Province	Législature	Session	Type de discours	Date du discours	Locuteur	Fonction du locuteur	Parti politique
Manitoba	31e	2e	Discours sur le Budget	10 avril 1978	Donald Craik	Ministre des Finances	Progressive Conservative Party of Manitoba

Mr. Speaker, I would like to take a few moments to speak to the motion before the House and before doing so, as is customary, I want to, first of all, pay tribute to the people who have assisted along the way in the preparation of these remarks that I want to make to you tonight.

MR. CRAIK: Mr. Speaker, as I was saying, in making these few remarks and as a preface, I want to first of all pay tribute to those people that have assisted in the preparation of the Budget and to the members of the Legislature, and without restricting any appropriate thanks to anyone - of course I would like to thank my Deputy Minister, Charlie Curtis and to the many people who are in support of the effort that comes before you tonight - he and his gang of willing and able warriors who have put in many hours night and day to get to this point in time.

Mr. Speaker, at the opening of the First Minister's conference in Ottawa two months ago, the Premier of Manitoba spoke for a great many Canadians when he expressed deep concern about the directions our country has taken in recent years. The problems he identified were a sluggish and faltering economy, growing divisions among regions and among various groups in our society and a widespread crisis of confidence in government. Parallel exactly, Mr. Speaker, the situation which had developed in our province before October 11th of last year. On that day the people of Manitoba endorsed the Progressive Conservative Party with the largest mandate in the recent history of Manitoba. It was a mandate for change, a mandate for economic recovery, a mandate for a strong healthy private sector, and a mandate for a responsive accountable common sense government and an end to needless costly bureaucratic interference in the everyday lives of our citizens.

In the five and a half short months we have been in office our new administration has taken several important steps to fulfil the commitments we made during the election campaign last fall. We have reduced income taxes. We have abolished the succession duty and gift tax. We have repealed the mineral acreage tax, and we have introduced expenditure estimates with the lowest gross rate in Canada this year. But these are only the start, Mr. Speaker.

The people of Manitoba knew when they went to the polls on October 11th that it would not be an easy task for a new government to turn the economy around and to bring public spending under control. We have a long difficult road ahead of us yet and it is essential that we don't pretend otherwise.

But in a nutshell, Mr. Speaker, it can be said that our challenge is not to restrict essential services for the people of Manitoba. Our challenge, Mr. Speaker, is rather to first help build and maintain the economic base which will make those services possible. That challenge can be met, but not by government action alone. It must be matched by a renewed faith in abilities, by a recognition of opportunities in both the private and in the corporate sense, and by a recognition that we live in a geography that is unmatched in its variety of appeal- summer, fall, winter and spring - in a human environment optimum in scale and challenge, in a mixed economy generally not subject to wide
fluctuations between either bullishness or sluggishness in a province blessed with natural resources, which in the long term will provide stability and security but not necessarily the vast wealth of some of our neighbours, and in a mosaic of cultures all contributing to a richness of life in our rural, urban and northern communities.

In my first Budget tonight, Mr. Speaker, I want to spell out as clearly and as simply as I can, the economic and financial problems which are now facing Manitoba, as well as the action our government believes must be taken to restore a climate of confidence, and to clear the way for our province to realize its true potential.

It is important to begin by defining what our administration believes a Budget should be and, by extension, what the role of government should be, particularly at the provincial level.

First, we think a Budget should present a realistic straight-forward statement of the province's fiscal position and economic prospects. It should also contain a summary of the government's immediate and longer term objectives and a description of policies and programs to achieve those goals.

In simple terms, it should be an honest report to the taxpayers of Manitoba, not a political manifesto filled with worn-out theories, misleading statistics, meaningless comparisons and promises which cannot be fulfilled. In the past eight years, Manitoba has had precious little of the former and too much of the latter.

One of the principal reasons why so many people have lost confidence in public leaders is that they haven't been told the plain facts about what governments can and cannot do.

In recent years governments here in Manitoba and elsewhere in Canada have tried to do too much. They have built up false expectations and have overextended themselves in vain attempts to achieve goals that may be both impossible and undesirable in some cases. The results - too much government, excessive spending, massive deficits and onerous levels of taxation, probably more than any other factors explain the economic problems confronting our province and Canada today.

One of our administration's major objectives is to reverse these self-defeating trends by adopting a forthright and responsible attitude in the role of government and especially of a provincial government in our society.

While we believe there is a central place for public sector action to create and maintain the proper climate for economic development and to provide a broad range of services we also believe that there are clear limits beyond which governments should not go.

The costly lessons of the last eight years have proved conclusively that government has a limited place in business, and should have a different, sometimes smaller role in other activities as well.

In future if we don't think provincial action will help alleviate certain problems we won't be afraid to say so. And when action appears possible, but when our financial sources are insufficient, we will also have to say so as well no matter how much we would like to be able to assist. That is our responsibility as guardians of the public treasury and it is about time that that responsibility was exercised in Manitoba.

Mr. Speaker, the restoration of the principle of fiscal responsibility in the Government of Manitoba is the primary goal of this budget. Without a secure financial base the future of every essential economic and social program is in jeopardy. Without sound financial management there will be no flexibility to meet new priorities and to deal with unforeseen problems which may, from time to time, demand immediate responses. And without genuine financial accountability the widespread lack of consumer and investor confidence which has played such a large part in holding back our economic development will continue to undermine new initiatives.

Our commitment to the principle of fiscal responsibility is accompanied by a number of specific policy objectives.

First - Continuing restraints on government spending to reduce the public sector's share of gross provincial product over time and lessen its demands in relative terms at least.

Second- Greater efficiency in government programming to ensure that improved and expanded services can be provided for those who require them.

Third - Rationalization of taxation measures to simplify our tax structure and make it more competitive.

Fourth -Improve financial reporting to ensure that the citizens of Manitoba have up-to-date, factual and understandable information about their government's budgetary position.

