Herb Grubel

[International Monetary Fund And World Bank, November 15th, 1994]

Mr. Speaker, a few weeks ago I attended the 50th anniversary meetings of the IMF and World Bank.

Those institutions have served the world well. However the merit of the IMF imposed discipline on borrowing governments is now seriously being questioned. The World Bank's mandate of lending to governments is obsolete.

The direct alleviation of poverty increasingly is the job of private charitable organizations. Private capital flows dwarf the resources of the two institutions and effectively guard against governmental mismanagement of the economy.

These institutions are very expensive. The recently retired Canadian director of the World Bank earned an effective annual salary in excess of $350,000.

I urge the Government of Canada to take a tough stand on the future of these institutions at the next G-7 meeting in Halifax in March. A good case can be made that their job is done-

[Student Loans, October 21st, 1994]

Mr. Speaker, I really appreciate the generosity of the members opposite.

Census data show that Canadians with bachelor degrees on average earn higher incomes than Canadians with lower levels of educational attainment. The present value of these lifetime income premiums is much greater than the costs involved in obtaining the degrees. These costs consist of tuition fees at recent levels, costs of books and supplies and, quantitatively dwarfing all the other costs, the earnings forgone while in university.

The rates of return on these investments in recent decades have been about 7 to 10 per cent. This is a very good rate of return. It is capable of absorbing very substantial increases in tuition costs without becoming less than the real long run rates of return available in financial market instruments.

Students concerned about the fairness of our society's spending and taxation system should be aware that the vast bulk of university graduates come from families in the middle and higher end of the income distribution. Yet a substantial proportion of the tax revenue used to pay for their education is collected from Canadians with lower incomes. In effect, the present system forces low income earners to subsidize those with higher incomes to get their university education.

The proposed system will correct this inequity. Middle and higher income families will pay a larger share of the higher education benefits they receive. If bad luck prevents them from enjoying the benefits of higher education, these students will not have to repay.

Students concerned about the access of the poor to higher education are reminded that under the present system the poor are often excluded because they do not qualify for fixed repayment loans. Under this system, no questions are asked and they will have access without any difficulty. They have to repay only if they are able to do so.

Finally, I would like to raise a point that is not often discussed. Under the present arrangement, students choices are severely limited. Programs offered by state monopolies of higher education have been slow to react to the demands of students in a changing world. It is well known that the solution to these problems lies in the use of vouchers, that is, non-repayable certificates given to students and cashable at institutions of their choice. The Reform Party supports the use of such vouchers and the resultant empowerment of students.

The income contingent loans program moves the system closer to the ultimate goal of vouchers. It similarly empowers students to obtain study programs that they like rather than those that professors and bureaucrats think they should like. By spending their loan money in institutions of their choice, they encourage them to grow and force others to shrink. Since they spend their own repayable money, they have the proper incentives to make wise choices.

The time for income contingent loans for students in higher education has come. This proposed system offers an efficient and equitable way out of the problems created by the country's financial crisis.

I hope the government will take note of this private member's bill introduced by the Reform Party and debated today and that it will offer promptly legislation to put it into effect.

[Student Loans, October 21st, 1994]

Mr. Speaker, the Minister of Finance this week like never before cut through the traditional Liberal ideology and wishful thinking when he warned that spending cuts are needed or the country will go bankrupt.

The search for such cuts is now on. I predict confidently that the post-secondary education sector will not be spared such cuts any more than any other of the many worthy spending programs in our society except those serving the truly needy, handicapped and aged.

If this education sector joins all the other recipients of government funds in the traditional refusal to accept cuts and the government accedes to their wishes, the coming financial crisis very soon will make the recently proposed cuts seem trivial.

Under either scenario, I believe that it is in the self-interest of the higher education sector to consider methods for dealing with the coming financial difficulties.

I recommend this course of action because I am totally convinced of the economic and social merit of higher education. How could it be any other way after 30 years of university teaching, the experience of having seen first hand many generations of young people gaining knowledge and maturity that prepared them for successful careers in their lives. I do so because I am a realist and I wish to see a continued, strong higher education industry in Canada.

The financial innovation that will help this sector overcome the upcoming financial problems is found in the private member's bill for the establishment of income contingent student loans which we are here to discuss today. What are these innovative types of loans? The idea is simple. Students receive government loans that they can use to pay tuition at institutions of higher learning. The loans plus accrued interest are repaid in instalments once the borrowers have reached a specified level of income. Revenue Canada would serve as a collection agency at low cost.

Detailed legislation has to address a number of important characteristics of this system such as the maximum amount a person can borrow, the interest to be charged, the income threshold when repayment starts, the period of required amortization which determines the maximum annual income tax surcharge.

While one should never underestimate the devil that lurks in these details, enough research and practical experience with the principle of income contingent loans exist to make me confident that it is workable, efficient and equitable. The program would give students the ability to pay more of the true cost of their education. Institutions of higher learning could use this ability to recover more of their operating costs, replacing the funds lost as a result of the government's present financial problems.

