Mr. Speaker, certainly the Reform Party will not be supporting Bill C-70 at third reading for a number of reasons.
With regard to the comments of the member for Jonquière and the presentation we heard for the last 40 minutes, I can understand completely why the economy in Quebec is in trouble. I can understand completely why the credit rating of Quebec was downgraded last week.
We hear the left wing, socialist diatribe about more spending by government and about punishing those who have achieved in society to the point where they have accumulated some kind of wealth to reinvest, have created jobs and have paid a major portion of the taxes that often goes to support people who want to work on the public purse in universities or at other public jobs. Who creates the revenue to pay for those jobs and to improve quality of life? Who creates it? Who takes the risk? When people take the risk, does the government have a responsibility to punish them more, to raise taxes, or to take it away from them? Are they bad people in society?
The Canadian economy was built on people using their initiative, having freedom, having the right to take risks and to lose their funds and lose respect in a community within the market system.
Those members want more legislation. They want to take money away from someone else. They want to depress the economy. The obvious result is what we see in Quebec. We also see the results in Canada.
We have had 20 years of governments thinking it could improve the economy of Canada by spending more, by increasing the level of expenditure. What has happened? It has increased the level of debt. Every year we are in a deficit position. Today it is out of control. We have inflation that is out of control, an issue that I raised in question period today. I have not received an answer to that question. We have a dilemma with the Bank of Canada. It is going to be very difficult.
The Reform Party has an answer which I will talk about today. It is time somebody said something. It is unfair that members of the Bloc Quebecois hide behind their separatist cloak. The people of Canada do not know they have a second characteristic. They think they are most likely free enterprisers. Not only do they bring to the House separation and the breakup of Canada,
but they bring socialist diatribe into the House that has ruined the country in the last 20 years. We do not need any more of that.
I am very disappointed in the words that were spoken. We have a free society. The House is a place for everybody to present their views. I will always support that. When I do not agree with something I have the right to stand and say so.
Bill C-70 brings in changes to the 1994 budget, which was a disastrous budget for the government. It came here ill prepared and presented it to Canadians. We are living with the ill effects of its poor planning, its partisan politics when in opposition, and its lack of action in the 1994 budget. Unfortunately Canadians will feel the ill effects.
The legislation is a perfect example of why we need to simplify the Income Tax Act and have a flat tax as my hon. colleague from Calgary Centre is calling for. We in the Reform Party support him.
I guarantee that even accountants will find it difficult to understand the contents of Bill C-70. Fortunately my colleague from St. Albert is an accountant. The other day he addressed the specifics in second reading of the bill. I want to spend my time talking about the budget from which the bill flows. It was the first Liberal budget that unfortunately announced the government's plan to add $100 billion more to the federal debt over a period of three years.
More important, I want to talk about the outcome of the 1994 budget and its implications for us today. The Prime Minister and the government keep insisting things are fine, the economy is growing and there is nothing to worry about. If this is the case why did Moody's downgrade our credit rating this year?
Moody's decided that Canada was a greater risk than when the government took office. After 18 months it has not convinced any investors in the country that it is serious about putting its fiscal house in order. It has presented two budgets in which it had the opportunity to announce a medium and a long term strategy to bring about deficit elimination and debt reduction. The government has failed to do that and has caused all kinds of serious implications for the economy.
It has had almost two years to come up with a plan to balance the budget by a specific date, but it has refused to do so after many questions by the Reform Party. The only commitment we have is that the Liberal government will bring the deficit to 3 per cent of GDP. That is an easy one, but it may change. With inflation changing and with interest rates doubling, it could make it very difficult.
What has the government's fiscal plan as announced in its first budget achieved to date? Members of government will say that it has resulted in economic growth and job creation. However the growth has occurred in spite of the government's plan, not because of it, and for the past six months there has been no growth at all. Employment levels have not moved in months and the economy actually shrank in both March and April.
The government's soft fiscal policy has had three important impacts on the economy. First, it has led to a rapid depreciation of the value of our currency. Second, it has forced the Bank of Canada to keep interest rates dangerously high. Third, it has allowed inflation, which was all but dead when the Liberals arrived in office, to pull itself up off the canvas. Once again it has become a major concern to investors and Canadians.
Let us look at what happened to the currency. When the Liberals came to office the dollar was traded at 76 cents U.S. By January of this year it had fallen to 70 cents. It has only managed to struggle back to the 72 or 73 cent range due to the support provided to it by Bank of Canada Governor Gordon Thiessen. It was not the action of the government. It was the Governor of the Bank of Canada who took action to make it happen.
However this is not the whole story. While declining only modestly versus the American dollar, our currency has done much worse versus other major world currencies. Since the release of the government's first budget our dollar is worth 23 per cent less in terms of the mark and 25 per cent less in terms of the yen.