I will deal with each of these objectives in more detail, Mr. Speaker, a little later. As I will also explain later the financial situation which we found when we took office has made it impossible for us to balance the budget this year. However, with improvement in the economy and in our revenue position we believe a balanced budget is a realistic goal. Of course much will depend not only on Manitoba's economic performance but on Canada's as well.

Our objectives for the economy of Manitoba follow directly from the fiscal objectives I have just outlined.

A government which has its own activities under effective control, which levies taxes at reasonable and competitive levels and which makes certain that the competitive market system functions with maximum efficiency has provided an essential prerequisite for sustained expansion of the private sector and more job opportunities for our people.

At their conference in February, all eleven First Ministers stated that they regarded, and I quote, "An expanding private sector as the major impetus for growth in the Canadian economy. While this affirmation of confidence is welcome, we believe that all senior governments in Canada must back it up with the kind of budgetary policies our administration has adopted. If the private sector is to provide the investment and the employment opportunities that our economy so badly needs, this is consummately necessarily.

A few days ago, the Premier read a quotation in this House into the record and it deserves repeating. The quote was: "We need to realize that there is a limit to the role and the function of government. Government cannot solve all of our problems, set all of our goals or define our vision.

Government cannot eliminate poverty, provide a bountiful economy, reduce inflation, save our cities, cure illiteracy, provide energy, or mandate goodness. Only a true partnership between government and the people can hope to reach these goals. And those who govern can sometimes inspire and we can identify needs and marshal resources but we cannot be the managers of everything and everybody."

Mr. Speaker, those words were spoken by President Carter in his 1978 State of the Union Address and I commend them in particular to the members on the opposite side of the House.

The recognition of the vital role of the private sector was one of the few major accomplishments at the First Ministers' Conference. In our view, Mr. Speaker, there were other significant major developments as well.

These were, first of all, the agreement by all senior governments to keep their rates of expenditure growths below the rates of growths of the gross national or the gross provincial product.

Secondly, the con8ensus that the level of total compensation paid to public employees should not lead the private sector.

Thirdly, the decision to undertake a joint Federal-Provincial study aimed at rationalizing resource taxation to help revitalize our mining industry.

And fourthly, the unanimous endorsement by all First Ministers of the suggestion put forward by the Premier of our province for a high priority review to reduce the economic cost of government regulations and of red tape.

Naturally we were disappointed that the Federal Government was unwilling to accept Manitoba's other suggestions. First of all, that the provinces be given a formal input in monetary policy decisions and that improvements be made in the exchange of borrowing information, particularly off-shore borrowing among senior governments.

But most disappointing of all, Mr. Speaker, was the Federal Government's inaction after the conference, its failure to match meaningful restraint was its rhetoric. In fact, within only a few weeks it announced that its 1978-79 deficit was likely to increase to around $11 billion. Mr. Speaker, in the last hour or two, it has been announced that in fact the projected deficit is $11.5 billion and that its spending level would grow $11.5 billion - only marginally below some of the over-optimistic and, in our opinion, unrealistically high forecasts of the rate of growth of GNP.

Well, Mr. Speaker, the Leader of the Opposition says six times Ontario's. We often have him also comparing Ontario's financial position to Manitoba's without ever mentioning that Ontario represents some eight times our population and also happens to represent one-third of Canada's population, Mr. Speaker. So when he says that Ontario has one-sixth the deficit of the Federal Government you must throw in the multiplier or dividing factor of three, as well. But he knows that as well as I do and better. He just doesn't happen to mention it when he is speaking.

Any positive effect that some of the agreements reached at the First Minister's Conference might have had in helping to restore confidence in the economy must have been all but wiped out by these two examples of lack of restraint at the federal level. With the Canadian dollar at a post-depression low; with the continuing balance of payments and international competitive problems; with unemployment over the one million mark for the first time since statistics have been compiled; with continuing serious inflationary pressures; with investment lagging, especially in essential fields such as manufacturing where we have a particular problem, Mr. Speaker, in Manitoba, and have had for the last five years - and with consumer confidence so low that recent personal savings rates have been the highest recorded in the post-war period, it's obvious that a totally new approach is needed at the federal level to turn the economy around.

New federal policies are essential to complement those of our own government because, as the Federal Government itself has acknowledged: "a strategy which returns the Canadian economy to more normal levels of output and employment would be the single most effective way of lessening the economic problems of any of the regions."

Nor, Mr. Speaker, can we, as a province, be deterred from taking the action which the times demand merely because Ottawa chooses to turn its back on the fiscal realities of our nation today.

We have been working with the Federal Department of Regional Economic Expansion (DREE) to stimulate new initiatives in the areas of tourism and industrial development. Substantial progress has been made towards financing an industrial development agreement which we hope will provide a broad range of services to facilitate industrial growth.

Mr. Speaker, I want to tell the Member for Fort Rouge we're going to take anything that is open to us, including DREE, especially in high-technology fields and in manufacturing.

However, progress in finalizing a tourism agreement has been quite slow and our hopes for creating some productive job opportunities as early as this summer are now diminished. It's our hope that this agreement will be pursued and finalized at the earliest possible date. Because of the early employment creation possibilities, our own order of preference would have been to pursue the tourism agreement first and the industrial agreement second, because it's going to have a longer term pay-out as far as Manitoba is concerned.

Of course, the tourism and manufacturing are not the only sectors of the provincial economy which require greater encouragement. Over all, Manitoba's output growth was among the weakest in Canada in 1977. Our latest estimates indicate that Gross Provincial Product increased by 8.3 percent to $8.6 billion in 1977. The estimated real growth is a little under 1 percent, well below the national average.

Our share of manufacturing employment is also well below the national average and it has dropped 11 percent in the last three years. Mr. Speaker, that is a fairly serious picture for Manitoba, a very serious picture.

