Legislative Assembly of Ontario

The House resumed at 8 p.m.

COPIES OF BUDGET

Mr. Speaker: In connection with the point raised by the member for Riverdale (Mr. Renwick) earlier today, in consultation with the Treasurer (Mr. F. S. Miller) and the Clerk, and with the openness of spirit and the co-operation of the Treasurer, we have made arrangements to have copies of the budget available for honourable members in each of the two lobbies immediately after the Treasurer starts his presentation. I would caution all members who wish to follow along to exit very quietly and without disrupting the proceedings, to get their copies and return so as to not disrupt the presentation of the Treasurer. If members will do that with a minimum of disruption, it will be appreciated.

BUDGET RESOLUTION

Hon. F. S. Miller moved that this House approve in general the budgetary policy of the government.

BUDGET STATEMENT

Hon. F. S. Miller: Mr. Speaker, before introducing my budget, I feel compelled to make a very brief comment on Mr. MacEachen’s statement of last evening. Everyone now knows that the federal Minister of Finance introduced a mini-budget. I am sure the members share my displeasure at the absence of the traditional advance notice of such an event. This oversight could have seriously disrupted my own budget plans. Fortunately, Ontario’s enviable record of conservative budget management means I am able to proceed as planned.

While some of the federal actions will reduce our potential tax room, other measures in respect of small business and farmers support our own objectives. I will give a more detailed response to the federal budget later this week.

Mr. Renwick: I hate to interrupt. I had understood, Mr. Speaker, you said copies would be available in each of the lobbies. I had thought you meant the west lobby and the east lobby. Perhaps you could tell us where they would be available.

Mr. Speaker: I did, and I issued specific instructions that they not be made available until the Treasurer had got into the body of his presentation. He hasn’t done that yet. If the honourable member will just be patient, copies will be available in a few moments.

Hon. F. S. Miller: Mr. Speaker, I’m now in the body, the live body.

It is my pleasure tonight to present the 1980 budget for the province of Ontario. The policies this budget contains will help to ensure enhanced economic prosperity and stability for the citizens of Ontario. They are the policies of a progressive, dynamic and sensitive government under the leadership of the Honourable William G. Davis.

Applause.

Hon. F. S. Miller: It is going to take an hour and 10 minutes even without that.

When I rose in this chamber one year ago to present the 1979 budget, I said the most important challenge facing the province was the need to create more jobs. Our job-creation record throughout the 1970s had been outstanding, but I felt then that we should do better in order to meet the needs of our growing labour force. I am pleased to report that our economy performed even better than most people thought it could.

Mr. Breithaupt: On a point of order, Mr. Speaker: Are the budget documents to be distributed so that we can have a read-along session here in the House, or are they to be available in the lobbies for the members’ use there?

Mr. Speaker: Instructions were issued that they would be available in the lobbies.

Hon. F. S. Miller: In 1979, 161,000 new jobs were created in this province. That was a remarkable accomplishment. Moreover, every one of those jobs was created in the private sector.

8:10 p.m.

Last year I also stressed the need for government to ensure that it does not add to inflationary pressures. Programs to improve public services and to stimulate the economy must be undertaken within a framework of responsible fiscal management so that government limits its claim on the resources of the economy. It is with some pride as Treasurer that I can inform the members of our achievement of a reduction in the deficit of $494 million below the original target for the fiscal year just ended.

Ontario’s job-creation and fiscal-management accomplishments are important measures of the success of this government in dealing with the problems of our economy. However, there is no room for complacency. I do not for a minute underestimate the economic challenges which lie before us in Ontario and Canada. We must continue to develop and implement policies to ensure that Ontario’s economic performance improves steadily throughout the 1980s. Our programs must be designed for the needs of tomorrow as well as today. At the same time, we must continue to deal effectively with the immediate issues of employment growth and inflation. I believe that I have developed a budget plan consistent with these challenges. It is designed to meet three objectives:

1. To maintain a favourable climate for job growth and economic expansion in Ontario;

2. To ensure a high standard of social services for the people of Ontario, and in particular to help our elderly citizens cope with inflation; and

3. To combat inflation by controlling government spending and minimizing deficit levels.

Before proceeding with my remarks, I would like to thank all the groups I consulted with before preparing this budget. I met with organizations representing all walks of life, including small businessmen’, consumers, corporations, unions, farmers, teachers and bankers. All of our discussions were constructive and I benefited from the advice I received. In my opinion such open dialogue is essential for the formulation of sound policies.

I would like to deal first with the record of Ontario’s economic performance in the past decade and our policies for economic development in the 1980s.

Some would have us believe that Ontario has become a second-rate province in terms of its economic wellbeing. That simply is not so. The record shows that we in Ontario have done significantly better than most other industrial economies. Moreover, we have developed our new economic policies to make sure that the people of this great province will continue to prosper throughout the 1980s.

As the members will recall, during the mid-1960s the international price of oil began to escalate quickly, setting off strong recessionary and inflationary pressures. Ontario, as well as every other industrial economy in the western world that had a net oil import requirement, faced fundamental problems of adjustment. Nevertheless, in terms of real output growth, Ontario outperformed West Germany, the United States and, in fact, the combined countries of the Organization for Economic Co-operation and Development. In the 1970s our economy grew by 3.7 per cent annum, compared with an average of 3.5 per cent in the OECD countries.

In employment terms, in human terms, where it really counts, Ontario’s performance in job growth ran well ahead of that of Germany, the United Kingdom or the United States. Since 1969, we have increased our employment by an average of three per cent each year, compared with 2.2 per cent in the United States and much lower levels in other OECD countries.

In Canada, the rate of inflation has recently been below that experienced in the United States, partly as a result of a determined effort to restrain expenditure and employment growth in the provincial public sector. In addition, the Ontario government has put in place incentive programs to increase investment, job skills and productivity. Our cost performance has been much improved relative to the United States, and we are more competitive in foreign markets.

We are sometimes told that dire consequences flow from the fact that Ontario did not perform quite as well as some of the resource-rich western provinces. We are regaled with fables of poor comparative performance. But is it realistic or meaningful to compare Ontario with Alberta and draw conclusions about economic management? I think not.

