debt --

Hon. Mr. McKeough: Investment is beginning to turn around, assuming we maintain a stable and hospitable business environment. Government spending on capital projects in Ontario, including those of Ontario Hydro, will be higher. There are also significant investments in steel and petrochemical projects which, as they come into production, will establish world scale in those industries. These are most encouraging prospects which will be materially assisted by the drop in the external value of the Canadian dollar over the past four months. That will assist our exports and help tourism in Canada.

An hon. member: Tell us about Hydro.

Hon. Mr. McKeough: I expect lower interest rates to help in the recovery. I have pointed out that each percentage point drop in interest rates saves Canadian consumers, over time, $1 billion a year. Thus, higher interest rates in our economy have to be a continuing concern to all of us. The answer, however, is not to drop interest rates in some arbitrary way. If inflation is not beaten, we cannot have lower interest rates without precipitating a flight of capital from Canada. Therefore, inflation must be a continuing and major concern.

In summary then, sir, my expectation for fiscal 1977 is that the annual rate of growth in the Ontario economy will move from four per cent a year in the first half to a rate of six per cent a year by the last half of the year. If prices, profits, wages and salaries get out of line with real productivity gains, however, the ability of the economy to expand will be drastically impaired. The rate of recovery will depend very directly on the restraint all participants in the economic process are prepared to contribute. Excessive demand from any part of the economy will take jobs away from our citizens. That is the simple and absolutely unavoidable fact of our economic life. There is no easy way out, and there can be no exceptions to the effort required of all of us.

The federal budget of March 31 provides needed stimulation to the economy. It reduces corporate and personal income taxes by $1 billion in 1977-78. In addition to these tax cuts, take-home pay of Canadians will rise by about $1 billion in 1977-78 as a result of indexation of the personal income tax. Some $900 million of these federal tax reductions will flow to Ontario businesses and individuals during the 1977-78 fiscal year. Ontario will contribute $130 million on top of this federal stimulus as its own share of the cost of indexing. In total, therefore, there is already built into the Ontario economy a fiscal stimulus in excess of $1 billion.

I would also point out to members that Ontario residents are now receiving their income tax refunds, including Ontario tax credits, for the 1976 taxation year. I estimate these payments will further boost purchasing power by well over $500 million immediately.

Mr. Sargent: Will they get that before election day?

Mr. Cassidy: Just like last year and the year before.

[8:30]

Hon. Mr. McKeough: Mr. Speaker, I think the state of Ottawa’s finances, which was revealed in the federal budget, underscores the wisdom of Ontario’s decision, taken two years ago, to constrain spending and reduce the province’s deficit. As a result of past excesses in spending, Ottawa’s projected budgetary deficit for 1977-78 is a whopping $7.2 billion.

Mr. Breithaupt: It is only three times what yours is.

Hon. Mr. McKeough: This is an increase of almost $600 million over the previous year. By contrast, we have succeeded -- with great determination I might add -- in reducing our deficit substantially.

Before I turn to the details of my budget for 1977, I should briefly like to draw the attention of members to budget paper E, which outlines some essential statistics on federal fiscal redistribution in Canada.

Mr. Sargent: What about the government pension fund?

Hon. Mr. McKeough: I think members will find it an interesting first attempt on our part to distribute the revenue and expenditure of the government of Canada among the various provinces.

I am also tabling an analysis of inter-provincial trade flows and the cost of tariffs to Canadian consumers. I should caution members that these are preliminary figures. Canada is seriously lacking in data of this kind, which has hampered reasoned debate on the costs and benefits of Confederation. I, for one, would like to see the federal government put the figures on the table so that all Canadians can see for themselves what every province pays and what it receives in return. While I do not profess, sir, to understand the technical aspects of these figures, I am convinced that they show Confederation to be a powerful and protective economic shield for all Canadians.

I would now like to turn to the government’s expenditure plan for the coming year. The planned expenditure growth rate of nine per cent for 1977-78 marks the third consecutive year that a reduction in expenditure growth has been achieved. I would like to draw the members’ attention to the fact that Ontario’s expenditure growth rate for 1977-78 is one of the lowest among the provinces, and is below that of the federal government for the sixth consecutive year.

I am firmly convinced that this progressive reduction in expenditure growth rates is helping to restore a more appropriate balance of public and private sector activities. During this period of expenditure restraint the government has substantially reordered its priorities to meet pressing needs. For the information of members, I have included a table showing expenditure growth rates by policy field, which illustrates these changing priorities.

Mr. Speaker, you will recall that on November 23, 1976, I outlined the broad dimension of the government’s 1977 spending plan. One of our key objectives was to minimize operating costs and overhead expenses so that more resources could be mobilized for job-creating investment projects. The 1977 spending plan meets this objective. It provides increased funding for the new Northern Affairs ministry, for water and sewage investment, for the OECA capital programme in the north; and it also includes increases for GWA, FDA and the blind and disabled benefits under GAINS.

An hon. member: It’s about time.

Hon. Mr. McKeough: An important element in the province’s cost control programme is the elimination of unnecessary staffing positions. In 1977-78 the civil service complement will not increase. This means we will hold the reduction achieved over the past two years. We will meet additional manpower requirements in some programmes by redistributing our existing human resources. A new system of manpower control will be implemented this year which focuses on overall dollars. Full details will be provided by my colleague, the Chairman of Management Board (Mr. Auld).

Mr. Foulds: That’s called increasing unemployment.

Hon. Mr. McKeough: The government’s financial assistance to local government for 1977 was announced last September 10. This was the earliest time ever, and fully three months earlier than the previous year. To accomplish this required a great deal of effort and co-operation from all ministries involved. I have received many local expressions of appreciation and assurances that this action helped greatly in local budgeting.

During the present year the government expects to transfer some $3.4 billion to local government, or more than triple the amount transferred during the 1969-1970 fiscal year. Counting the advance payments we mailed out in early April our assistance for 1977-1978 is up by 12.5 per cent over last year.