Total unemployment averaged nearly 6 percent last year and by this February had reached 6.5 percent on a seasonally-adjusted basis, compared with 6.2 percent a year ago. The rate last year is worth noting in light of the "full employment" promise that the previous government made in 1973 in their party's so-called Guidelines for the Seventies at which time they then found 4.5 or 5 percent completely unacceptable, but watched it grow to the 6 or 6.5 by the time they left government.

Although our province continues to have the third lowest unemployment rate in Canada and although the latest statistics indicated that there were many more Manitobans at work in February, 1978 than there were in the same month the year before, our government is deeply concerned about the unemployment situation. Later in my address, I'll be announcing a special program aimed at providing productive jobs for young Manitobans over the coming summer and early fall.

Despite these problems, current forecasts suggest that 1978 will be a year of modest recovery for the provincial economy. Although real growth is not likely to exceed the Canadian average, it should be higher than 1977.

We have already received some encouraging news in the form of the most recent Stats Canada forecasts of new capital investment intentions. For 1978, the increase in private sector invested in Manitoba is expected to be higher than the national average and higher than last year. Although the forecast increase is only 6.5 percent, probably less than the rate of inflation, it is still significant in relative terms.

World price and market problems continued for the mining~ industry last year, particularly for nickel, copper and zinc, and that takes in most of it, and total mineral output value increased by less than the rate of inflation. However, there are indications of substantial strength for the longer term and the climate, Mr. Speaker, for development in Manitoba is infinitely better than it was during the last eight years.

Although the value of agricultural output was up around 8 percent last year, farm cash receipts continued their pattern of decline which started in 1976.
Because of the overriding importance of the agricultural sector to our economy, we are naturally concerned about prospects for the year ahead. This subject, along with resource development and other economic matters affecting western Canada, will be discussed at the 1978 Western Premiers' Conference in Yorkton at the end of this week. The agenda for that meeting will also include a review of prospects for western co-operation in the energy field, a subject of particular interest to Manitoba. With rising energy prices dictating major adjustments in the structure of the Canadian economy, cooperation among governments is essential to ensure that existing sources are utilized as effectively as possible. We are anticipating progress in the studies of the western portion of an interprovincial power grid.

The end of this week, April 14th, Mr. Speaker, also will mark the beginning of the end of the Anti-inflation Program. Along with other governments in Canada, our administration has mixed feelings about the phasing out of the AIB. Although we felt that the program was necessary at the time it was introduced, we now believe that controls should be removed and we are reasonably confident that their elimination will not contribute to a major upward acceleration in wages and prices. Part of the reason for our optimism is the fact that all senior governments now seem to be committed to pursuing more responsible public sector compensation policies. The First Ministers' agreement that the level of total compensation paid to public employees should not lead the private sector is one which we believe - and I stress this point - should be followed by all responsible authorities at all levels including local governments, school divisions, Crown agencies and organizations which obtain a significant portion of their funding from hard-earned tax dollars.

It is recognized that our economy is in a sluggish period. We in the public sector cannot afford to see excessive wage settlements, settlements that exceed our rate of growth and revenues. It is imperative that wage settlements not outstrip our revenue and end up a permanent ongoing burden. We are asking that all those involved in public sector negotiations recognize that provincial revenues, and thus our ability to pay for increased costs, including wage settlements, will only grow by about 4 percent this year.
But public sector action alone will not be enough to ensure that price and wage increases are kept at reasonable levels. It is imperative that the private sector co-operate fully as well. Restraint and responsibility will have to be demonstrated by wage earners, the self-employed and businesses, large and small, if long-term price stability is to be re-established and if the re-imposition of arbitrary controls is to be avoided in the future.

It will be all too tempting to consider even stronger controls if inflation gets out of hand again. Mr. Speaker, this has already been indicated at the Federal level. And if this happens, the basic system on which our country's economy has been built will be threatened as it has not been threatened before.

Because of over-regulation and interference, though, the market system has not had a fair chance to operate efficiently in recently years. It is essential that the private and the public sectors work together to make certain that the forces of initiative and competition are encouraged rather than stifled and choked off.

Mr. Speaker, with regard to the year-end financial position 1977-78, I want to turn to that now and then go on to outline our budgetary proposals for 1978-79.  When our new administration took office in late October, we requested an immediate report on actual expenditures and revenues for the six months ending September 30, 1977, and on revised estimates for the balance of the fiscal year 1977-78. All members are well aware of the results. We found that the projected deficit on current account, $129 million, was more than five times larger than me amount estimated last spring, a year ago now. Un a combined basis, including direct budgetary capital, the year-end deficit was estimated at $225.1 million. It should be noted that the capital spending projection released in November only included committed projects. Had we proceeded with expenditures for all the projects in process or planned, the total potential deficit would have been higher than the $225.1 million deficit by some $110 million more and could even, Mr. Speaker, have exceeded the legislative authority available as of last year's session.

Ten days before his government left office, Mr. Speaker, the former Minister of Finance said the deficit was "definitely not double" the original estimate. That was a direct quotation, "definitely not double." Well, in a way he was right. It was a great deal more. In fact, it was five times more, Mr. Speaker. Mr. Speaker, there is ample evidence of the position of the government before, well before, immediately before, and unbelievably, even after.

Faced with a unacceptable potential shortfall of this magnitude we had no alternative but to implement stringent special restraint measures to make certain the situation did not get any worse and if possible to improve it somewhat in the few months remaining before the end of the year.

Although the figures are not yet final it is now clear that these measures did have a significant positive impact/ impact.

On the old current account basis, the system used last year, and which still can be used this year for those who wish to do so, it appears likely that the 1977-78 deficit will be approximately, on the current account, $80 million, some $50 million less than the projection issued in November.