Consider, for example, comparing Japan, the most successful of the industrialized economies over the 1970s to, say, Kuwait or Saudi Arabia. The nations belonging to the Organization of Petroleum Exporting Countries on any income growth or per capita comparison would win hands down. But does it say anything about economic management in Japan or, for that matter, Saudi Arabia? No.

If you are lucky enough to have oil in the ground, you can be made to appear to be a genius of economic management by these standards. But it is the management and development of the total resources -- human, natural and industrial -- that really has meaning for the people. When you measure Ontario by that standard, we compare very well indeed.

This government is committed to ensuring continued strong economic growth in Ontario by building on the solid foundation that we have created. I would like to elaborate on some of the measures we are pursuing to ensure that the 1980s will be a decade of growth and prosperity for Ontario.

We are committed to pursuing initiatives in energy that lie within our own jurisdiction. We also will continue to press the federal government, the producing provinces and other consuming provinces for oil pricing policies that are aimed at achieving Canadian self-sufficiency without exacting unnecessarily high social and economic costs. We will continue as well to support the Polar Gas study. Ontario’s participation in the consortium now exceeds $17 million. This investment is showing increasing promise of providing our economy with a major new source of natural gas, not to mention the many job opportunities that will be created during the pipeline construction phase.

Later in this statement, I will outline some additional taxation and financial incentives to augment energy conservation and supply.

Turning to the area of manpower, I have already mentioned the exceptional job-creation record we have set in Ontario in recent years. However, we recognize that skill training is an area to which more attention and resources must be devoted if our young people are going to get better and more rewarding jobs and our businesses are to become more productive.

Mr. Haggerty: You’ve been saying that for 10 years.

Hon. F. S. Miller: We’ve been doing something about it every year, I might add, every year. We have the lowest unemployment rate in the last five years.

Mr. Sweeney: There were 57,000 unemployed last fall.

Hon. F. S. Miller: We didn’t have to steal a friend’s budget and call it our own.

Mr. Breithaupt: Who would want to steal this?

Hon. F. S. Miller: The members opposite would. Wait until I am finished. If the member says that in public, he will be sorry.

Last year, we acted to improve the operation and co-ordination of our manpower pro- grams by creating the Ontario Manpower Commission. The commission has undertaken an intensive evaluation of existing manpower programs and has moved to ensure greater community participation in manpower training activities. This year we will be providing a significant increase in provincial funding for the Employer-Sponsored Training Pro- gram. We anticipate that an additional 5,000 employees will receive training as a result of this program in 1980-81.

In my last budget I announced the establishment of the Employment Development Fund to stimulate job creation and business investment in Ontario. Financial assistance was made available on a selective basis to the private sector to improve the province’s competitive position and to enhance long-term economic development.

In its first year, the EDF has been an effective catalyst in attracting significant investment capital to the province during a period of escalating interest rates and uncertainties in the North American economy. To date, the Employment Development Board has approved assistance which will secure total private sector investments of more than $2 billion. The province has obtained strong commitments for Canadian sourcing and job training in these new investment projects.

8:20 p.m.

Negotiations with the general manufacturing and tourism sectors will result in capital expansions of about $900 million. This will assist in the creation of more than 10,000 jobs in Ontario over the next five years. The province has also obtained commitments from the pulp and paper industry for capital investments for productivity improvement and pollution control, totalling $1.2 billion. This will dramatically improve the competitive position of this vital industrial sector and increase the long-term job security of more than 20,000 mill workers and loggers located primarily in the smaller communities of northern Ontario.

In the light of the success of the EDF in its first year of operation, I intend to continue this program in the coming year. The fund will have a budget of $125 million to complete the programs started last year and to finance new initiatives such as the recently announced textile productivity program. In addition, we have made provision for new initiatives to finance urban transportation development and the enriched manpower training to which I have already referred.

I would note as well that the improved programs of Ontario’s development corporations and the investment triggered by our small business development corporation legislation are ensuring that small business also receives assistance in pursuing its investment plans. Encouraging Canadian ownership of business remains an objective of this government. In continuing the EDF this year, we will again place priority on the encouragement of Canadian ownership and Canadian sourcing of materials as stated in the Ontario budget of 1979. The SBDC legislation, which I will ask this House to improve, will continue to have Canadian control as one of the criteria for an eligible small business. In addition, a new provision that I will describe shortly will provide further investment incentives for small Canadian-controlled private corporations so that we may strengthen and encourage Canadian ownership.

In our approach to economic development we are taking special initiatives to assist northern and eastern Ontario. As well as giving priority to EDF expenditures in these areas, we have taken additional steps. For example, in December, I signed a $50-million, five-year agreement with the Department of Regional Economic Expansion which will help finance further development of the resource base of eastern Ontario and support related small business development. Already more than $8.5 million has been committed under this agreement for agricultural and forestry projects. I am optimistic that we can conclude a similar agreement with the federal government for northern Ontario.

The government is also initiating new programs to stimulate the development of rural Ontario. For example, forestry expenditures on crown lands in southern Ontario will be increased by 30 per cent in 1980-81. The Ministry of Natural Resources will be accelerating its programs to improve forest management on private lands and will be undertaking demonstration projects to test new forestry techniques in southern Ontario. These measures will help offset deficiencies in local wood supplies, thus ensuring a stable future for existing sawmills and other forest-related industries. The Tourism Redevelopment Incentive Program, which I announced last year, is providing needed assistance to small tourist operators so important to rural employment. We are also taking another valuable step to assist the rural economy. As the members will recall, the Premier (Mr. Davis) announced that in the fall the government will consider recommendations from Ontario Hydro to reduce the differential between the retail rates for electricity paid by rural and urban residents.

In concluding my remarks on our longer-term economic development policies, I would like to say I am deeply concerned about the present state of the auto industry in Ontario. In 1979, the Canadian deficit on automobile trade with the United States was more than $3 billion. This reflected a staggering $4-billion deficit in auto parts trade. The elimination of this deficit would create up to 25,000 new jobs in the Canadian auto parts industry.

Part of the auto trade deficit results from the current weakness of sales in the United States and the orientation of Canadian production to that market. None the less, part of it is clearly a chronic deficit reflecting the fact that Canada does not have a fair share of international auto parts production and research and development activities.