I would like to take this opportunity to remind our local governments that this 12.5 per cent increase in assistance is no way an indication of the end of the need to restrain spending. As I have said on many occasions, it is critical that we develop a leaner, more efficient public sector. There remains ample scope for further shake-out at the local government level.

The increases in property taxes in 1976 have eroded some of the benefits of our provincial actions to stabilize tax burdens. An accompanying table shows that property taxpayers are still relatively better off than in 1970 or 1972, but important ground was lost during 1976 when the average property tax rose to 2.5 per cent of household income.

Mr. Foulds: You can’t have it both ways.

Mr. Speaker: Order, please.

Hon. Mr. McKeough: The latter was due exclusively to the increase in education taxes.

As in previous years I am tabling a separate document today on the government’s financial assistance to local government. As well, I would like to remind members that two important studies on local government matters, Blair and Mayo, have already been released and four others -- Robarts, Archer, Comay and Stevenson -- will be forthcoming in the next few months. These will be of critical importance in proceeding with orderly reforms of local government structure and finance.

Mr. Sargent: Just like the Blair report, eh?

Hon. Mr. Rhodes: The one written by you -- the blur report.

Hon. Mr. Bennett: That’s right John, get it going.

Mr. Sargent: You’re a bunch of chickens over there, that’s all you are.

Mr. Breithaupt: It is only in the eye of the beholder.

Hon. Mr. McKeough: Within our limited resources for 1977 the government has placed its highest priority on creating jobs.

Mr. Lewis: Oh no, you haven’t.

Hon. Mr. McKeough: The job-creating initiatives must be selective and directed where they will have the biggest impact on unemployment. Before detailing these measures I would like to draw the attention of the members to budget paper A, entitled The Changing Character of Unemployment in Ontario.

Mr. Lewis: A disgraceful budget.

Mr. Speaker: Order, please.

Hon. Mr. Bennett: That is an opinion only of yours.

Hon. Mr. McKeough: This paper continues the in-depth analysis of the Ontario labour market begun in budget paper D of my 1976 budget.

Mr. Martel: Few solutions though.

Hon. Mr. McKeough: This 1977 paper indicates that for a variety of reasons the level of unemployment consistent with the provincial economy reaching its full employment performance has risen significantly since 1971.

Mr. Lewis: Consistent?

Hon. Mr. McKeough: Unemployment in Ontario has not been below four per cent since 1969.

Interjection.

Hon. Mr. McKeough: Even in 1973 and 1974, during a period of high growth and rapid inflation, unemployment remained above the then accepted full employment norm. Budget paper A suggests that the full employment target for Ontario appropriate to the seventies is 5.3 per cent --

Some hon. members: Shame.

Hon. Mr. McKeough: -- up from three per cent some years ago.

Mr. Lewis: Do you know another jurisdiction in the western world that would permit that as a social objective -- as an objective of government?

Mr. Speaker: Order please, the hon. Treasurer has the floor at this moment. Order.

Mr. Renwick: You don’t even understand.

Mr. Hodgson: Come down off that --

Mr. Sargent: Why don’t you pack it up right now?

Interjections.

Mr. Speaker: Order please. The hon. member for York South does not have the floor.

Hon. Mr. McKeough: Mr. Speaker, the magnitude of this change may be debated, but similar sentiments have been expressed by the governor of the Bank of Canada in his recent annual report and by the federal Minister of Finance in his recent budget. And it is interesting to note that --

Mr. Renwick: You never understood it.

Hon. Mr. McKeough: -- the council of economic advisers and President Carter have accepted 4.9 per cent.

Interjections.

Hon. Mr. McKeough: That is an ad lib.

An hon. member: Come into the real world.

Mr. Speaker: The hon. Treasurer has the floor. Thank you.

An hon. member: Do you feel better now, Darcy?

Mr. Renwick: Don’t bastardize --

Mr. Cassidy: A disgrace to Ontario.

Hon. Mr. McKeough: Mr. Speaker, the major slowdown in non-residential construction --

Interjections.

Mr. Speaker: Order please, the hon. member for York South.

Hon. Mr. McKeough: Mr. Speaker, the major slow down in non-residential construction in Ontario during this past year has led to disproportionately higher unemployment among construction workers.

Mr. di Santo: Finally.

Hon. Mr. McKeough: Unemployment in the construction industry is currently running in excess of 15 per cent.

Mr. Swart: I guess so.

Hon. Mr. McKeough: To stimulate jobs and reinforce the vitality of this industry, we will accelerate provincial capital spending by $75 million in 1977-1978. This will generate almost 3,400 additional jobs and will provide a powerful stimulus to the construction industry.

The job creation package for the construction trades includes the acceleration of road and transit projects, sewage and water treatment plants; plus new funding for repairs and insulation of government and university buildings, health capital projects and agricultural infrastructure. Details of these projects and their job-creating potential will be made available by the ministries concerned. My colleague, the Minister of Housing, (Mr. Rhodes), has already announced plans to stimulate the rental housing industry. I would also like to inform members that I authorized Ontario Hydro to accelerate its capital construction programme.

Hon. Mr. Davis: Which members opposite will oppose.

Hon. Mr. McKeough: The government has limited Hydro’s capital borrowing to $1.5 billion annually --

Mr. MacDonald: You put it back last year.

Hon. Mr. McKeough: -- during 1976, 1977 and 1978 because of our concern about the availability of capital funds. The province’s success in reducing its own financing requirements, however, provides room to prudently expand Hydro’s borrowing programme to $1.7 billion for 1978.

Mr. Cassidy: That’s pretty weak.

Hon. Mr. McKeough: This will allow Hydro to do more construction work this year and next year, thereby improving the employment prospects in that very important industry.

I would like to emphasize, Mr. Speaker, that no part of this authorized increase in borrowing is to be used by Hydro for operating purposes.

On the employment front, the most pressing priority is to do something quickly and effectively for our young people.