Capital expenditures increased slightly with the result that the combined deficit Is now expected to   total $181 million, a reduction of about $44 million from the potential yearend figure In front of us last November.
Our preliminary year end expenditure total now stands at some $1 billion, 653 million on a combined basis, while revenues are likely to reach approximately $1 billion 472 million.

Approximately one-quarter of the reduction in deficit results from decreased spending while the remainder represents primarily improvement in federal share cost payments and to a very limited extent -(Interjection)

Mr. Speaker, if I can be allowed to finish. The remainder represents primarily an improvement in federal cost-shared payments, Mr. Speaker - which an explanation will be made available if so desired - and to a very limited extent direct provincial revenues which in total partly offset the drop caused by revised federal income tax estimates of last October which have not improved, Mr. Speaker Well, Mr. Speaker, before the members get too exercised across the way, or any more exercised, the reduction that was announced last October of $48 million has not improved, which they were well aware of but didn't tell the people, Mr. Speaker, but the shared cost payments with regard to education and other areas of joint programs with the Federal Government, there has been more money achieved from them than was foreseen, I believe, by the former government included.

Further information will be made available at the time of our interim, unaudited financial statement when it is completed. You will note that this is the first time, Mr. Speaker, and this being the 10th day of April, that the province has released these figures at such an early date, despite the fact, Mr. Speaker, that in years past, we have asked in May, and we have asked in April, and we have asked in June, what is our year end position? We were always told, well, we don't know. You will have to wait for the public accounts and that came out next Christmas.

What it does point out very clearly is that the former government could and should have been aware of a worsening financial picture even in mid-year 1977, a very critical period of our economy but had absolutely no idea of what was happening in Manitoba.

The improvement in the 1977-78 deficit situation does not obscure the fact that the province's budgetary position should never have been permitted to deteriorate to the extent that it did under the former government. Mr. Speaker, they went about wildly making promises. If we had lived up anywhere near to the promises that they had made in the election year of 1977, we would not even
have had approval, Mr. Speaker, to spend the amount of money which they said they said that they could spend.

That, Mr. Speaker, is my non-political speech. If you really want me to get political, I will tell you the rest of the story.

MR. CRAIK: Well, Mr. Speaker, truth is often more disturbing than fiction. It is not an acceptable defence, Mr. Speaker, to assert that most provinces experienced difficulties last year because of unexpected and unusually large downward revisions of Federal Estimates. While such revisions did occur and compounded the problem, the increased Manitoba deficit was a result of factors, including expenditure overruns, which were entirely the responsibility of the government of the day, and again, Mr. Speaker, they had no idea of what was happening, that is obvious. I don't even accuse them of misleading the people, because I don't think they knew. And the reason that they didn't know, was because they didn't bother to ask.

Our administration intends to make certain that this does not happen again. We will implement more timely revenue and expenditure monitoring procedures and other financial management improvements to detect deterioration if it is to occur as soon as it happens and to permit immediate compensating action. More important we will insure that our overall fiscal planning does not place us in a position where we are unduly vulnerable to unforeseen changes affecting our budget.

Finally, if we do encounter problems, they will be made known to the people of Manitoba through our quarterly financial statements in line with our commitment to the principle of accountability.

If there had not been a change in government on October 11th, it is entirely possible and under the reporting systems then followed, the citizens of our province and the members of the Assembly would not know to this day the seriousness of the situation we faced last fall. And the degree of which it will continue to limit our options as we enter a new fiscal year.

The financial storm clouds, Mr. Speaker, that were gathering during the final three years of the former government's tenure should have been obvious. They were to some, Mr. Speaker, but obviously weren't taken seriously by the former government.

The implications are clear in the Estimates of the Department of Finance. The annual cost of debt servicing over the past three-year period has increased by roughly $28 million from around $16 million to $44 million in three years - debt servicing, one category in the current Budget. As a result of the previous government's failure to pay attention to the excessive deficit picture and the mounting debt servicing burden, our administration is very seriously inhibited by lack of funds available to carry out the many services, such as in health and in education, that we would normally want to pursue in a healthy financial climate. For example, in a layman's perspective, the same $28 million in the coming year - that I have referred to as the increase - is equivalent to one-third of the entire Budget of the University of Manitoba. And that is not just this year, it will continue every year as long as it takes for us to retire that debt.

Mr. Speaker, in regard to 1978-79, on Wednesday, March 29th, I tabled the government's Main Estimates of Expenditure for 1978-79. In my statement at that time I pointed out that the Estimates included certain important changes in presentation such as the combining of current and direct budgetary capital expenditures as recommended by the Provincial Auditor.

When the text of my address is distributed later tonight, members will find included with it a background paper on this change, as well as on a number of other planned and proposed improvements in our financial reporting system. And I will welcome comments on it.

I would like to take this opportunity first though to express my appreciation to the Task Force on Government Organization and Economy for the high quality and valuable overview which it was able to accomplish in the very short time available to it. Many of its recommendations will be particularly useful to the Minister of Finance, and others, and they will provide much-needed guidance to the government as a whole in our efforts to bring public spending back under control in this province.

In this connection, I noted with interest the Task Force's recommendation that the Property Tax Credit Plan be re-evaluated. While reaffirming the desirability for continuation of direct property tax relief, it's our view that the current program is unduly complicated and costly to administer. In addition, we are aware of a number of unnecessary and inequitable anomalies in its operation. It is our intention, therefore, over the next several months, to consider options for rationalizing and simplifying the system with a view to implementing an improved program in 1979. -(Interjection)

That's the problem, Mr. Speaker, it is sometimes doing that and not getting to those in need. In the interim, Mr. Speaker, however, and as a transitional measure, we intend to supplement the current program in fulfillment of a commitment we made during the last election campaign with a special plan to provide additional school tax relief for senior citizen homeowners.

Under this plan, every pensioner who resides in his or her own home will be eligible for up to $100 in extra assistance to help offset school taxes this year. This extra assistance will be in addition to present property tax credit payments with the result that pensioners who qualify for maximum entitlements will receive $475 in direct property tax relief for 1978 instead of the $375 they received last year.