This government has repeatedly called for the redress of these imbalances. Once again, I have written to the federal government urging them to adopt the following principles in their negotiations with the auto companies and the United States federal government:

1. Particular emphasis must be placed in the near term on a dramatic reduction of the overall trade deficit in auto parts production.

2. Over the longer haul, a balance on all automotive trade, including parts, must be the prime objective of federal policy.

3. A “fair share” approach must be taken to the allocation of investment and research spending in North America.

Ottawa will have our full co-operation in pursuing these objectives.

I would like now to discuss Ontario’s economic prospects for the coming year. Our outlook will continue to be significantly influenced by international events and by federal policies on oil pricing, on reinvestment of petroleum revenues and on interest rates.

In 1979, we witnessed further dramatic increases in international oil prices. Governments around the world are struggling, as they did in 1974, to minimize the inevitable social and economic disruption arising from these inflationary price hikes. In the United States, the increases in international oil prices, coupled with decontrol of domestic oil prices, have caused widespread inflation and soaring interest rates.

These developments continue to have a profound impact on Canada and Ontario. As I have noted, higher energy prices and gasoline shortages in the United States have severely reduced Ontario’s exports of automobiles and parts as Americans move to cars smaller than those made in Ontario. Moreover, the most recent move to tighten credit and restrain inflation in that country could, in 1980, produce the long-expected US recession. Personally, I am hopeful that such a recession would not prove to be as severe as many predict. None the less, we must all be concerned about the trend of economic events to the south of us.

I have already taken a significant step to help this major sector of our economy this year. As the members know, the retail sales tax on new 1979 cars and light trucks was eliminated for the month of February. This positive action provided a major boost to Ontario automobile sales when it was needed. I have included an appendix to this statement which describes the impact of this program. It shows that during the program Ontario motor vehicle sales growth far exceeded sales performance in other Canadian provinces and the United States, yet the cost to the province was lower than estimated.

Interjections.

Hon. F. S. Miller: My friends over there should talk to the car dealers. They will find they thought it was good. They should talk to the customers, the 17,200 purchasers, some of whom are in the gallery, who took advantage of that.

Turning back to the economic outlook, the US inflation rate, currently in excess of 16 per cent, has led to higher interest rates and tighter monetary conditions in that country. The Bank of Canada has felt compelled to follow these higher US interest rates in an attempt to protect the value of the Canadian dollar and restrain the imported inflation. The result, in my view, has been a steady undermining of the growth potential of many key sectors of the Canadian economy. While the export sector in Canada performed strongly in 1979 and was in many cases operating at close to capacity, Canadian demand for domestically produced good and services was eroded by high interest rates.

I am concerned that the federal government may have allowed itself to be manoeuvred into a position where it has lost its ability to stabilize the Canadian economy.

Interjections.

8:30 p.m.

Hon. F. S. Miller: Laugh if you will. They had no room last night to take even a step to help this economy. They are wallowing in debt and deficit.

Mr. Riddell: I haven’t seen too much from you.

Mr. Breithaupt: Your deficit is a hundred times what it was.

Hon. F. S. Miller: The members in that party wouldn’t understand that if they saw it.

Mr. Kerrio: Yours is a tired old government.

Hon. F. S. Miller: I will tell my friend from Niagara Falls (Mr. Kerrio) that I was there over the weekend -- it is too bad he wasn’t -- and I found a lot of people there who looked at our side pretty well. They like us down there. He’s a nice guy, but he had better hold on until the fifth year. He will need the pension.

If the United States does move into recession and our export sales fall off, the dollar may drop in any case. Our export industries would no longer operate close to capacity. Meanwhile, a high-interest-rate policy to sustain the dollar is lessening growth and employment potential in our own markets in 1980.

The federal concern with the value of the Canadian dollar is undoubtedly legitimate, but the debate on monetary policy in Canada would be improperly focused if the only consideration were whether or not lower interest rates would force down the value of the Canadian dollar and lead to more imported inflation. Monetary policy is a crude instrument for controlling the economy. It has profoundly different sectoral impacts. We all understand, for example, that home owners, small business persons and farmers are severely affected by high interest rates. However, there is no current evidence of excessive inflation being generated by these sectors.

On the contrary, the Bank of Canada cites the need to maintain sufficient capital inflows and the lack of unused capacity in the export sector as the reasons for high interest rates. Why then should home owners, farmers and small businesses bear the burden of fighting inflation? I think the federal government must reconsider its anti-inflation policies.

Although 1980 may well turn out to be a more difficult year for the Ontario economy than last year, we still expect a year of real economic growth. Job creation will be slower but still healthy when one considers the remarkable pace of job creation last year. I am particularly gratified by a projected strong investment performance in manufacturing. Investment plans for manufacturing firms are up almost 40 per cent in Ontario year over year. That compares to about 10 per cent for the rest of Canada. The confidence in Ontario as an investment location shown by business augurs well for our future economic being.

Inflation, unfortunately, may well worsen. While it is a national problem, it is a matter of great concern to this government. None the less, I am confident that we can continue to make gains in our comparative cost performance with the United States, which is so essential to our attractiveness as an investment location. A viable, national anti-inflation policy is a cornerstone of any national development strategy for the 1980s. To this end, the Premier (Mr. Davis) has called upon the new federal government to give a high priority to such a policy. A national anti-inflation policy would complement Ontario’s own initiatives in setting the framework for a decade of development in the 1980s.

Mr. Sweeney: We want you to do something.

Hon. Mr. Davis: You want us to spend more all the time, brothers. You want us to spend more.

Hon. F. S. Miller: What he wants us to do is impolite.

Hon. Mr. Davis: He promises the universities more. He promises the schools more. He promises everybody more.

Hon. F. S. Miller: Before concluding my remarks on the state of our economy in 1980, I would like to note that this government continues to be concerned about the level of employment for our young people. This year we have increased funding for the Ontario Youth Employment Program to provide for an additional 10,000 summer jobs. In total, our youth employment programs will provide more than 75,000 jobs for Ontario’s young people in 1980-81.