Students certainly will not like having to absorb more of the cost of their own education. I would be very disappointed if they did not launch massive protests and repeat all the old chestnuts about the unfairness of it all, how it prevents those with low income parents from obtaining higher education and so on. I sympathize with these students. They have had a good deal for a long time and very few people will want to give it up when they have had such a good deal.

I enjoyed having these benefits when I was a student. The time of free lunches and good deals is over. I wish it were not so, that we could go back to the past when the taxpayer paid the full fare. No wishing will bring it back. The country is heading for bankruptcy and students will have to share in the burden of preventing this untold disaster. Do not shoot the messenger.

A few facts should be considered by those concerned about the fairness and efficiency of the proposed system. Canada devotes a large amount of resources to higher education. The direct and indirect annual costs are about $15,000 per student per year which in total are exceeded only by the costs of health care.

There are over 100 universities and other institutions of higher learning for 29 million Canadians. Nova Scotia has 32 university places per 1,000 population. Analogous figures are 21 for Ontario and 13 for British Columbia.

As a result of past investment in higher education 17 per cent of Canada's population hold university degrees. This compares very favourably with 7 per cent in France and 8 per cent in the United Kingdom.

Students should also consider the following fact about their ability to pay a larger share of the true cost of higher education. I am sorry, I have to wind down. I will have to continue next time, but the point is that the private rate of return to higher education is-

[The Economy, October 21st, 1994]

Mr. Speaker, I never expected that kind of a response, a speechless Minister of Finance.

This week a group of economists gathered in this building to present their views on the finance minister's budget initiative. A majority noted that the 3 per cent target in two years from now is not good enough. There is a high probability that by then the economy will enter the next recession. Deficits and the debt to

GDP ratio will rise again, just like they did for other governments.

When will the finance minister take account of these concerns and issue a plan for time specific spending cuts that will eliminate the deficit during the present economic prosperity?

[The Economy, October 21st, 1994]

Mr. Speaker, the habits of economics professors do not die easily. Recently I found myself giving the finance minister a passing grade; now I must give the Prime Minister a failing grade.

He obviously does not yet understand that smaller deficits lead to lower interest rates, more investment, higher productivity and therefore more permanent jobs in the private sector. Direct government job creation is obsolete.

Would the finance minister please share his good judgment on these matters with the Prime Minister and get him to tell Canadians about the win win benefits of spending cuts?

[Tobacco Taxes, October 20th, 1994]

That is a cheap shot.

[Economic Policy, October 17th, 1994]

Mr. Speaker, the people of Canada have heard these vague promises about some time in the future they will balance the budget, just rely on them, for too long.

Financial experts agree the deficit cannot be eliminated without reform and cuts to the social program. The lilac book does not make that point and the financial community is anxious, especially if Deputy Prime Minister is answering the question.

Will the minister stop tiptoeing through the lilacs and promise major cuts in social program spending?

[Economic Policy, October 17th, 1994]

Mr. Speaker, the minister's lilac book today committed the government to the previously announced and easily achievable deficit target of 3 per cent of GDP in two years. However he did not provide a time frame for the total elimination of the deficit by saying simply: "Our ultimate goal is the elimination of the budget deficit".

This is not enough. The world financial community is anxious. Will the minister commit the government to a definite time frame for the complete elimination of the deficit?

[Social Security Programs, October 7th, 1994]

I fully agree and that is the dilemma. What are we going to do about it? What is the member's party going to do about it? We have no choice.

As socialists are so fond of saying, if we want to make an omelette we have to break a few eggs. If we want to bring the country from the brink of bankruptcy we are going to have to impose on some people a reduction in the proportion of replacement of earnings they will obtain. We will have to impose on some people a longer waiting period. The co-insurance deductible will have to go up in all programs.

If we look at the green book and reinterpret some of the ideas for savings, in the light of the analytical scheme I have presented, namely how does it limit insurance induced changes in behaviour, we will see that many are directed in this way. My plea is that we recognize this explicitly and pay more attention in future debates in the House and by consultations throughout the country to this idea. I believe it underlies the problems we now have.

The first best thing society can do is to attack the problem directly rather than in some indirect way.

[Social Security Programs, October 7th, 1994]

Mr. Speaker, I thank the member opposite for his thoughtful comments. Clearly this is the tradeoff we face as a society.

I can assure him that in the sixties we expected a never-ending flow of funds. People thought so what if there is some insurance induced increases in the demand for services; we can afford it. The problem is we cannot afford them any more. We are being asked what kinds of tradeoffs there will be to reduce the expenditures.

The green book is full of ideas which will hurt someone. If we are reducing expenditures, as we have to, in order to increase spending on some other worthwhile thing or to eliminate the deficit, as we would do, then somebody has to suffer.

I am suggesting that it would be a good idea to imitate what some other countries have been doing that have thought about it a lot. If some people have to suffer let it fall primarily on those who have been induced by the system to change their behaviour. Clearly there is no such thing as a free lunch. I wish there were.