In combination with the credits, it is estimated that this new program will eliminate school taxes for roughly three-quarters of all Manitoba pensioners who live in their own homes. Current estimates indicate that about 95 percent of all pensioners who are tenants already receive property tax credits sufficient to offset the portion of their rents attributable to school taxes.

Because of the short time available to implement this new program, and because the government wants to ensure that pensioners receive their extra assistance as soon as possible to help cover this summer's tax bills, we expect to have the measure administered through the municipal offices by completion of a simple application.

Provision has been made for the cost of the program - approximately $2 million this year- in the Main Estimates for the property tax credit payments.
Mr. Speaker, our government is very concerned about the rate of unemployment among young people across the country. While we feel that this problem can only be rectified on a long-term basis by appropriate policies at the national level, we recognize that provincial governments can playa part as well.

Despite necessary expenditure limits, existing Manitoba programs will provide students with roughly 2,000 jobs in the provincial public sector this summer.

I am also happy to announce that the province will also introduce a new private sector youth employment program to help provide valuable work experience for young Manitobans in the coming months. Under this program, all businesses and farm operators in the province will be eligible for employment grants of $1.25 to $1.50 per hour, up to $1,000 for each new position created and filled with a qualified applicant. And that is a person who is unemployed and between the ages of 16and 24.

The grants will be provided for a 16-week period and will be available for work undertaken between May 1 and October 27th. There will be a grant limit of $10,000 per employer.

It is expected that the private sector youth employment program will cost about $2 million in 1978-79 and will provide approximately 2,000 jobs in the coming months. Mr. Speaker, I point out that this is an approximation only and it's not an upper limit.

The program will be administered through the Department of Education and the Minister responsible will announce further details when they have been finalized. Supplementary estimates will be required to finance the program and will be tabled immediately. With regard to staffing, it is our intention to implement the new pensioners school tax assistance and private sector youth employment programs without any increase in staff. In fact, the general restraints on new hiring which were implemented last fall will continue in the new fiscal year.

When we took office, there were approximately 16,000 regular and departmental employees on our payroll. -Interjection- No, Mr. Speaker, it's 16,000 on the regular payroll. The regular payroll includes those employed on permanent term contract bases. Members will be interested to know that as of April 7th - three days ago, the date of the last available payroll summary - there were approximately 1,000 fewer employees, excluding seasonal employees.

Members opposite may argue that it is a contradiction to reduce staff and, at the same time, provide financing for special job creation measures. Mr. Speaker, that is nonsense. What would be contradictory, Mr. Speaker, and irresponsible, would be to use taxpayers' money to keep people on the public payroll whose positions were no longer justifiable in terms of providing needed services for the citizens of Manitoba when there are so many other crying needs that cannot be accommodated because of our financial position. -(Interjection)- Well, Mr. Speaker, if that's the seriousness with which the member opposite takes the youth employment programs so be it. Mr. Speaker, that sort of lax attitude goes a long way towards explaining though, Mr. Speaker, this business of the consumption of our abilities to be able to mount these sorts of programs by internal growth of the Civil Service, Mr. Speaker, of why we are in the stringent financial situation that we are facing today.

Mr. Speaker, with regard to the spending growth as I noted last week, the Main Estimates total approximately 1,649 million, represents a 2.9 percent increase on a combined basis compared to the adjusted Estimates figures for 1977-78 - probably the lowest rate of increase for any senior government in Canada this year. Even on the old current account basis, our increase in Main Expenditures over last year only amounts to 3.8 percent.

Adding the 2 million supplementary Estimate raises the combined and current only expenditures to 3 and 4 percent respectively. On a basis for comparison, members may be interested to know that the Federal Government's 10 percent spending growth target for 1978-79 is not a vote over vote percentage but is based on the 1978-79 Estimates total over the 1977-78 Preliminary Actual figures. On that same comparative basis our anticipated spending is marginally up from last year by about 1.2 percent.

Mr. Speaker, on the Revenue side, the Estimates of Revenue for 1978-79 fiscal year which I will table at the end of my address total $1,536 million. As in the case of the Expenditure Estimates, the Revenue figures have been compiled to include both current and direct capital receipts.

Changes have resulted from the decision to present tax credits as expenditures rather than revenue reductions and changes have also been necessary as a follow-up to the new Federal Provincial established programs financing arrangements which have replaced direct cost-sharing for hospital insurance, medicare, extended health services and post-secondary education. As I explained in my statement on the Expenditure Estimates, until this year, cost-sharing payments for hospital and medical services have been netted out of Manitoba Health Services Commission expenditures and not shown at all on the revenue side. Now however, with a new financing system in effect, MHSC expenditures and related federal payments will both be shown on a gross basis. These modifications result in a significantly larger and more accurate figure for individual income tax revenues than was portrayed in the revenue estimates last year. The 1977-78 total has also been adjusted for comparability.

A careful study of the Revenue Estimates reveals that the rapid, inflation induced growth of the early 70's, has been replaced by a significantly lower rate of increase in some of the province's most important taxes. Overall, the rate of growth in revenues in 1978-79 is forecast at only about 1.7 percent above last year's printed Estimates, and 4.4 percent above the likely actual.
In the near future, I will be tabling legislation in the House to authorize the income tax reductions announced during a special session of the legislature last fall. These reductions will bring our personal income tax rate to 54 percent and our small business rate to 11 percent for 1978, and are already in effect on the basis of a formal Notice of Intent provided to Revenue Canada when they were announced last fall and came into effect March 1.

Despite the revenue impact as I indicated at the time, our government believes that these reductions along with the elimination of the succession duty, the gift tax, and the mineral acreage tax, were essential as initial steps towards restoring confidence in a competitive tax structure in Manitoba.