Mr. Cassidy: You are not doing it.

Hon. Mr. McKeough: A large part of the high unemployment reported in the first three months of this year --

Mr. Kerrio: You are pointing in the right direction, Frank.

Hon. Mr. McKeough: -- falls within the 15 to 24 age group. I am concerned that these young people have been unfairly saddled with the economic problems that governments in Canada have not been able to resolve.

Mr. Bain: Your government.

Hon. Mr. McKeough: If we have unemployment today, it is because we have an industrial cost structure that results in our industries not being able to compete abroad as they did in the past; and it is precisely because public spending has put Canadian taxes at a level unprecedented in North America that our industries are struggling to compete with productive and efficient industries around the world.

Mr. S. Smith: Sounds familiar.

Hon. Mr. McKeough: For our young people we need two things: First, immediate help; second, the stimulus of a growing economy so that new investment can provide the ongoing economic growth and jobs they need to build their own lives, to raise their families and enjoy the same standard of living as we do.

Mr. Cassidy: What is this them and us stuff?

Hon. Mr. McKeough: To provide further employment opportunities for youth, the Ontario government will implement a five point programme in 1977. The government will expand the regular summer replacement programme by 700 positions to a total of 10,000 jobs; expand the Experience programme by 2,350 jobs to a total of 11,492; increase the Ontario Career Action programme by 1,000 to 2,300 jobs; introduce a new programme to train 250 young people to assist the elderly and the handicapped to live more comfortably in their homes.

Mr. Foulds: Two hundred and fifty?

Hon. Mr. McKeough: Full details of this programme will be announced by the Ministry of Community and Social Services.

Mr. Breithaupt: There is a greater demand in any one riding.

Mr. Lewis: Two hundred and fifty jobs?

Mr. Sargent: You are a big spender, boy.

Interjections.

Mr. Speaker: Order, please.

Hon. Mr. McKeough: Finally, Mr. Speaker, we will introduce a new Ontario youth employment programme to provide employers of young people with a grant of $1 an hour towards the wages of summer employees.

Mr. Lewis: Summer employees.

Hon. Mr. McKeough: This programme is expected to provide a 16-week subsidy -- .

Mr. Lewis: Sixteen weeks.

Mr. Speaker: Order.

Hon. Mr. McKeough: -- for up to 20,000 young people at a cost of $10 million.

Mr. Breithaupt: The election will be over by then.

Hon. Mr. McKeough: Details of the two new programmes are outlined in appendix B.

Mr. Lewis: Summer jobs?

[8:45]

Hon. Mr. McKeough: Altogether, sir, these youth-oriented programmes should provide jobs and introductory training to the labour market for about 45,000 young people at a cost of $68 million.

Mr. Lewis: Summer jobs.

Hon. Mr. McKeough: This represents a funding increase of more than $20 million over last year, and better than twice the number of job opportunities for our energetic young people.

Hon. Mr. Rhodes: Let’s go. Pull the plug, kid.

Mr. R. S. Smith: You wouldn’t be over there if you had any.

Hon. Mr. Rhodes: What are you talking about? Go and raise some hair.

Hon. Mr. McKeough: As I mentioned earlier in my statement, the recent federal budget will have a significant effect on Ontario’s revenue. In total, it will cause a reduction of $74 million in this fiscal year, $32 million in personal income tax and $42 million in corporation income tax. The taxpayers of Ontario will benefit directly from the province’s decision to parallel these federal tax measures.

Within the economic objectives which the government has set for this year, I have decided upon a package of additional tax reductions amounting to $127 million to stimulate important sectors of the economy. I am proposing to balance this total revenue loss of $201 million by tax increases of $209 million in order to meet my financial target.

As a result of the new federal-provincial fiscal arrangements, the province’s income tax rate increases to 44 per cent of federal basic income tax for the 1977 taxation year. The 44 per cent rate will ensure that, given the reduced federal base for calculating Ontario tax, the province will occupy the tax room vacated by the federal government. At the same time, taxpayers will be left virtually unaffected overall. This means that, other than in Alberta, Ontario’s personal income tax rate remains the lowest of any province in Canada.

An hon. member: Including Manitoba.

Mr. Reid: Just deficits.

Mr. Cassidy: You never counted OHIP.

Hon. Mr. Rhodes: How about your raise, Mike?

Hon. Mr. McKeough: The history of the new arrangements, the mechanics of this transfer of personal income tax room and the impact on filers are fully documented in budget paper B. I’m also taking this opportunity to table a staff research paper entitled, The Equity and Revenue Effects in Ontario of Personal Income Tax Reform: 1972-1975. This paper, which is No. 13 in the Ontario tax studies series, examines how reform of the personal income tax has worked in Ontario.

Let me now turn to the tax decreases contained in this budget. The new federal-provincial fiscal arrangements have implications for Ontario’s personal income tax reduction. To ensure that the majority of Ontario tax filers who pay no federal tax are also free of provincial tax effective for the 1977 taxation year, Ontario income tax will no longer be payable by tax filers with less than $1,680 taxable income. This enrichment from the 1976 level of $1,540 will remove the Ontario tax liability for an additional 35,000 filers and will cost more than $3 million.

In the majority of circumstances it should mean that no Ontario tax will be payable where no federal tax is payable. In some cases, however, the new $50 federal tax credit for children will remove federal tax liability, while Ontario liability will remain. In the near future I will be reviewing the viability of incorporating this provision in The Ontario Income Tax Act.

I am proposing a number of reductions to the retail sales tax effective midnight this day. Ontario has, over the past few years, increased the level of the retail sales tax exemption for prepared meals so that residents and visitors alike are able to purchase essential meals free of tax. At the same time, the levels chosen have ensured the continued generation of revenue from the more elaborate high-priced dinners.

Mr. Breithaupt: Like La Scala.

Mr. S. Smith: Winston’s.