I would like to turn back briefly to the subject of interest rates. We are all aware of the suffering that higher interest rates are inflicting on some people in Ontario, particularly those home owners who must renew their mortgages at the present time. When this serious situation first became apparent this government made two things immediately clear.

1. The number one priority for public assistance lies in the federal Assisted Home Ownership Program where home owners would experience crippling increases in their monthly payments if no further assistance were offered.

2. Any effective action to alleviate the general impact of interest rates must be undertaken primarily as a national initiative.

Some weeks ago the Minister of Housing (Mr. Bennett) and I made these concerns known to the Minister of Finance and the federal minister responsible for the Canada Mortgage and Housing Corporation. I am encouraged to note that shortly after our meeting the federal government announced that steps would be taken to assist those in the AHOP. We are continuing to pursue further possibilities with the federal government. I am hopeful by the time the federal budget is ready, if ever, Ottawa will have developed an effective program to deal with this national problem.

Interjections.

Mr. Speaker: Will the Minister of Industry and Tourism (Mr. Grossman) stop interrupting this House?

Hon. F. S. Miller: I would also like to inform the members that this government will be tabling a discussion paper in May which will outline alternatives available to deal with this pressing situation. With the cooperation of all members and the federal government, I am confident we can effectively come to grips with this issue. The discussion paper will review interest rate trends and developments and their impact on the economy. Particular attention will be given to analysing policy alternatives available at the national level for restoring economic stability. As well, the question of providing short term assistance to home owners, small businesses and farmers will be explored, and mechanisms for providing relief will be described. The paper will also review the roles of borrowers, lenders and government in the process of coping with higher interest rates over the short term.

The federal government announced in the speech from the throne an increase in subsidized lending to small businesses and farmers. The ceilings on certain loans will be raised to $100,000. As well, other measures of assistance are promised. While these moves are encouraging, we are ready to assist the federal government in designing effective programs of interest rate relief. In preparing its discussion paper on interest rates, the province will review its own programs for farm support. We are prepared, if necessary, to take independent action to assist the farming community in Ontario.

Mr. Kerrio: Promises, promises.

Hon. F. S. Miller: I might add, Mr. Speaker, the only difference is that we produce. While the important issue of interest rates continues to concern us all, I am encouraged by the turn of events in the international finance markets. It appears the interest rates may have in fact peaked and now are on a downward trend.

I would like now to propose a number of measures which I believe will further assist job creation and economic growth in Ontario. In particular, I will deal with one of the most important areas of our economy, the small business sector. Small businesses provide 50 per cent of all private sector jobs in Ontario and 60 per cent of all the new jobs. They are the lifeblood of our communities. A major objective of this government is to ensure that small business continues to play a strong and creative role in Ontario’s future growth and prosperity.

Last year I introduced innovative legislation with the Small Business Development Corporations Act designed to encourage investment in small business. This program has been a remarkable success. The term “SBDC” is fast becoming a byword for investment in progressive small business. Almost 50 SBDCs have been registered with investments of $8 million already made and another $12 million planned.

Mr. Nixon: Eight million dollars? The government is spending more than that on Minaki Lodge.

8:40 p.m.

Hon. F. S. Miller: Last year I indicated I would be willing to consider changes as we gained experience with the program. I have received many constructive suggestions and have decided to propose the following changes in the legislation which I will introduce tonight:

1. To encourage community participation in local small business ventures, the minimum capital requirement for an SBDC will be reduced from $250,000 to $100,000. I have adopted this proposal in response to a number of submissions, particularly on behalf of small business in northern Ontario.

2. While I intend to continue with the 100 employee test for an eligible small business, I propose that if the number of employees grows to exceed 100 but is not more than 200, the business will continue to qualify as an SBDC investment. When the number of employees grows to more than 200, the investment will remain eligible for up to five years.

3. Pension funds and credit unions will be eligible to receive grants when they invest in SBDCs. This will further expand the supply of funds for equity investment in small businesses.

4. The definition of an eligible small business will be expanded to include book publishing, and research and development activities.

I will be proposing a number of other technical amendments which are outlined in appendix B to this statement. As members will recall, last year I indicated that as this program progressed, I would set an upper limit on the grants to be paid in any one year. In 1979-80, the cost of the SBDC incentives vas about $4 million. Now that individuals and businesses are actively investing in them it is necessary for me to establish a limit which, in 1980-81, will be $10 million.

I would now like to propose an important measure to ease the tax burden on small businesses. Last year the Legislature approved a number of measures to reduce the capital tax. This year I would like to take a further major step. I propose to extend the $100 flat tax to corporations with taxable capital up to $1 million. Corporations with taxable capital of up to $100,000 will continue to pay $50.

I am recommending one other change in the capital tax. Currently, family farms pay a flat tax of $50 whatever the size of their capital. I propose to extend this provision to family fishing corporations as well.

These capital tax changes will take effect at midnight this day. I estimate the revenue loss to be $20 million this year. That is $20 million which will help the small businessmen face some of their problems. As a result of this important measure to reduce and simplify this particular tax, some 150,000 small Ontario corporations will pay $100 or less. Only 8,000 large corporations will pay the full amount of the capital tax.

I would now like to propose a new corporate income tax incentive for small businesses. It is important to the success of every small businessperson to be able to plough back as much capital as possible into the business. Yet the high cost of borrowing discourages this, as does the need to use scarce working capital to pay taxes. I believe it is possible to implement an effective tax incentive to encourage reinvestment by small businesses.

Accordingly, I am proposing a new investment tax credit which will apply to Canadian-controlled private corporations that qualify for the federal small business deduction. The credit will be equal to 20 per cent of the purchase cost of depreciable assets for use in Ontario. The maximum credit in any one year for any individual small business will be $3,000. Full details of this incentive are outlined in appendix A to this statement. I estimate the cost of this measure to be $30 million in this fiscal year. For many entrepreneurs this will make a real difference in their ability to build up their businesses and further strengthen investment in Canadian business.

This new tax incentive, together with the capital tax reduction, will put $50 million back into the hands of small business. It will pay long-term dividends to our economy in terms of job creation and growth. The program will be continued for two years until April 22, 1982. Before that time, it’s effectiveness will be reviewed.

