Mr. Speaker, as you may know, I will not be seeking re-election and therefore this will be my last opportunity as the Reform finance critic to discuss the prebudget hearings report brought down by the finance committee. I do so with pleasure because I believe that the rosy Liberal coloured interpretation of the history of the last three years leading up to this budget consultation needs a bit of correction.
In 1994 we had a quick budget that was essentially a do nothing budget. I give the Minister of Finance some credit for at that point resisting the demand for increased spending. And except for a few
special categories of spending, he kept everyone in line and it was more or less a steady as she goes budget.
However, between the 1994 and 1995 budgets I believe having read Double Vision , a book I recommend highly to all members of Parliament who have lived through this period and to the general public, that between that time in 1995 there was a serious conversion of the Minister of Finance and his cabinet and caucus. What we saw was an intellectual integration of the concept of compound interest. I think during that period it became obvious that there was no way that this government could grow out of the deficit simply by slowing down or even holding constant the increase in expenditures. Therefore that was a major achievement.
The second thing that happened that was fortuitous in retrospect but at the time probably a very agonizing terrible thing to all those Liberals who wanted to spend more, because that is how they had been brought up, was that the Mexican crisis hit the country. High interest rates raced through the world, the Canadian dollar came under attack and a series of articles and outside events brought home like nothing else would have in the absence of those events the seriousness of the crisis facing Canada. Moody's gave a down rating of our debt. There were editorials in the Wall Street Journal and everywhere else that this country was really in trouble.
As it turns out, in 1995 the government produced a major breakthrough budget. I said so at the time and I say so again. The government is to be congratulated. It first initiated a program review which was a code word for downsizing the operations of government. It could not do anything about the debt and I will talk shortly about transfers to others.
The day to day operations of the government had grown and become bloated in the post-war years. It was decided through the program review that the best way to go was not to cut across the board but to select certain items that needed to be eliminated and others that needed to be trimmed. The ministers were given a lot of latitude. They resisted heavily but they finally committed themselves to an $11 billion cut in departmental spending. That was a 20 per cent cut.
It is still beginning to bite. All the layoffs, all the spending reductions have not yet taken place but it was a major cutback. In the Reform Party's view it should have gone further and in our budget we propose to do more of it, mainly by more decentralization of functions, the ideological anathema to the Liberals.
In the 1995 budget provisions were made for downloading to the tune of $7 billion. It said to the provinces "you used to get that money from us for welfare, higher education and medicare but in the next few years we are going to cut all of that to the tune of $7 billion". Where did all the wonderful figures for the government come from that the previous speaker was talking about? It was said that the deficit would be almost eliminated by the year 2001. It has come from increased tax revenue.
About one-quarter of that amount is through 35 small increases in different taxes. They were not called tax increases but just making the system a little fairer. It hurt like a tax increase, it looked like a tax increase, it raised government revenue but it was not really a tax increase. There were 35 of those steps.
All of that will amount by next year to over $25 billion. Let me repeat that this government started with a deficit of about $40 billion. It tried to eliminate this with a $25 billion increase in revenue which it took from the pockets of Canadians. It is also taking the $7 billion out of the pockets of Canadians except that it has put the burden, the political cost, on the provinces by saying that the provinces will get $7 billion less. The only thing the government has done where it really hurt was the $11 billion in the local bureaucracies, in the local functions of government. If all goes well, all that will lead to a balanced budget by the fiscal year 2000-2001.
The 1996 budget essentially carried on with the promises made in the preceding budget and it seems to be working all right. Interest rates have come down and there is a slightly better than expected performance. I congratulate the government again for having done what it has done. However, it should have done it much faster because what is lying ahead of us within the next year or two is still the possibility of a recession. There is a possibility of an increase in interest rates.
We have been warned by economists all along that economic expansions do not last forever.
I am worried about how the stock market is doing today. That indicator of economic well-being tends to forecast change in economic activity. One of the big troubles is if we do get such a turnaround in the economic activity or interest rates rise or both-this has nothing to do with ideology-as the Minister of Finance has said again and again, it is simply a matter of arithmetic that in fact such events as a slowdown in economic activity and higher interest rates could put this government, after all this pain, back to where it was when its term started.