Hon. Mr. McKeough: In continuation of this practice, I am proposing a further increase in the level of exemption to $6. This change ensures that all basic meals will be free of tax and should result in considerable benefit to the tourist trade, since the average vacationing family of four will enjoy a saving of about $2 a day.

An hon. member: That’s for you, Claude.

Mr. Breithaupt: Now there’s real leadership.

Interjections.

Mr. Speaker: Order.

Hon. Mr. McKeough: Second, I am proposing --

Mr. Reid: Is that all you’ve got to clap about?

Hon. Mr. Bennett: No, we get another dollar next year. Don’t worry about it, Patrick, We get one this year, one next.

Mr. Samis: They can’t afford the gas prices.

Hon. Mr. McKeough: Second, I am proposing to exempt from sales taxation certain disposable items purchased by operators of hotels, motels and similar establishments for use in guest rooms. This tax has been an irritant to the trade and its removal will allow the industry to compete more effectively for the tourist and convention dollars.

Mr. Haggerty: What about municipalities?

Hon. Mr. McKeough: These two tax actions should be of considerable benefit to Ontario’s tourist industry, which is the province’s second largest employer. Together these moves will cost the province $8 million in 1977-78.

Mr. Drea: What does the NDP think of that?

Hon. Mr. McKeough: Recognizing the importance of conserving energy, the government last year provided sales tax relief to retail purchasers of thermal insulation materials used for existing residences. To further encourage the conservation of energy, I am proposing an extension of this exemption to include thermal insulation materials for all buildings. In addition, I am proposing that other energy-conserving materials and equipment -- for example, heat recovery units and solar cells -- be added to the list of retail sales tax exemptions.

The potential saving on the purchase of a solar energy system is approximately $200 to $300. I estimate these new initiatives will provide a total tax saving to consumers of about $6 million in 1977-78. I am also proposing that the exemption from the sales tax on the price of admission to places of amusement be increased from 75 cents to $3.

Mr. Breithaupt: You’re charging the people in the galleries?

Hon. Mr. McKeough: It is estimated that the tax saving to consumers will be around $10 million in 1977-78. This measure will simplify the procedures involved in administering this tax. It will also provide relief to the many thousands of charitable and non-profit organizations in Ontario and assist the promotion of public events such as agricultural fairs and exhibits in museums and art galleries.

Mr. Drea: Come on, Bob, take them off.

Hon. Mr. McKeough: Small business continues to be one of the outstanding strengths of the Ontario economy and the province has a substantial number of programmes and incentives --

Mr. Drea: Your wife won’t like you.

Hon. Mr. McKeough: -- designed to encourage the development of this sector.

In keeping with this approach, I am proposing the following incentives to small business: increased compensation for tax collection activities; simplified capital tax compliance, and the establishment of venture investment corporations.

For tax collected on or after April 1, 1977, the level of compensation provided to retail vendors and appointed tobacco tax collectors will be expanded from three per cent to four per cent, and the annual maximum will be increased from $500 to $700. This raises current levels by over one-third and means that the tax collection compensation paid to small businesses in Ontario is the highest provided by any province in Canada or any major US state. The cost of this improvement will be approximately $5 million for 1977-78.

Mr. Martel: That’s going to help them a lot.

Hon. Mr. McKeough: I recognize that filling out complex capital tax returns is a nuisance to most owners of small businesses. I therefore propose that in lieu of the regular capital tax rates, corporations with taxable paid-up capital in Ontario of up to $50,000 pay a flat rate of $50 and corporations with taxable paid-up capital in Ontario in excess of $50,000 and up to $100,000 pay a flat tax of $100. These corporations will receive a tax saving at a cost to the province of about $3 million. The filing of capital tax returns is thus greatly simplified for about 95,000 small Ontario corporations.

[Applause]

Hon. Mr. Handleman: Where are all those small business enthusiasts over there?

Hon. W. Newman: Where are they?

Mr. Breithaupt: Why did you put it in in the first place?

Hon. Mr. McKeough: Mr. Speaker, members will recall that in the 1976 budget --

Mr. Kerrio: They weren’t there in the first place.

Hon. Mr. McKeough: -- I introduced legislation for first reading only which proposes that special venture investment corporations be established to provide risk capital to small businesses in Ontario. A deferral of corporation income taxes was proposed as an incentive to encourage the deployment of risk capital into these small corporations. The purpose of this legislation was to encourage and facilitate discussion of the concept with the federal government and the private sector. The discussion resulted in a revised version of the VIC legislation which was tabled with my November economic statement.

The recent federal budget introduced one provision respecting the tax treatment of investments in venture investment corporations. This allows Ontario to proceed with VICs. Therefore, I will introduce tonight The Venture Investment Corporations Registration Act with the intention of having the system in place and operating before the end of 1977. The complementary tax amendment to The Corporations Tax Act will be introduced later in the year by my colleague, the Minister of Revenue (Mrs. Scrivener). Details of this proposal are provided in appendix A to this statement.

It is my hope that the VIC programme will substantially encourage the development of small business in this province. The capital tax relief for small business and the programmes recently announced by other ministries, such as the elimination of the annual corporation filing requirement and the expansion of the Ontario Development Corporation’s services, demonstrate this government’s firm belief in a strong and growing small business sector in this province.

Mr. Sargent: A big help that will be.

Hon. Mr. Bernier: There’s more to come.

Hon. Mr. McKeough: In the past year the provinces of British Columbia and Saskatchewan have abandoned the succession duty field. As a result, only Manitoba, Quebec and Ontario now levy succession duties and gift taxes. We have reviewed this matter carefully and have concluded that our own statutes should remain in force. They add a valuable degree of equity to the province’s tax structure. However, it is the government of Ontario’s policy to have these taxes paid by those who can best afford to do so.

Mr. Kerrio: What an actor!