As I also indicated during the special session, the government has undertaken a detailed revue of the entire range of provincial taxes with the intention of implementing reforms and reductions wherever possible, within the limits of our overall fiscal capacity. Although those limits are severely constrained this year, a number of further changes and improvements will be introduced.

First of all, income taxation: The first change will involve the extension beyond 1978 taxation year of the current 15 percent tax rate on corporation income not subject to the small business deduction.

Under existing legislation the present rate would be reverted to 13 percent on January 1, 1979. While our government would hope eventually, to lower the rate from 15 percent, because in relation to the other provinces it is high, budgetary circumstances will not permit it in the immediate future. The annual revenue from the two-point surtax amounts to about $12 million.

On the personal income tax side, the present anti-inflation surtax will continue to the end of 1978 as called for under the legislation and then will be phased out in line with the termination of the AIB. Revenue from the personal income tax surtax is about $5 million a year. Since neither of these measures apply to 1978, our revenues for the current year will not be affected. Corporation capital tax. Since 1976 when it was first implemented, the corporation capital tax has been a major source of concern particularly to the small business community in our province. This very complex tax has resulted in upwards of 30,000 tax filers being required to complete the difficult return for very little, or in most cases, no tax payment. This clearly has been a case where excessive requirements have been made on small businesses by government, with very limited tax revenue, and was great hardship to many of the small businesses involved.

Our present financial position will not permit elimination of the tax, but to assist small business in our province we intend to raise the minimum exemption under the Corporation Capital Tax Act from the current level of $100,000 of taxable capital to $500,000 effective April 1 of this year. (Interjection)- Well, Mr. Speaker, if you are a contractor working on borrowed capital, a small contractor - it's not. It is effective April 1 of this year, Mr. Speaker. This measure which will cut the number of taxpaying small corporations by approximately 70 percent, from $5,000 to $1,500, will reduce the corporation capital tax revenues by only approximately 1.8 million. That is out of a total of 14, Mr. Speaker. This will remove the extra burden on small business for specialized accounting help with only a 13 percent decrease in revenues from this tax.

Mr. Speaker, a number of provinces including Ontario and Saskatchewan have increased their tobacco tax rates in their budgets this year. I understand B. C. as well has done it today and we intend to do the same. Effective May 1 the rate of tax in Manitoba and how it compares to the other, the members may wish to look at, the rate will be raised 1/5 cent per cigarette, from 4/5 of a cent to a full one cent each, an increase of roughly 25 percent and equivalent increases will be implemented for other tobacco products. This change will produce roughly $4.8 million in additional revenue in a full 12 month period.

It has already been announced that the 2 cents per gallon gasoline and motor fuel tax subsidies which had been assigned by the previous government to Autopac will be discontinued in order to ensure that the real costs of public automobile insurance are more clearly defined. The associated revenue will remain in the Consolidated Fund April 1. This rate of tax is comparable with the rates of most other provinces, in fact, Mr. Speaker, there remains at I believe 19 cents with an average being about 20-21 cents.

At the same time our government also proposes a number of selective fuel tax reductions and effective at midnight tonight: Firstly, al farm trucks will be eligible to use tax free motive fuel.

Presently only farm trucks using gasoline or farm trucks using diesel fuel and which have no more than two axles are permitted this exemption. Municipalities will also be allowed to use tax exempt marked diesel fuel in off-highway equipment. At present they are allowed a partial refund only. The use of tax-exempt purple fuel will also be permissible in chain saws and tree farmers in the industrial sense. Currently full tax must be paid for gas used in chain saws and only a partial refund is permitted for diesel fuel used in tree farmers.

Mr. Speaker, these are both in forestry operations and not for the do-it-yourselfer. Mr. Speaker, refund procedures similar to those applicable to the railways will be provided for inter-provincial truckers to compensate them for excess fuel purchases in Manitoba provided tax has been paid to another province. Mr. Speaker, we expect no revenue change on that particular move.

The combined costs of these reductions that I have mentioned here are approximately $500,000 in a full year.

With regards to the Revenue Act, under the Revenue Act 1964, steam heat and hot water are presently taxable. To encourage better energy utilization and recovery of waste heat our government proposes to exempt these items effective April 1, and it will be at a cost of roughly $300,000 to 400,000.

Mr. Speaker, with regards to the Retail Sales Sax! Under the Retail Sales Tax Act, and effective at midnight tonight, we propose to apply the sales tax rate to 50 percent of the selling price of mobile homes, excluding furnishings and 55 percent of the price of modular homes as opposed to the 100 percent previously taxable to provide equal treatment with on-site construction of houses for materials only, and not on-site labour are taxed. The reduction will be implemented by refund and will help facilitate more private home ownership. The estimated cost of this measure will be approximately $1 million in a full year.

In addition, the partial sales tax exemption introduced last year for insulation materials will be broadened to cover all purchasers As we indicated in the house last year, we believe that the conservation benefits provided by this exemption should be as broadly based as possible. They should not be limited arbitrarily to non-commercial residential purposes. We are not hung up on the philosophical argument, Mr. Speaker.

Mr. Speaker, energy conserving triple glazed windows or in excessive of that and triple glazed doors will also be included under that insulation exemption. These changes are effective at midnight tonight. . The full year cost of extending the exemption on the insulation part is approximately $300,000.00.
We will pass a special Act on sales tax on engines.

Mr. Speaker, finally I wish to announce that effective at midnight tonight the Retail Sales Tax rate will be reduced by three percentage points from the present five percent to two percent. Mr. Speaker, that is the only reason that the Member for Fort Rouge hung around tonight.

The two percent rate will remain in effect until the end of September of this year. Mr. Speaker, we are not up for re-election this year. A similar rate reduction will also apply under the Revenue Act 1964, Part 1, the rates on alcoholic beverages will remain unchanged. Members who have heard preliminary reports on tonight's Federal Budget will be aware that similar general reductions are being introduced in most other provinces this evening as well.