For the sake of Canadians, not for the sake of the Liberal Party, just for the sake of Canadians, I hope none of this will happen. The outcome of the policies that the government has already undertaken is really quite a dismal record. It could have been better if there had been more decisive action more quickly.
The debt this government inherited was $500 billion. Next year it will be over $600 billion. In some budgets it was forecasted to be $625 billion. This will be $11 billion more in interest costs on just
the amount of debt that the government has added to the one which it inherited.
One of the most tragic things is, as I mentioned, that $25 billion increase in revenue, partly through increased tax rates but simply through economic growth, has resulted in a reduction in average family income in Canada of $3,000 per year. People feel like they have been squeezed. The average Canadian does not have enough money to pay the interest on all the debts that they have. On top of that, however, it is not getting better. It is getting worse.
That is why they have not increased spending. That is why our recovery was export driven. That is why we have been coasting along at a very anaemic growth rate, why employment creation has been large by the standards of the six European countries that are tearing their hair out because they are having such great difficulties. The famous Germany, the economic miracle, is stuck at unemployment rates over 10 per cent. Its best corporations are opening factories everywhere except in Bavaria and places where they should be. It is looking at what the problem is and we do not want to imitate it. We should look to the Americans.
As the House knows, as the result of this we have been just coasting along at a very unfortunate rate. Because of the slowness and the lack of incisiveness with which the government attacked this deficit we saw a large risk premium on our interest rate relative to that in the United States and the rest of the world. That risk premium has severely reduced investment and of course investment is the source of productivity growth and the source of higher income.
This government's record which was described by looking through such rosy coloured spectacles is really nothing very much to brag about. This government offers no tax cuts, no relief for all the hard working Canadians who are wondering how to make ends meet. The only thing the government did was to take money away from Canadians to the tune of $25 billion to eliminate the deficit, another $7 billion away from Canadians by downloading on the provinces.
In relation to that $32 billion all it did was spend $11 billion of reductions in departmental spending on its own bureaucracy. No wonder people are disappointed and worried about the power and strength of the bureaucracies in Canada and how individual ministers are captured by them. However, they are Liberals and they are willing to be captured and do all this good spending.
One of my greatest disappointments in this document that we are discussing today is that the restraint which the Minister of Finance has been able to keep on his Liberal spenders now appears to be ready to be broken. This restraint is about to go because we have the all-Liberal tradition.
During a press conference one after the other, disadvantaged group marched up to the microphone and television camera and said they needed more money. Sure, these are tragic problems besetting the people who come to the government wanting help. Reform would love to give them help and we plan to give them help through tax cuts, by lowering spending on the local bureaucracy. That is how it can and should be done.
The tragedy is that allegedly, on the basis of performance in the budget being better than had been expected, there now sits maybe $1.5 billion. This Liberal government, speaking through the finance committee, has said "let's start spending again". This is at a time when the deficit still adds $100 million a day to the debt that the young people sitting around here, the pages in university, will have to pay the interest on.
The Bloc was talking about how it speaks for this disadvantaged group and that disadvantaged group to give more money. I would love to be able to do so. However, the Reform Party, and especially myself, have made it our task to speak for those who cannot speak for themselves, who do not have a vote and therefore do not count at all, zilch, negative in the Liberal calculus on what should be the policy.
Our youth will have to face $50 billion a year in interest costs, which are still rising and will be even higher if these Liberals get their way and start spending again. They also have another $50 billion or $60 billion to pay to us in the form of medicare expenses and CPP expenses, unfunded liabilities which will require at least $50 billion a year.
It is a crime what we are doing to our unborn generation and to those who cannot yet vote. Yet just when we are about to move slowly, surely and with some sanity toward reducing this debt on future generations what do we get? We get opportunistic Liberals, who cannot look beyond their own selfish noses, proposing again to increase spending before the battle is won. We are not even half way there yet. The risk of higher interest rates and a recession makes this totally and completely irresponsible.