Mr. Sargent: That’s a lot of nonsense. They will all be out of business. They can’t pay their bank interest now.

Hon. Mr. Davis: Speak for yourself.

Hon. F. S. Miller: That’s $50 million that will help to pay something.

As a further action to help small businesses, I propose to improve the compensation to retail sales tax collectors. First, the maximum annual compensation will be increased from $700 to $1,000. Second, compensation paid to those remitting only small amounts of tax will be increased. These two measures will provide additional compensation to thousands of Ontario small businesses at an estimated cost of $8 million in this fiscal year.

The encouragement of mining exploration is a high priority for this government. Mining is one of the major sources of employment in northern Ontario. It provides valuable export income to the national economy. While producing mining companies can take advantage of important tax incentives, individuals or non-mining companies that wish to invest in a mining exploration venture are unable to benefit fully from those incentives.

This was one of the reasons why I included mining activities as an eligible investment under the small business development corporations program. However, experience over the past year indicates that a separate incentive program would be more suitable for this particular industry. Accordingly, tonight I will introduce a bill to establish the Ontario mineral exploration program.

Mr. Martel: Is that a crown corporation?

Hon. F. S. Miller: I’ll make the member the mining commissioner -- commissar would be a better word -- for northern Ontario.

This legislation will allow provincial assistance of 25 per cent of approved mining exploration expenses incurred in Ontario. Individual prospectors and corporations involved solely in the field of mining exploration, and not an associate of any person actively engaged in mineral production, will qualify. Corporations whose principal business is not related to mining will qualify.

To encourage wider participation by individual investors in Ontario exploration, individuals who invest in a joint venture involved in mining exploration in Ontario will be eligible for a grant equal to 25 per cent of their investment This grant will be in addition to existing personal income tax incentives.

This new mining exploration program will be administered by the Ministry of Natural Resources under the direction of my colleague, the Honourable James Auld. It will improve and expand upon the existing mineral exploration assistance program which it will gradually replace by the end of the fiscal year. Since mineral exploration ventures will now be eligible for this expanded program, they will not have to be eligible investments for SBDCs. I have set a ceiling of $4 million for assistance under this new program for 1980-81. Details of this program are contained in appendix C.

I would like to outline a number of additional tax incentives to help our economy. Currently, Ontario provides a retail sales tax exemption for machinery and equipment purchased by a manufacturer or producer for his own use in the development of products or production processes. I propose to expand this incentive by exempting machinery and equipment used by manufacturers in research activities. This exemption will also include research and development activities performed by one firm under contract to another. I estimate the cost of this incentive to be $3 million in this fiscal year.

This measure will reinforce the province’s commitment to expand the amount of research and development undertaken in Ontario. There are, of course, other tax actions that might be considered, but these can be implemented effectively only by the federal government. I intend to urge the Minister of Finance to expand the range of incentives he offers through the federal tax structure so that Canadian research and development can be further encouraged.

Let me now turn to energy conservation. A central thrust of Ontario’s energy policy is to reduce the consumption of fossil fuels by developing new conservation measures. I would point out to the members the numerous retail sales tax incentives which the Ontario government already provides to promote conservation. In total, these measures already cost the province some $25 million a year.

8:50 p.m.

Tonight I propose a number of new tax incentives to promote energy conservation. First, certain additional equipment and materials used in buildings to improve heating efficiency including chillers, weather stripping, caulking materials will be exempt from sales tax.

Mr. Roy: John White had more imagination than you; he talked about sweaters.

Hon. F. S. Miller: If I put in a chiller the honourable member may need a sweater. There’s no question we need a chiller in this room because what the member may not understand is that a chiller removes hot air from the stuff going out of the room. It is probably the only perpetual source I know of over there.

Mr. Roy: You know about hot air.

Hon. Mr. Davis: Mr. Speaker, they are being very rude over there.

Mr. Speaker: I denote some provocation from over there.

Hon. Mr. Davis: I haven’t heard any.

Hon. F. S. Miller: Second, as an incentive for the development of new automobile technology, and I stress the word “incentive,” I propose the elimination of the sales tax on licensed vehicles designed to use non-petroleum-based fuels.

Mr. J. Reed: How many are there?

Mr. Martel: All three of them.

Hon. F. S. Miller: We were having a large argument as to which came first, the chicken or the egg, so I started with the egg.

Mr. S. Smith: It’s all a shell game.

Hon. F. S. Miller: Oh, there is a shell game that you play over there.

Third, to encourage further development of alternative fuels for automobiles, I am withdrawing completely the fuel tax on all natural and manufactured gases, including propane, and on alcohol when used as a fuel. I estimate that these incentives will reduce revenues by $14 million in 1980-81.

The economic health of Ontario’s farms is always a matter of high priority for this government. I am proposing to rebate to farmers the full retail sales tax paid on materials incorporated into grain storage bins and structures used to dry grain. That’s the Wiseman amendment. This would provide $1.5 million in benefits to farmers in 1980-81.

I also propose a measure to help tourism and the hospitality industry in this province. Currently, liquor licensees such as restaurants purchase most alcoholic beverages at the same prices as retail customers. On the other hand, licensees may purchase domestic beer at a discount of about five per cent. In most other jurisdictions, many of which are competing with Ontario for the tourist dollar, discounts on bulk purchases by commercial establishments are the rule rather than the exception. I therefore propose to authorize the Liquor Control Board of Ontario to provide a discount of five per cent of the retail price of spirits, wines and imported beer purchased by licensed establishments. This measure will reduce the cost to licensees by about $7 million in 1980-81, a saving which I anticipate will be fully passed on to consumers.

Applause.

Hon. Mr. Davis: Applaud, Eddie.

Hon. F. S. Miller: Let me now turn to the taxation of corporations. In 1978 the province introduced a “carrying on business” test to facilitate the taxation of non-resident corporations carrying on business in Ontario without a permanent establishment. The federal government has expressed the concern that such a provision creates difficulties under international tax treaties.

While Ontario is within its constitutional rights to impose such a tax, I believe it is in the national interest to withdraw this measure. I therefore propose that the corporations tax be amended to remove the “carrying on business” test for nonresident corporations having no permanent establishment in Ontario.