The Government of Canada has undertaken to provide partial compensation to provincial governments which introduced temporary sales tax rate reductions in the hope that the combined cuts on a national basis will have a positive effect in stimulating the economy in the coming months. Mr. Speaker, the current Estimates suggest that the measures will reduce Manitoba's general sales tax revenues by around $61.5 million for 1978-79. Of this total, approximately $20.5 million will represent a direct revenue loss to Manitoba, while the remainder, some $41 million, will be recovered through Federal Income Tax transfers and cash.

It has been barely two weeks since the provinces were first advised that the Federal Government might be prepared to underwrite a portion of a provincial sales tax reduction and confirmation that the plan would proceed came only late last week. As members will appreciate, negotiations were quite intense during that period, and in fact, further discussions will have to take place to resolve a number of outstanding details. We would have preferred more time to negotiate possible variations in the size, the term and the selective application of the abatement. Our government's views on the reduction plan were and continue to be mixed. Obviously we favour a cut in taxes. We have already reduced a wide range of our own taxes. We had been looking at a general or selective sales tax rate reduction as one of our budget options and we had been advocating a federal tax cut as well as of the Economic Council of Canada, the C.D. Howe Research Institute and many others. But we have argued consistently that the Federal Government should make room for a tax cut by bringing its spending under control and by reducing its deficit, and it has done neither, with the result that the impact of this reduction measure on the economy may not be as beneficial as it might otherwise have been. There is a concern of what it does to our total national picture and the Canadian dollar. Of course the reduction will no doubt cause an early improvement in the consumer price index, probably just a few days in advance of a national June election.

On the negative side our government feels that the proposed Federal Compensation Formula discriminates against our province and our taxpayers by not taking our budgetary and economic situation into account.

In the Atlantic provinces, the Federal Government has promised to cover the full revenue loss resulting from a 3-point reduction. But for the remaining provinces, with the exception of Alberta, it is only willing to pay two-thirds of the cost, with the implication that if a province did not agree to finance the other one-third, Ottawa would refuse to provide any benefits whatsoever to taxpayers in that jurisdiction. A province which failed to join in the plan would be placed in the impossible position of having its taxpayers assessed by the Federal Government to pay for the reduction in other provinces, while receiving no benefit from the two-thirds tax transferral scheme.

The measure, while stimulative to the economy in the short run, and therefore desirable, has all the unacceptable qualities of the Initiatives taken by the Liberal Governments of the 1960s, which distorted provincial budgetary planning by utilizing the offer of "50-cent dollars," or in this case "66 and two-thirds-cent-dollars" to accomplish federal aims by intrusion into provincial areas of constitutional and fiscal authority. -(Interjection)- MR. CRAIK: Mr. Speaker, I will await tomorrow's news to see how many provinces are not involved in this, apart from Alberta.

This nation has been too long subjected to the intrusive and sometimes ill-conceived impositions of federal political priorities on the programs and budgetary processes of the province. At least part of the reason for the economic degradation of the nation today can be laid at the door of these kinds of programs and the programs that I've mentioned through the Sixties. It is time we had a Federal Government in office which would respect the spirit and the letter of the phrase "Co-operative Federalism," rather than engage in crude invasions in the areas of provincial authority, which leave responsible governments no alternative if their taxpayers are to be protected and dealt with equitably.

I repeat, the initiative to give a major sales tax reduction to all taxpayers in Manitoba is one to which all reasonable persons subscribe, provided it is done in a fiscally responsible manner. However, for a Federal Government whose spending continues to careen out of control to espouse such a major reduction, $1.3 billion, without concurrent and matching reductions in federal expenditures, represents fiscal irresponsibility of the highest order. It is estimated that this program will increase the federal deficit by as much as $800 million in the current fiscal year, $800 million which will have to be financed by yet more federal borrowing, and a consequent addition to debt carrying charges which already represent over 14 percent of current spending.
I suggest, in the most serious way I can, that it is immediately incumbent on the present Federal Government to reduce - as we have in Manitoba - the level of expenditures to compensate for this tax reduction. The failure to do so will largely negate the hoped for short-term stimulative benefits which this reduction may provide.

We've also put the Federal Government on notice that we do not accept this hastily-devised plan as any precedent for future invasions of provincial tax authority by that level of government.

Despite our misgivings with respect to it all, we feel that our own provincial deficit budget, while significant, is nonetheless manageable, and much more manageable than that that they're dealing with at the federal level.

Thus, on balance, we have decided that we will go along with the plan and to "cost-share" it with the Federal Government for the reasons outlined. With the measure that I have announced tonight, since coming into office we have decreased overall taxation through reductions in the following: Income tax, both personal and corporate, Succession duties, Gift Tax, Corporation capital tax, Sales Tax, and A range of smaller so-called "nuisance" taxes.

Mr. Speaker, the value in 1978-79 of the tax revenue which will be left in taxpayers' pockets as a result of these measures, will amount to some $88 million, including the total sales tax reduction. When the tobacco tax change is taken into account, the net effect on our tax measures to date is a reduction this current year of over $83 million.

On the Budgetary Account Summary: On the basis of the revenue and expenditure figures which I have provided to the House here, the estimated provincial deficit for the 1978-79 fiscal year will be approximately $114.2 million when current and capital are combined. Alternately, it would be approximately $34.2 million on the old "current only" basis. If the revenue loss caused by the sales
tax were excluded, the combined deficit would be 93.7 million and the current deficit, Mr. Speaker, $13.7 million.

This represents further improvement from the 1977-78 year-end position, but we still have much to accomplish before we can be satisfied with the overall financial situation.

Even with the stringent restraint programs in place and the marginal increase in the total expenditures we have announced, there remains a significant but manageable budgetary deficit.