Imagine what it will mean when we balance the budget and then start spending again. If we do not want a deficit again where is the money going to come from? It is going to come from further increases in tax revenue from overtaxed Canadians. They will suffer another $3,000 reduction in family income as they did in the last three years because these Liberals, as they indicated in this particular report, are just waiting for the Minister of Finance to weaken ever so slightly and give in to one special interest group, however worthy its cause, and the flood gates will open.
There are lists of people from the natives to battered women. I could go on and on about the people we heard from in the finance committee, all of whom had good causes to come to the federal government for more support. But at whose expense would that support come? At the expense of the young people I see right here in the House, who when they have grown up will find their debt burden even higher than it would be otherwise.
I would now like to turn quickly to two pet projects which I believe are worth supporting. They will cost a little bit of money and maybe will have to wait another year or two, but I will not be here to talk about them. Therefore I would like to put them on record right now.
The first is the elimination of the luxury tax on jewellery and watches. This is an antiquated tax. Hardly anyone today would believe that these products are a luxury and should be carrying in a very discriminatory fashion another 10 per cent tax on top of all the other taxes that are paid. Why pick on those particular products? They have created an underground economy and it is totally counterproductive. If we could recover the revenue on smuggled goods, on underground production and unreported income, the government would probably be away ahead. It is a kind of micro management which I do not think is justified in this day and age.
The second thing I would like to support is the idea of removing all restrictions on the tax benefits that accrue from charitable donations. A very interesting study has been made of American history, the wealth created during the monopolies in the late 19th century of the oil barons, railroad barons and the steel barons, the Mellons, who had accumulated huge fortunes which have since been dissipated. In what way? They have all been given to foundations and to universities. The entire accumulated fortunes, capital gains, invested dividends, everything, was given to these institutions. Today Harvard has a $4 billion capital fund; Yale has $2 billion; Stanford, $2 billion or $3 billion.
We heard statistics that our universities have tiny little endowments. It is believed that the main reason for the difference between the two countries is the tax treatment. The Americans simply do not tax the accumulated capital gains on the assets are given away.
I am pleased the chairman of the finance committee supports the report that we should also do this in Canada as soon as the budget allows. It is not a great revenue loss relative to the huge benefits to be achieved.
I think I am running out of time soon. I would like to talk about the presentations we heard from economist Andrew Sharpe about the role of labour market imperfections and barriers to the reductions in the unemployment rate. This is a topic I have spoken about regularly in the House whenever I had the opportunity. I will dedicate the rest of my professional life at the Fraser Institute after the election to pushing and increasing public awareness of this problem.
On a personal note, Mr. Donald Macdonald, the former finance minister and head of the Macdonald commission, was a witness in a committee hearing the other day. I first met him about 11 years ago, after a luncheon speech. I introduced myself and he said: "Your paper on the effect of unemployment insurance on the rate of unemployment hung over our commission like a shadow". Last week he reminded me of that meeting.
I find it unbelievable that we have so many blinders on that we cannot see that when a country just across the border with the same macro economic policy produces an unemployment rate of 5 per cent, we are stuck at 10 per cent. What a tragedy. I do not want to necessarily replicate what is being done in the United States.
What I think we need in this country is a lengthy, major in-depth discussion on the trade-offs. If we tell people to stay in that place, that if they are poor and unemployed we will give them a guaranteed amount of money every year, they will stay there. It is simple economics. We may want to do this as a society. But at least we should talk about it and not stay stuck at an unemployment rate of 10 per cent.
I would like to close by reminding the House that I disagree with the presentation of the witness who said that those overly generous Canadian welfare and social programs were responsible for only about a quarter of the 5 per cent difference between the American and Canadian rates.
I worked on my Ph.D. at one of the leading left leaning universities of the world, Yale. We got our degree by doing a study which showed that the market failed. All the professors would say, with a few exceptions: "Right on. Here is your doctorate. You found that the market is not working".
Then I spent three years as an apprentice at the University of Chicago. I was an assistant professor. There if we found out that the market was not working we were told to go back and do more research until we found out that it was the government's fault that the market was not working.
That is the kind of attitude I bring to this debate. That kind of attitude will show that the bulk of the difference between the unemployment rates in Canada and the United States is due to policies which we make with the best of intentions but which have these unfortunate, unintended consequences.