Why is that bad for Canadians? There are two very key reasons. The first is that imports become more expensive. To show just how big a difference it makes, our fall versus the yen means that a Sony camcorder which cost $3,900 last year will cost $4,800 or an extra $900 in one year. The second is that it leads to inflation. As we saw in the camcorder example the prices of imported goods are jumping rapidly, which places upward pressure on the consumer price index. We learned today that inflation in Canada is now running at 2.9 per cent.
Let us talk about high interest rates. The impact of the budget on interest rates has been no better. When the Liberal government released its first budget in February 1994 short term interest rates were under 4 per cent. It is only in the last six weeks that they have fallen below 8 per cent. In other words interest rates have doubled in the space of one year. That is a record. I would say to the hon. House leader of the Liberal Party who spoke today that should be a concern with regard to the budget.
This is having a significant impact on our economy, particularly those sectors which are highly sensitive to interest rates. For example, first quarter housing starts fell 18 per cent reaching their lowest level since 1982, while housing resales fell by over 40 per cent. Automobile sales are also off significantly, down 10 per cent from last year's pace. Not only are these high rates hurting the private sector, the federal government has been the biggest loser having to pay an additional $1.8 billion in interest for every 1 per cent of interest increase.
The consequences were brought home in the government's second budget, which showed that debt servicing costs or interest payments will rise by $8 billion in the next year to a total of $50 billion.
That $8 billion as an increase almost completely wipes out the effect of all of the spending cuts that came from the government's program review and carried out by the hon. minister who is here with us. That was a good idea but the government has not controlled the interest rates and we are in trouble.
The finance department's Fiscal Monitor that came out this week notes that the public debt charges for March were up 27 per cent and were $4 billion higher than the year before. This is a 27 per cent increase, which is very significant.
I would like to talk about inflation. That is the newest problem facing the economy here today. It results directly from the soft fiscal policy announced in the government's first budget. That is where the problem is. It is a resurrection of these inflationary pressures.
In the last year, inflation rose from .2 per cent to the present level of 2.9 per cent and it is clearly threatening to escape the 3 per cent target band set by the Bank of Canada. This means that the Bank of Canada Governor Gordon Thiessen is facing a very difficult decision. If he chooses to support the value of the dollar and contain inflation within its 1 to 3 per cent target band, he will be forced to raise interest rates. As I mentioned earlier, any further increases will hit both the government and the economy very hard.
On the other hand if his concerns for the economy prompt the governor to lower interest rates, then the dollar will continue to fall and the inflation genie will escape from the bottle. This in turn will lead to higher, longer term interest rates as expectations of future inflation are priced into the bond market in a vicious cycle in which there can be no winner.
I would like to remind members of what happened the last time we entered the vicious cycle. It was in the late 1980s and early 1990s when the Liberals were in opposition. All through this period, the Liberals used the former Bank of Canada Governor John Crow as their whipping boy due to his tough stand on inflation.
As we know, they released him after they came into government. They demanded that he lower interest rates to prevent the economy from slipping into a recession seems fairly straightforward in terms of economic policy. What happened is that it eventually did.
Whether they realize it or not, the Liberals criticized the wrong man. It was not the tight money policy of John Crow that caused this recession, it was the chronic deficit spending of the former Conservative government.
The point the Liberals missed in opposition and are missing again now that they are in power is the government has two instruments with which to influence the interest rates, inflation and the dollar.
First, monetary policy as carried out by the Bank of Canada plays a very important role but it is not the only player. The government must also shoulder some of the burden through its choice of fiscal policy. That is the primary instrument which must be used to deal with the problems in the country.
What happened in Canada under the Conservatives is that a fiscally irresponsible government ignored its own responsibilities, effectively forcing the Bank of Canada to carry the ball single handedly.
I am warning the government today to not make the same mistake as the Tories. We cannot afford to let that happen. I hope the Finance Minister and his colleagues will have enough sense to provide the new governor with support in order to keep the lid on inflation and to bring down interest rates.
If the government does not reverse course and adopt a stronger fiscal policy, then we in the Reform Party will not be pointing our finger at the Bank of Canada. We will place the blame squarely at the feet of the government, which has not honoured its fiscal responsibility. My responsibility and my colleague's responsibility is to do just that. For the sake of this country, I hope this does not become the legacy of the government's first budget, the last piece of which is Bill C-70, a bill that we will not support.
There is still time to change the course. The government's second budget began to do this but the job is left to be done. It is incumbent on the government to bring about a budget for 1996-97 which puts in place a plan of deficit elimination and a plan toward reducing the debt of the country. If the government does that possibly we will have a stable economy, an economy in which jobs are created, in which Canadians will be able to risk, to invest and to live with their families in a very proper way.