Interjections.

Hon. F. S. Miller: I never collected a cent under it. Ever. There was a technicality.

Last year the federal government increased the net income tax rate on professional and personal service corporations from 15 to 23½ per cent. I would like to announce that for Ontario tax purposes these corporations will continue to be taxed at the 10 per cent rate applicable to small business.

Legislation to enact this and other tax measures I have referred to will be introduced later tonight by my colleague the Minister of Revenue (Mr. Maeck).

At the beginning of this statement I indicated that one of the major objectives of my budget was to help our senior citizens cope with inflation. I would now like to outline several new initiatives which will provide substantial increases in provincial assistance for pensioners in Ontario.

As the members are aware, this province pioneered the concept of tax credits to help offset the burden of property and sales taxes. Our program has provided significant benefits to pensioners. For example, 46 per cent of property taxes paid by senior citizens in 1979 will be offset by tax credits.

While these benefits are substantial, property taxes continue to weigh heavily on many senior citizens. Recognizing this, the Premier (Mr. Davis) made a commitment to “reducing the municipal tax burden on senior citizens and” -- listen carefully now, they will like this in St. Catharines -- “to work towards the ultimate elimination of this particular tax for the majority of Ontario senior citizens.”

I would like now to outline a new program which is a major step toward fulfilling this promise. Basically, Mr. Premier, because both my sisters are now retired I had to put this measure in. Beginning this year, the Ontario government will provide direct grants of up to $500 to offset property taxes of pensioners who own or rent their homes.

Interjections.

Hon. F. S. Miller: I removed the income test on this especially for the member for Grey-Bruce (Mr. Sargent).

This means that the first $500 of a pensioner’s annual property taxes will be refunded dollar for dollar by provincial grants. With this new program, 63 per cent of property taxes paid by pensioners will be offset by the province. Moreover, about one half of our senior-citizen home owners and renters will have all of their property taxes refunded by the province.

Pensioners will receive their grants in respect of 1980 taxes in the fall of this year. I checked with the stars and it sounded good. Next year we plan to send two payments which will correspond with their interim and final local tax bills. I will be introducing legislation tonight to implement this program.

9 p.m.

Mr. Foulds: Is the cheque going to have your picture or Davis’s on it?

Hon. F. S. Miller: The only decision we have made is that the Premier’s face is on the front and mine is on the back. Before deciding on this matter --

Interjections.

Hon. F. S. Miller: Mr. Speaker, are they getting out of hand? Before deciding on this matter I considered the option of simply enriching existing tax credits for pensioners. However, I chose the grant alternative for two important reasons. First, the tax credit system involves a considerable lag in benefits and saddles many pensioners with the inconvenience and worry of filling out a complex federal income tax return which they otherwise would not have to complete. Second, we wished to build an element of universality into this program in order to recognize the lifelong contribution made by all pensioners to their communities.

Interjections.

Hon. F. S. Miller: Listen carefully, there is more to come, fellows.

The government will also be replacing the sales tax credit for elderly people with a direct annual grant of $50 beginning this year. This grant will be paid to all Ontario pensioners who receive the old age security pension. The new benefit will be paid in the late autumn. Details of the sales tax grant are contained in budget paper B.

Ontario’s tax credit program will continue in its present form for people who are under 65. However, next year pensioners will not be able to claim for tax credit benefits. Of course, they are eligible for 1979 benefits for which they have recently claimed, and which many have already received.

In conjunction with this increased relief, the Municipal and School Tax Credit Assistance Act will be repealed at the end of this year. However, the Municipal Elderly Residents Assistance Act will be continued, allowing municipalities to provide relief to pensioners as well.

The cost of the new property tax grants will be $214 million in 1980-81. This represents $39 million in additional assistance. The sales tax grant will provide $41 million in relief, an increase of $9 million.

Let me go on to another part of the senior citizens’ program. In addition to the new grant programs, I am enriching Gains payments to provide additional income assistance to low-income pensioners. Starting in May 1980, the maximum payments will be increased by $10 per month. This will provide an additional $120 per year to a single Gains recipient and $240 more per year to pensioner couples who receive Gains. Two hundred and sixty thousand pensioners will benefit directly from this increase.

The additional cost of this measure will be $27 million. This means the total additional cost of Gains, property tax and sales tax credits this year will be $75 million. We are able to afford this because of our effective management of our provincial spending. Our restraint program has paid dividends, and we are redirecting them to the elderly citizens.

Monsieur le Président, je voudrais maintenant exposer en français, l’autre langue officielle du Canada, les points saillants de ce budget.

Nos objectifs consistent à maintenir en Ontario un climat favorable pour la croissance économique et la création d’emplois tout en offrant un niveau élevé de services sociaux à tous les citoyens de la province, en particulier aux personnes âgées. Notre troisième objectif consiste à comprimer l’ampleur du secteur gouvernemental.

Je propose ce soir un certain nombre de réductions d’impôt qui nous aideront à promouvoir la croissance et la prospérité de l’Ontario. Les petites entreprises bénéficieront de mesures d’assistance d’une valeur de plus de $50 millions, sous la forme d’un nouveau crédit d’impôt à l’investissement, et l’impôt sur le capital sera également réduit et simplifié. Un nouveau programme sera mis sur pied pour encourager l’exploration minière et le nord de l’Ontario devrait en retirer des avantages marqués. Je propose également certaines réductions des taxes pour encourager les activités de recherche et de mise au point, de conservation de l’énergie ainsi que l’industrie touristique.

Au nombre des mesures importantes contenues dans ce budget, il faut mentionner le nouveau programme en faveur des retraités. A partir de cet automne, le gouvernement de l’Ontario versera aux personnes âgées des subventions directes pouvant atteindre $500 afin de compenser leurs déboursés pour les impôts fonciers. Les retraités qui louent leur logement seront également admissibles à ce programme. Les retraités toucheront également une nouvelle subvention pour la taxe de vente et les prestations du Programme de revenue annuel garanti de l’Ontario seront enrichies. Au total, la valeur des mesures d’assistance accordées aux personnes âgées en Ontario augmentera de $75 millions.