Hon. Mr. McKeough: The 1975 budget went a considerable way toward ensuring this goal by exempting from duty all estates valued at less than $250,000. As a further move toward concentrating the burden of death taxes on large estates and to allow for the upward valuation in assets which occurs over time, I am proposing that the basic level below which no duty is payable be increased to $300,000, effective in respect of deaths occurring on or after April 20, 1977.

An hon. member: One more day.

Hon. Mr. Rhodes: Okay, the member for Sudbury East (Mr. Martel) can go now.

Mr. Cassidy: You can all go, every one of you.

Hon. Mr. Rhodes: As long as you’re the opposition, we will be here forever.

Hon. Mr. McKeough: At the same time, the province of Ontario recognizes its long-term commitment to phase out succession duty when the capital gains tax matures. At the present time, and indeed in the foreseeable future, the level of capital gains revenue will not be an adequate replacement for revenue lost by vacating the succession duty field. Therefore, the government has decided instead to fully remove any element of double taxation by integrating succession duty and capital gains tax through a credit mechanism. I am proposing that, effective in respect of deaths occurring on or after April 20, 1977, capital gains tax arising as a result of death will be eligible to be treated as a credit against succession duties. It is expected that this credit mechanism will result in ever-increasing reductions in succession duty over time as the value of capital assets increases and The Succession Duty Act is amended periodically to recognize the effects of inflation.

In addition, the current requirements of affidavits from all beneficiaries will be replaced by a simplified return submitted by the executor of the estate. The accessibility of beneficiaries to the assets of the estate will also be made easier.

Mr. Nixon: What will happen to the lawyers?

Hon. Mr. McKeough: As well the Ministry of Revenue will be operating regional counter service in respect of succession duties in the near future, which will enable small estates to be processed promptly and have their assets cleared quickly.

Mr. Sargent: You are a gift horse without blinkers.

Hon. Mr. McKeough: To complement these changes to The Succession Duty Act and to permit the distribution of assets prior to death, the gift tax is also amended. For 1977 and subsequent years, gifts of up to $10,000 per recipient and $50,000 per donor per year will be exempt from gift tax. This represents a doubling of the allowances which were available for 1976.

Mr. Roy: Hurray!

Mr. Cassidy: That won’t benefit your average Ontarian.

Interjections.

Mr. Speaker: Order, please. The hon. Treasurer.

Mr. MacDonald: Let’s adjourn to the Albany Club. This should be celebrated.

Hon. Mr. McKeough: They’ll celebrate it less there than they did in Saskatchewan which abolished succession duties. That’s a great Tory province out there.

Mr. Breithaupt: They have no estates.

[9:00]

Mr. Speaker: The hon. Treasurer will get on with his statement.

Mr. Breithaupt: They have done it in Cuba, too, but not by choice.

Interjections.

Hon. Mr. McKeough: I am proposing that, effective today, The Land Transfer Tax Act be substantially amended, in terms of its tax treatment of non-resident individuals and corporations to encourage productive foreign investment.

Currently, all land transferred to non-residents attracts the high 20 per cent rate of tax. I am proposing to tax only agricultural and recreational land -- restricted land -- at this high rate. Specifically, any transfer to a non-resident individual or corporation of land that is “zoned” or “assessed” as commercial, industrial or residential is to be taxable at the normal low rate of land transfer tax.

Mr. Nixon: What took you so long?

Interjections.

Hon. Mr. McKeough: The substantial difference between the new legislation and the existing Act is in the treatment of non-resident industry. The latter forced legitimate industrial or commercial enterprises through a deferral process that, with changing economic conditions, has proven to be unnecessary and inappropriate. The new proposal does away with deferrals where the non-resident transferee is purchasing “unrestricted” land. The procedures for deferrals of tax are carried over from the old Act, where the non-resident purchases restricted land for the purpose of commercial, industrial or residential development and resale, or for the purpose of establishing, expanding or relocating an active commercial or industrial enterprise.

The government remains committed to its policy of discouraging non-productive speculative activities. However, I am proposing two necessary changes to The Land Speculation Tax Act. The current provision for a reduction in taxable value with respect to investment properties completely eliminates tax over a 10-year period. This provision has required a longer than desirable commitment by non-residents who wished to buy investment properties in Ontario. Consequently, a substantial pool of capital, normally available to resident developers, has dried up. I am, therefore, proposing to halve the reduction period from 10 to five years, by doubling the reduction value to 20 per cent per annum.

A second proposal permits farmers to rent out their farm properties without forfeiting the 10 per cent per annum reduction in taxable value permitted to farm property. Whereas the previous provision deemed the rental period as being an interruption in the farming period, the new provision allows for the rental period to equal three years or less in the 10-year period without loss of the reduction. However, the rental period may not exceed two years immediately prior to disposition. This proposal gives farmers time to decide whether or not to sell their farm properties without opening the door to full-fledged speculation by non bona fide farmers.

Mr. Cassidy: Half-fledged speculation.

Hon. Mr. Davis: You farmers over there should be in support.

Interjections.

Mr. Speaker: The hon. Treasurer has the floor. Order.

Hon. Mr. McKeough: In addition to the relaxation of the treatment of farms and investment properties, The Land Speculation Tax Act parallels the changes to The Land Transfer Tax Act. It is my hope that these significant changes to the land transfer and land speculation taxes will further encourage job-creating investment.

Mr. Lewis: Both the taxes were irrelevant.

Hon. Mr. McKeough: I should note my satisfaction that the federal Minister of Finance, in his recent budget, has changed the treatment of capital gains taxation to allow the rollover of capital gains when funds realized from the sale of business and farming assets are reinvested in similar assets.

