I knew I would get the endorsement from the hon. member for Peterborough.
Scientists grow the wealth pie; lawyers carve it up. We need more people to grow that pie, and I am the lawyer. The Government of Canada has invested billions in post-secondary research and put Canada's universities back in the game. It has a strategic focus. We can talk to any university president and they will talk about the exciting research going on in their campuses.
I had a conversation a few months back with Robert Birgeneau, president of the University of Toronto. He was telling me how his university along with Queen's, McGill and UBC. and others are really back in the game. They can now say to a young graduate with a Ph.D. in biometrics or something of that nature that the University of Toronto is the place to be. This is leading edge research.
The reason has to do with the foundation moneys and the research chairs that are available. Young researchers can pursue what they want to pursue and have a comparable situation to any other university in the world. I think that is a significant accomplishment on the part of the government.
The second way to unlock the productivity genie is in the investment of machinery and equipment. Here we are dead last. However, the good news is that in the late nineties our investment in machinery and equipment actually rose quite briskly.
The budget addressed a tax competitiveness issue implementing an accelerated depreciation of certain categories of high tech equipment to more realistically reflect their useful life. We heard this time and time again as the minister made his way across the country listening to representations of Canadians that the depreciation schedule, the capital cost allowance schedule in the Income Tax Act of Canada, made no sense vis-à-vis the actual useful life of, say, a computer or something of that nature. That issue was addressed in the budget.
The other cause for concern is that the government is doing its bit for research and development but business is not. There are all kinds of excuses why Canadian business does not proportionately share more in the research and development cost, but the simple statistical fact is that it does not. That is why, aside from all of the other Nortel disappointments, the Nortel story is really worse than merely just shareholders' losses and dubious accounting.
Nortel accounted for a very significant portion of Canada's research and development, in my recollection, somewhere in the order of about 25%. Research is what got Nortel through its lofty status as a world class company. Then the money boys, if you will, put it into a death spiral. The phrase is, I believe, unlocking shareholder value. We certainly did that.
The bad news is that a lot of the private research and development that was happening through Nortel is at least at risk. I do not know whether it will cease to happen, but it is certainly at risk and that is of concern to us all because that in turn leads to greater productivity, and the kind of productivity that we as a nation need in order to sustain our way of life.
The bad news is that the private sector is the laggard and the public sector is the leader in the G-7. We need a better mix if our productivity is to be maintained. If we were to get the right mix, then productivity gains would flow. There are limitations, however, on what a government can do, but it can be responsible for sound macro-economic policy.
I am assuming that the goal of any government of any political persuasion is to increase the health and wealth of its citizens. The major way in which it does that is by setting a macro-economic framework which will enable businesses and people to flourish within the larger nation. In financespeak it is called the fisc.
What does all this mean? When we talk about the fiscal framework, it is just fancy talk for what we expect in inflation, debt to GDP ratio, interest rates and so on. Sometimes this is a lot more alchemy than chemistry. Everything any government does has to fit within that fiscal framework or else the government descends into chaos and the nation with it.
Let us take a look at the fiscal framework, or the fisc, and see how we are doing. On inflation, the band has been extended for another couple of years of a 1% to 3% inflation target. If it were to get out of control and the government ends up printing too much money, then we would have bubble wealth. It is an illusion that we have money, but it is really paper money. Deflation can be equally worrisome.
Therefore, when a government is setting its budget target it has to be concerned about what is going to happen with inflation. For instance, a 1% decrease in inflation will cost the government $1.9 billion in lost revenues. That $1.9 billion is 1% of the government's revenue. That is a lot of money. However, expenses would be down by $500,000 million, for a net shrinkage of government resources of $1.4 billion. That is simply on a 1% mistake on inflation. The range expectation is somewhere between 1% and 3%, and as long as we stay within that range, the assumptions of the budget will work.
The other assumption is loan interest rates. Currently, the Bank of Canada's overnight rate is around 2%, which is in the realm of historical lows and it has a huge economic multiplier for those Canadians wishing to purchase homes, cars or things of that nature because they are within the ability of a lot more Canadians to purchase.
For instance, in my own community, I have a number of impoverished Canadians who live in low income housing, yet I noticed signs outside those places advertising space for rent. That is because a number of the people have left and bought homes, which they could only dream about before. This is a result of low interest rates. The vacancy rate in Toronto, and particularly in my riding, has shot up. It used to be that one could not get an apartment for love nor money. Now we are around a 3% vacancy rate.
A 100 basis point reduction in interest rates improves the government's revenues by $1.1 billion. Revenues go down by $400 million, but expenses also get reduced by $1.4 billion. So effectively, it works out to about a $1 billion or $1.1 billion increase in revenues, just on the basis of a 1% reduction in interest rates.
There is a logic in the government's approach to fiscal framework. The budget contains support for learning with the Canada learning bond, enhanced RRSPs, and the new $3,000 grant for low income families. The budget encourages research and development. There is another $900 million for the three granting councils. There is $60 million for Genome Canada. There is also the depreciation rate that I was mentioning that is more in line with the actual useful life of computer equipment.
We are in the final year of our $31 billion tax cut package. This year will be the year in which our corporate taxes actually dip below the American rates. Our efficient financial markets are quite critical and I encourage members to read the Wise Persons' report, which hopefully will set the framework for a national securities regulation. Our support for cities in the amount of $700 million this year and $7 billion over 10 years on the GST is again significant support on the part of the Government of Canada.
In closing, I want to recommend the budget to all members present. It is a sensible and logical budget and one which hopefully will increase the productivity of our nation, therefore, the wealth of our nation and health of our nation.