Le gouvernement se soucie au plus haut point de l’impact des taux d’intérêt élevés sur les petites entreprises, les agriculteurs et les propriétaires de résidence. En mai, nous déposerons un document de travail décrivant diverses solutions possibles en vue de régler cette question d’importance majeure.

I would like now to discuss provincial local finance. Last year I announced a modest 5.4 per cent increase in transfers to local governments. On that occasion I referred to the obligation we all have as governments to contain the tax burden, to streamline and restrain our spending and to accept full responsibility for any tax increases we consider necessary.

I am gratified, therefore, to advise the members this evening that the local sector has kept its 1979 spending growth to about 7.3 per cent even less than in 1978, in spite of higher inflation. As a result, local tax rates rose on average by only 6.4 per cent, well below the rate of inflation and the increase in average household income.

While spending restraints at the local level remain an important objective, the province recognizes that current inflationary forces are likely to cause local spending in 1980 to grow more rapidly than in 1979. In order to minimize pressures on local mill rates, the government has decided in favour of a generous increase in its support to the local sector. Provincial transfers in 1980 will increase by 12.4 per cent over last year. Also, part of this enriched package was transferred in advance of the normal schedule, as part of the province’s 1979-80 spending, to reduce, if not eliminate, the need for local governments to engage in short-term financing at unusually high interest rates.

9:10 p.m.

With the large increase in transfers, I expect local mill rates in 1980 will increase at even less than the modest rate in 1979. On this basis, I estimate that property taxes on average will decline this year from 2.6 per cent to 2.4 per cent of household income.

I urge the local sector to continue to exercise the discipline displayed in recent years by keeping spending growth as low as possible. In this way, the benefits of our combined efforts will be passed on to the taxpayers.

As the members are aware, in 1979 the assessment equalization factors were unfrozen for the first time in a decade. As a result, a very large number of municipalities were at risk of financial setbacks. The government decided, therefore, to develop an interim policy for 1980 under which the beneficial result of these factors was modified for some municipalities and potential losses were effectively cushioned for all others.

Under the new regime of annually updated equalization factors, a new set of factors will be developed by mid-1980 for 1981. I have already set in motion the necessary research in order to assess the need for further refinements or changes in the 1980 policy for implementation next year. It is expected that appropriate announcements of any such changes will be made upon publication of the new factors. If at all feasible, these policy announcements will also contain greater certainty as to the government’s direction for subsequent years.

Turning briefly to the area of federal-provincial finance, I am pleased to see a growing recognition by most other governments in Canada of the need to stabilize public sector growth. This is vital to the health of the nation. Looking ahead, developments in energy pricing could greatly disrupt the economic and fiscal balance among the regions of Canada. Budget paper A demonstrates that growing fiscal disparities will occur between the oil-and-gas-producing provinces and the other provinces unless current revenue-sharing arrangements are thoroughly revised. In particular, the federal-provincial revenue equalization program needs immediate review.

All provinces in Canada, with the exception of British Columbia, Alberta and Ontario, rely on a redistribution of wealth from other regions. Ontario taxpayers contribute substantially to this essential fiscal redistribution. None of the recipient provinces could opt out of this federal system without incurring grave immediate financial losses, it is Ontario’s opinion that if this basic feature of revenue sharing among the regions of Canada is to be preserved, a major item on the agenda of our Confederation in the 1980s must be the renegotiation of the equalization program.

Before summarizing my fiscal plan for 1980, I would like to review briefly the 1979 fiscal year. While we permitted spending increases of $267 million on regular ministry programs, this was more than offset by our careful management of expenditures, which yielded savings of $293 million. For this, the credit goes to my colleague, the Honourable George McCague, Chairman, Management Board of Cabinet.

There were a number of unusual and nonrecurring expenditure items which resulted in expenditures exceeding the original budget target. We accelerated certain payments, totalling $217 million, to school boards and municipalities in order to minimize their interim financing needs and thus reduce their interest costs. Expenditures were also increased last year to allow for special payments to Ontario Hydro for parkway belt west lands, to provide assistance to farmers who suffered tobacco crop losses, and to assist communities that were affected by the Woodstock tornado and spring flooding.

In sum, 1979-80 expenditures were increased by $297 million, but our revenue performance for 1979-80 was outstanding. Total revenues were $791 million above the amount originally estimated. The bulk of this, about $500 million, resulted from adjustments to payments from the federal government and higher-than-anticipated corporation tax revenues. In all, even though we allowed expenditures to increase, the provincial deficit dropped to $859 million, a reduction of $494 million.

Turning to the 1980 fiscal year I would like to deal with expenditures. For the past five years the Ontario government has led the way in Canada in improving efficiency in the delivery of public services. In 1975-76 provincial spending accounted for 17.2 per cent of the gross provincial product in Ontario. This year it will be 15.5 per cent. The 1.7-percentage-point reduction translates into $1.9 billion in the hands of the private sector. These are resources that might otherwise have been in the grip of government had we not had the gumption to implement the restraint program and stick with it.

Mr. S. Smith: What about this year?

Hon. F. S. Miller: My friend should realize that we are going down, the feds are going up; we cut staff, they add staff. We have actually had a reduction of almost 5,000 people in the same period as the federal government added 22,000 people.

Mr. Martel: You are creating unemployment, second to Ford.

Hon. F. S. Miller: Despite the success of our efforts, one thing this government cannot control is the dogged persistence of external inflationary pressures which continue to have a capricious effect on the economy. It has become apparent that while we have made great strides in improving the efficiency of program delivery, some provincial programs must receive additional funds if they are to cope with inflation. While we remain unshaken in our determination to strive for even more efficiency in government, we recognize the need to accommodate these inflationary pressures by easing funding levels somewhat. There is no way we will allow the high quality of public services in Ontario to deteriorate.

Last year it became evident that health services were beginning to experience strong cost pressures which could not all be accommodated by further efficiency measures.

Mr. Breaugh: Would you read that again? Would you repeat that?

Mr. Martel: A lot of pressure, Frank, but we did it.

Hon. F. S. Miller: I must have the wrong page in here, Mr. Speaker. I know you are on our side, but not openly, please.