In addition to the tax reductions I have just detailed, I am proposing the following long-term measures, in the interests of federal-provincial tax harmony and to maintain Ontario’s competitive position:

Continuation of the manufacturing and processing fast write-off for an indefinite period. This measure will cost the province approximately $80 million in a full year;

Paralleling the three per cent inventory valuation adjustment which was announced in the federal government’s March 31, 1977, budget at a cost to this province in fiscal 1977-1978 of $40 million. This is an interim measure at both the federal and provincial levels, pending the recommendations of committees which are now examining the tax aspects of inflation accounting;

Adopting the federal 25 per cent resource allowance for oil and gas companies and replacing our present automatic depletion system with earned depletion for these companies. In addition, I propose to parallel the incentive for frontier oil and gas exploration announced in the latest federal budget. I estimate that the revenue loss to Ontario from these changes will be about $6 million annually.

The recent federal budget also contained major changes to the taxation of insurance companies. The implications and revenue effects of these changes will have to be carefully examined before any decision can be made concerning Ontario’s taxation of this sector, bearing in mind the competitive position of Canadian insurance companies in the United States market.

The cost to the province of the above tax reductions is $201 million. To offset this revenue loss and to keep to the deficit target, I am proposing to raise an approximately equivalent amount through tax increases.

I am proposing to raise additional revenue of $58 million from cigarettes, cigars and cut tobacco.

An hon. member: That’s pipes.

Mr. Reid: No clapping there.

Mr. S. Smith: Oh, shame, not cigars. You certainly know how to hurt a fellow. What will you smoke in your full-sized car now?

Mr. Bullbrook: Are you going to that cut tobacco again?

Hon. Mr. McKeough: The tax on cigarettes will be increased by five cents per package of 20 cigarettes.

Mr. S. Smith: Is that mid-size cigars?

Hon. Mr. McKeough: The tax on cigars, which is applicable on the retail price will be doubled.

Mr. Bullbrook: Did the Premier buy any extras today?

Hon. Mr. Davis: I didn’t buy one today.

Mr. Bullbrook: You didn’t? I’ll give you one tomorrow.

Hon. Mr. McKeough: Thus, the tax on a 25 cent cigar will increase from five cents to 10 cents. The tax on cut tobacco will also be doubled from 2.5 cents per half ounce on the old avoirdupois basis --

Mr. Martel: Say that again?

An hon. member: So much for the bilingual policy.

Hon. Mr. McKeough: Shall I say that again?

Hon. Mr. Davis: The Treasurer is getting personal for the first time tonight.

Hon. Mr. McKeough: This is my concession to my colleague from Cochrane North (Mr. Brunelle).

Mr. Martel: Will you say that again, Darcy?

Hon. Mr. McKeough: The tax on cut tobacco will also be doubled from 2.5 cents per half ounce on the old avoirdupois basis --

Interjections.

Mr. Breithaupt: That’s not even a good plug.

Hon. Mr. McKeough: -- to the equivalent of five cents per half ounce on the new metric basis.

Mr. Bounsall: What about chewing tobacco?

Mr. Breithaupt: That’s hardly a cheek full.

Hon. Mr. McKeough: Government road-related expenditure is growing faster than revenue derived from road users. Consequently, in order to restore a reasonable balance between expenditure and revenue, I am proposing to increase the registration fees for passenger cars, commercial vehicles, motorcycles and buses.

Interjections.

Mr. Speaker: Order, please.

Hon. Mr. McKeough: Effective for the 1978 registration year, the annual registration fees for passenger cars will be increased as follows: four cylinders from $23 to $30; six cylinders from $32 to $45, and eight cylinders from $40 to $60.

Interjections.

Hon. Mr. McKeough: Additionally, the fee for passenger cars registered for the first time and equipped with an engine having a displacement in excess of 6,500 cubic centimetres --

Mr. Lewis: This had better not be an election budget.

Hon. Mr. McKeough: -- 397 cubic inches -- will be $80. The annual registration fee for motorcycles will be increased by $5 --

Mr. Lewis: Now the Premier might change his car.

Mr. Speaker: Order.

Hon. Mr. McKeough: -- while the fee for snowmobiles will remain unchanged.

The annual registration fees for commercial vehicles, farm trucks and buses will be raised by adding a flat $22 to each weight class and by raising these news levels by nine per cent. In respect of smaller commercial vehicles, this measure will adjust the fee to the same level as the fee now proposed for eight-cylinder passenger cars. A large majority of these small commercial vehicles are equipped with eight-cylinder engines and their weight is also comparable to an eight-cylinder passenger car.

The fee increase will raise $78 million in 1977-78. This new, more progressive fee structure encourages energy conservation.

Mr. Deans: Oh, yes.

Hon. Mr. McKeough: In identifying the need to raise registration fees, however, it is also recognized that the operation of a passenger car in northern Ontario involves substantial costs over and above those experienced in the southern part of the province.

Mr. Breaugh: Leo wins again.

Hon. Mr. McKeough: These costs are the direct consequence of greater distances travelled, the effect of climatic conditions on mileage, and sometimes higher gasoline and oil prices.

Mr. Martel: Sometimes?

Mr. Lewis: It’s about time.

Mr. Speaker: Order, please. Let’s hear the good news.

Mr. Reid: That’s as objective as you can get.

Mr. Nixon: So much for impartiality.

Hon. Mr. McKeough: I am, therefore, pleased to propose that, effective for the 1978 registration year, registration fees be reduced to $10 for all passenger cars and motorcycles registered north of the French River.

Hon. Mr. Bernier: Let’s hear it.

Mr. Lewis: I applauded.

Mr. Breithaupt: But I don’t think it will win you a riding.

Mr. Speaker: Order, please.

Mr. Lewis: Another blow struck for the north by the NDP.

Hon. Mr. McKeough: By this measure, all bona fide residents of the area will receive a saving equivalent to five cents per gallon of gasoline --

Hon. Mr. Davis: The member for Scarborough West is not one of them.

Hon. Mr. McKeough: -- based on an average annual distance travelled of 10,000 miles.

Mr. Lewis: But the oil companies should be paying that.

Hon. Mr. McKeough: The total saving to northern Ontario residents is approximately $12 million in 1977-78.

Mr. Speaker, to improve taxpayer compliance under The Motor Vehicle Fuel Tax Act, I propose that by July 1 of this year all sellers and distributors of diesel fuel, home heating oil, furnace oil and similar products be registered with the Ministry of Revenue. Users of taxable middle distillate fuels will also be registered. I would like to point out that all the other provinces have in place systems to minimize avoidance of fuel taxes. I estimate that Ontario’s tighter enforcement will generate $10 million in 1977-78.

For some time, the Ontario government has been advocating the use of refillable soft drink containers and seeking ways to discourage the use of non-refillable throwaway containers. The government has two basic objectives: to reduce the volume of solid waste in Ontario and to conserve energy resources wasted in the production of throwaway convenience containers. In support of these objectives, the Minister of the Environment (Mr. Kerr) has announced a ban on the sale of non-refillable bottles in Ontario, effective April 1, 1978. Cans for carbonated soft drinks are an equally important contributor to the problem, hence action to limit the use of cans is also necessary.

I am proposing that a tax of five cents per can be imposed on the consumer who chooses to buy soft drinks in cans, effective June 1, 1977. For ease of administration, this tax will be collected at the manufacturers’ and importers’ level. Inventory will be taken at all levels on that date. The tax will be included in the retail selling price, thus attracting retail sales tax as well.

It is my hope that this environmental tax, which will apply equally to canned carbonated soft drinks manufactured in Ontario or imported into the province, will be combined with a concerted effort on the part of soft drink producers --

Hon. Mr. Davis: Where is the applause from you environmentalists over there?

Mr. Drea: Stand up. Come on, stand up.

Mr. Cassidy: It is the only good thing in the budget.

Hon. Mr. McKeough: -- to substantially reduce the proportion of soft drinks sold in cans. Since consumer buying habits do not change overnight, however, the $25 million which is estimated to be collected in the first year will assist in the funding of major environmental projects. Grants will be available to municipalities and citizen groups for the construction and operation of collection and recycling depots. In addition, there will be increased support for municipal reclamation facilities across the province.

Hon. Mr. Davis: Where are all the environmentalists across the floor?

Mr. Speaker: Order, order.

Hon. Mr. McKeough: Finally, I have decided that the most appropriate way to secure the balance of revenue needed is to increase the paid-up capital tax on large corporations. Accordingly, I am proposing that the paid-up capital tax on corporations be increased by 50 per cent for fiscal years ending after April 19, 1977. The new general rate of capital tax will be three-tenths of one per cent. For banks, the new rate will be three-fifths of one per cent. I estimate that this increase will generate an additional $68 million gross revenue in a full year and $55 million in the 1977-78 fiscal year.

Mr. Bullbrook: That’s cosmetic at best. That’s a drop in their bucket and you know it, an absolute drop in their bucket.

[9:15]

Hon. Mr. McKeough: For corporations paying income tax the burden of this increase is not unduly onerous, since the paid-up capital tax is deductible in calculating taxable income. This feature enhances the overall equity of the corporation tax system. The $209 million in tax increases I have just proposed constitutes a fair and balanced increase for the people of the province of Ontario.

Mr. MacDonald: In your view.

Mr. Martel: Especially for the unemployed.

Hon. Mr. McKeough: This budget achieves a pronounced strengthening in the province’s financial health, as reflected in the $311 million improvement in our net cash requirements to a two-year low of $1.077 billion.

Mr. Lewis: Of estimated revenue.

Mr. Cassidy: Your figures are not to be relied on.

Hon. Mr. McKeough: Moreover, the financial plan for 1977 reduces our budgetary deficit from $1.279 billion in 1976-77 to $992 million. Non-public borrowing will be more than adequate to meet Ontario’s financing needs.

Mr. Cassidy: That’s what you said last year.

Mr. Reid: Before supplementary estimates.

Mr. Breithaupt: You will break a billion.

Hon. Mr. McKeough: This fiscal plan means that for the second consecutive year Ontario will not need to borrow in the public capital markets on its own account. In looking ahead, achievement of a balanced budget by 1980-81 would mean the virtual elimination of the province’s reliance on non-public borrowing as well.

Mr. Roy: You haven’t had a surplus yet.

Hon. Mr. McKeough: This would greatly enhance our fiscal flexibility. It would permit Ontario’s surplus non-public funds to be deployed for major private and public investment projects, such as Ontario Hydro, thereby restoring a more appropriate balance between government and private sector demands on the finite resources of the capital markets. Budget paper C examines Ontario’s revenue growth potential and discusses the implications for expenditures of this balanced budget target.

Mr. Bullbrook: You have drained the capital markets for a decade.

Mr. Roy: You have yet to have a surplus.

Mr. Sargent: What do you mean a capital budget target?

Hon. Mr. McKeough: Do you know what you remind me of over there?

Mr. Sargent: What are you talking about? You don’t know what you’re talking about. Read it.

Mr. Speaker: Order, please. Would the hon. Treasurer continue with his statement, please?

Mr. Sargent: The colour of your handkerchief is about the colour of the budget.

Hon. Mr. McKeough: They’re nothing more than the parliamentary equivalent of the Gong Show over there; that’s what you remind me of.

Mr. Sargent: On a point of order --

Mr. Breithaupt: If it was the Gong Show the bell would have rung long ago.

Mr. Speaker: There is no point of order. The hon. Treasurer has the floor.

Hon. Mr. McKeough: This budget carries forward the sound management of our economic and fiscal resources. It demonstrates clearly the ability of the government of William Grenville Davis to effectively manage the affairs of this province.

Mr. Breithaupt: I thought they only used the middle name in an obituary.

Hon. Mr. McKeough: It meets our most immediate and pressing needs by funding a large number of new jobs in the construction industry and for our young people --

Mr. Lewis: Nonsense.

Hon. Mr. McKeough: -- and it proposes a financing plan that reduces the government’s claim on the provincial economy.

Mr. Cassidy: Nonsense.