Mr. Foulds: How does a crow taste, Frank?

Mr. Martel: You didn’t want to, but you did.

Mr. Speaker: Order.

Hon. F. S. Miller: In 1979-80 the budget of the Ministry of Health was increased during the year by $71 million of which $60 million was earmarked for hospitals.

Mr. Warner: We did it.

Hon. F. S. Miller: In the new fiscal year the Ministry of Health budget will be increased by 11.4 per cent, an increase of $487 million. This will include provision for 600 additional nursing-home beds, a generous increase in compensation for family doctors, an additional $34 million for the construction and renovation of hospitals, and a 40 per cent increase in expenditures on home-care services.

I would like to highlight briefly some additional features --

Interjections.

Hon. Mr. Davis: Frank, they are opposed to health over there.

Hon. F. S. Miller: They are opposed to everything over there. They are opposed to sunshine, which this budget is. It’s a sunshine budget, every 10 years.

Interjections.

9:20 p.m.

Mr. Speaker: Order. If the honourable members don’t want to listen, I am sure our guests would be interested in what is in the budget.

Hon. F. S. Miller: Transfer payments for developmental programs to help the mentally retarded will be increased by 27 per cent. School boards will receive a 20 per cent increase in funds for special education. Also, the budget for the day-care program will be increased by 14 per cent in order to help working mothers.

Turning now to the overall fiscal strategy, this year I am projecting total revenues of $16,172,000,000, an increase of $976 million over 1979. This includes provision for negotiations with Ontario Hydro to settle the Pickering nuclear agreement and an additional $10 million from provincial fees and licences to recognize higher costs.

I am projecting expenditures of $17,121,000,000, an increase of $1,266,000,000 or eight per cent. The resulting net cash requirements will be $949 million. This is somewhat more than the final figures for last year’s deficit. However, in a year of economic uncertainty I believe it is appropriate to allow this pause in our deficit reduction strategy.

Interjections.

Hon. F. S. Miller: Check with your expert the fact that I am double-counting a couple of hundred million dollars before you jump too fast, my friends; just check first.

I would like to call the attention of members to our management of non-public borrowing. This year available funds will exceed provincial net cash requirements, a situation that is likely to continue for at least the next few years. There is always a temptation to permit ongoing programs to gobble up these funds. In my view, however, pension funds should be invested in a way that will ensure long-term benefits to our economy.

Accordingly, this year the province will make available about $500 million from the Canada Pension Plan fund to Ontario Hydro. This will provide Hydro with long-term financing at competitive rates of interest and will reduce its need to secure capital in the Canadian and the foreign bond markets. I have also indicated in budget paper C that we intend to initiate discussions with all interested parties concerning the development of a more independent investment policy for the Teachers’ Superannuation Fund.

We are now coming to the wrap-up. The citizens of Ontario are hardworking people. The support they give every day to developing the economy of their province is reflected in both our quality of life and our sound financial position with controlled and modest growth in spending on the development of essential services, this government will ensure that maximum resources are left in the economy and that we do not contribute to inflation. Stability in our major tax rates is an essential part of the government’s fiscal strategy. The dividend flowing from the sound fiscal management of the government of William C. Davis is that I can announce that there will be no tax increases in 1980-81.

Monsieur le Président, grâce aux sages politiques de gestion fiscale du gouvernement de monsieur William C. Davis -- it’s the same in both languages -- je peux annoncer ce soir que nous ne procèderons à aucune augmentation de taxe cette année.

In conclusion, the budget which I place before you, Mr. Speaker, and the members this evening will help us to meet the economic and social needs of this province for today and will provide a firm foundation for economic prosperity and social progress throughout the new decade of the 1980s.

It creates more job opportunities for young people. It provides for a needed expansion of our health-care system. It provides new incentives for job-creating investment and improved skill training. It provides new incentives for energy conservation. It opens up a new source of capital for Ontario Hydro which will help to achieve our long-term energy goals. It combats inflation by holding down the provincial deficit. It provides new incentives for small business. It provides a major increase in assistance to senior citizens.

And, Mr. Speaker, there will be no tax increases in Ontario this year.

On motion by Mr. Nixon, the debate was adjourned.

INTRODUCTION OF BILLS

ONTARIO PENSIONERS PROPERTY TAX ACT

Hon F. S. Miller moved first reading of Bill 48, An Act to provide Property Tax Assistance for Pensioners in Ontario.

Motion agreed to.

Hon. F. S. Miller: Mr. Speaker, before introducing the next bill, I should note that two of my former colleagues, Messrs. White and Allan are in the Speaker’s gallery tonight.

I might add that in looking back through budgets of bygone days, I found in Mr. Allan’s budgets he always had more money than he predicted, and he gave me a bit of inspiration this year.

ONTARIO LOAN ACT

Hon. F. S. Miller moved first reading of Bill 49, An Act to authorize the Raising of Money on the Credit of the Consolidated Revenue Fund.

Motion agreed to.

ONTARIO MINERAL EXPLORATION PROGRAM ACT

Hon. F. S. Miller moved first reading of Bill 50, An Act to provide Incentives for the Exploration of Mineral Resources in Ontario.

Motion agreed to.

SMALL BUSINESS DEVELOPMENT CORPORATIONS AMENDMENT ACT

Hon. F. S. Miller moved first reading of Bill 51, An Act to amend the Small Business Development Corporations Act, 1979.

Motion agreed to.

RETAIL SALES TAX AMENDMENT ACT

Hon. Mr. Maeck moved first reading of Bill 52, An Act to amend the Retail Sales Tax Act.

Motion agreed to.

CORPORATIONS TAX AMENDMENT ACT

Hon. Mr. Maeck moved first reading of Bill 53, An Act to amend the Corporations Tax Act, 1972.

Motion agreed to.

GASOLINE TAX AMENDMENT ACT

Hon. Mr. Maeck moved first reading of Bill 54, An Act to amend the Gasoline Tax Act, 1973.

Motion agreed to.

INCOME TAX AMENDMENT ACT

Hon. Mr. Maeck moved first reading of Bill 55, An Act to amend the Income Tax Act

Motion agreed to.

The House adjourned at 9:34 p.m.