Hon. Mr. McKeough: As a further expression of our sound management practices, this budget also addresses the longer-term problems --

Mr. Warner: If this is the best you can do, you should resign.

Mr. Speaker: Order, please. The hon. Treasurer.

An hon. member: Read that again.

Hon. Mr. McKeough: I will be glad to repeat it. I liked those words, Mr. Speaker.

As a further expression of our sound management practices --

Mr. Martel: Where?

Hon. Mr. McKeough: -- this budget also addresses the longer-term problems of economic policy by establishing a fiscal strategy for balancing the budget by 1980-81.

Hon. Mr. Davis: He will be here to do it too, I can tell you. I’ve got news for you.

Hon. Mr. McKeough: I believe that this responsible strategy will provide the stability and bolster the confidence our economy needs for continued growth and prosperity.

The government of this province has also demonstrated its concern for those in our society who are less fortunate and who deserve to share fully in the benefits of economic growth and our unparalleled abundance.

Mr. Cassidy: Like the 316,000 unemployed.

Hon. Mr. McKeough: We have assisted youth. We have provided housing. We have developed a plan of workmen’s compensation, admittedly not perfect, but which is better than any other.

Interjections.

Hon. Mr. McKeough: We have created, sir, a system of public services unequalled on this continent.

Hon. Mr. Davis: Or in Cuba.

Hon. Mr. McKeough: GAINS and a host of other social service programmes have enhanced the security and dignity of our senior citizens. We have, with some success, spread new economic opportunities to all parts of the province.

Mr. Cassidy: New opportunities to be unemployed.

Hon. Mr. McKeough: And we have provided the hospitals, the schools, the libraries, the recreational facilities, the day nurseries and the cultural amenities -- the quality of life that makes Ontario the envy of our American neighbours.

Interjections.

Mr. Speaker: Order, please.

Hon. Mr. McKeough: Sir, with this impressive record of leadership and with our grasp of the realities of economic life, I look forward with confidence to the challenges of 1977 and succeeding years.

Mr. Breithaupt: It is called the last hurrah.

Interjections.

Mr. Speaker: I recognize the hon. member for Ottawa Centre.

Mr. Cassidy: This is a terrible budget, Mr. Speaker, but I shall have more words to say about it on Monday.

Mr. Cassidy moved the adjournment of the debate.

Motion agreed to.

INTRODUCTION OF BILLS

INCOME TAX AMENDMENT ACT

Hon. Mr. McKeough moved first reading of Bill 40, An Act to amend The Income Tax Act.

Motion agreed to.

ONTARIO UNCONDITIONAL GRANTS AMENDMENT ACT

Hon. Mr. McKeough moved first reading of Bill 41, An Act to amend The Ontario Unconditional Grants Act, 1975.

Motion agreed to.

SUCCESSION DUTY AMENDMENT ACT

Hon. Mr. McKeough moved first reading of Bill 42, An Act to amend The Succession Duty Amendment Act.

Motion agreed to.

ONTARIO LOAN ACT

Hon. Mr. McKeough moved first reading of Bill 43, An Act to authorize the Raising of Money on the Credit of the Consolidated Revenue Fund.

Motion agreed to.

VENTURE INVESTMENT CORPORATIONS REGISTRATION ACT

Hon. Mr. McKeough moved first reading of Bill 44, An Act respecting the Registration of Venture Investment Corporations.

Motion agreed to.

TOBACCO TAX AMENDMENT ACT

Hon. Mr. McKeough moved first reading of Bill 45, An Act to amend The Tobacco Tax Act

Motion agreed to.

ONTARIO YOUTH EMPLOYMENT ACT

Hon. Mr. McKeough moved first reading of Bill 46, An Act to provide Employment Opportunities for Youth in Ontario.

Motion agreed to.

RETAIL SALES TAX AMENDMENT ACT

Hon. Mrs. Scrivener moved first reading of Bill 47, An Act to amend The Retail Sales Tax Act.

Motion agreed to.

LAND TRANSFER TAX AMENDMENT ACT

Hon. Mrs. Scrivener moved first reading of Bill 48, An Act to amend The Land Transfer Tax Act, 1974.

Motion agreed to.

LAND SPECULATION TAX AMENDMENT ACT

Hon. Mrs. Scrivener moved first reading of Bill 49, An Act to amend the Land Speculation Tax Act, 1974.

Motion agreed to.

[9:30]

CORPORATIONS TAX AMENDMENT ACT

Hon. Mrs. Scrivener moved first reading of Bill 50, An Act to amend The Corporations Tax Act, 1972.

Motion agreed to.

GIFT TAX AMENDMENT ACT

Hon. Mrs. Scrivener moved first reading of Bill 51, An Act to amend The Gift Tax Act, 1972.

Motion agreed to.

MOTOR VEHICLE FUEL TAX AMENDMENT ACT

Hon. Mrs. Scrivener moved first reading of Bill 52, An Act to amend The Motor Vehicle Fuel Tax Act.

Motion agreed to.

ENVIRONMENTAL TAX ACT

Hon. Mrs. Scrivener moved first reading of Bill 53, An Act to impose a Tax on certain Pollutants of the Environment in Ontario.

Motion agreed to.

Hon. Mrs. Scrivener: Mr. Speaker, as proposed in the Treasurer’s budget, this bill imposes on the consumer of canned, carbonated soft drinks in Ontario a tax of five cents on the purchase of each can of carbonated soft drink. The tax is to be collected by those who fill the cans with carbonated soft drinks in Ontario or who import canned carbonated soft drinks into Ontario. As stated in the Treasurer’s budget, the revenue from this tax is intended to assist the funding of major environmental projects and the construction and operation, by municipalities or community organizations, of collection depots and recycling or reclamation facilities.

In addition to providing for the imposition and collection of the tax on the consumer of a canned, carbonated soft drink, this bill will also provide the administrative provisions usual in other revenue statutes of the province.

On motion by Hon. Mr. Davis, the House adjourned at 9:35 p.m.