This sobering fact should be sufficient answer in itself to those who continue to call for increased expenditures, such as the mere opposite. We are satisfied, Mr. Speaker, that the vast majority of Manitobans recognize and endorse the policies we are pursuing in fulfillment of our mandate to restore prudence and common sense to the running of our public affairs in the current difficult times.

Mr. Speaker, the greatest question now to be answered - and I'm waiting with great delight to look for the answer which will be in the next day or two to see which speech they pull out of the drawer across the way.

They'll pull both speeches out. They'll pull out their first two envelopes all at once. "During the last election campaign, and prior to it, there was considerable, although mostly unnecessary controversy with respect to the debt position of the province.
As members will recall, debate centred on the distinction between borrowing for budgetary purposes and borrowing for so-called "self-sustaining" projects.

It was our contention at the time - and it was backed up by statistics produced by various investment houses - that Manitoba's combined direct and guaranteed debt was the second highest in Canada on a per capita basis.

We argued that the components of the debt - or the kind of debt - were in many respects immaterial, in that investors, and our own taxpayers, were concerned with the so-called "bottom line". I am sure members opposite are well aware of this, because their own prospectus material for various U.S. bond issues contained a total direct and guaranteed debt presentation to conform to the requirements of the U.S. Securities and Exchange Commission."

MR. CRAIK: Member opposite, Mr. Speaker, didn't want to tell it at home but they had to tell it "At the end of March, 1978, the per capita combined direct and guaranteed debt figure for our province was $3,465,000,000, after deducting funds held for debt retirement, probably still the second highest in the country." -(Interjection)- It is on a per capita basis. "As circumstances permit, it is our intention to improve our comparative position by limiting both direct and guaranteed capital outlays to the greatest extent possible. Of course, for a time, it will be necessary to borrow to finance the budgetary deficit, and there will continue to be essential capital requirements for our major Crown corporations which must be met. However, total requirements can and must be reduced to bring our debt burden into line, until we can be sure that it is, in fact, "self sustaining".

As a start, the House will be asked to grant borrowing authority for Crown corporations and agencies in 1978-79 totalling $292.9 million. This is a decrease of $128.4 million, or roughly 30 percent, from authority provided last year. An amount of $114.2 million will also be required to finance the projected budgetary deficit.

By far the largest part of the decrease in Crown agency requirements - over $70 million – is attributable to the slowdown in northern hydro development, which result from declining growth in power demand over the last two years or so. Hydro, is recognized in Manitoba as the most unique natural resource of the last 50 years. The great move to the Nelson River in 1966 by the government of that day, and one of our great resource visionaries and practitioners, the late D.M. Stephens, was a bold and prudent move that committed Manitoba to thirty years of renewable resource development.

"However, future development must match the demand. The cost of servicing the debt incurred in the development of these very expensive plants must be passed on to committed power users. In the planning and staging of these plants, it is imperative that sales for power produced must be available when the power comes on stream. It is not prudent to commit the construction of a plant costing $1
billion without the knowledge that the power, when produced, will be sold, and the upward to $100 million in annual interest costs arising from the debt will be passed on to the power user. Without this clear knowledge, the added burden of cost increases to existing users becomes intolerable.

To further demonstrate the magnitude and the impact of northern hydro development on our people and on our economy, the following facts are critical to note about our present situation, quite apart from any future developments.
Hydro debt even now represents close to two-thirds of gross provincial debt and debt guarantees. Only part of that debt has been put on the operating account and is being paid for, therefore, by the Hydro ratepayers. About $700 million of it is not being serviced by the ratepayer, but is being paid back to the lender by borrowing yet more money to pay the interest charges and the capital repayment. About $200 million of the $700 million is to be charged to the ratepayers in the current year, and was largely responsible for the 15 percent rate increase this last February.
(Interjection)

But the remaining $500 million, Mr. Speaker, of the $700 million - I think there are people who want to take this matter seriously despite the members opposite - the remaining $500 million that has not been put on stream for the operating budget of Hydro is still there and probably will be ready for the operating account within twelve months. Therefore, it's going to have to be paid back by the ratepayer. Manitoba Hydro predicts our near-future annual electrical growth rate at 6 to 7 percent, which if realized would temper the burden of this debt payment; not eliminate it, but temper it, Mr. Speaker. We must recognize however that in the last year, the year ending March 31, 1978, the growth rate has been only one and one-half percent.

This scenario leads to only one conclusion. Either we develop markets through in-province consumption or we develop export markets. If we do neither in the near future, Mr. Speaker, even "school boy arithmetic" spells out the consequences for the Hydro ratepayer.

MR. CRAIK: Campbell arithmetic, Mr. Speaker. Additional borrowing authority of $4.5 million over last year's total is being requested for the Manitoba Telephone System, and a $4.6 million increase is required for the Manitoba School Capital Financing Authority.

A specific amount of $4 million has been included for the Insulation Loan Program started last year. Until now, the Insulation Program has been financed through General Purposes Capital. This program has turned out to be successful, more so than the Federal Grant Program which has limited application. To date, over 3,000 loan applications have been approved.

Off-market sources such as the Canada Pension Plan should provide a significant portion of our total borrowing requirements for both budgetary and non-budgetary purposes. The remainder of our public market borrowing will total roughly $310 million.

The current weakened position of the Canadian dollar has focused attention on the risks of financing in foreign markets. In view of our continuing need for long-term capital, it is important that we maintain access to the major capital markets of the world and seek the best terms available in the interests of the people and our province. Moreover, we have confidence in the long-term potential of the Canadian economy and the eventual recovery of the dollar.

Mr. Speaker, one of the outstanding problems relative to our economy is the possibility of Quebec separating from the rest of Canada. There is no question that this possibility has had a negative effect on the perception of the stability of the Canadian nation to the rest of the world, and as a corollary on the value of the Canadian dollar. This impacts directly on Manitoba through our foreign borrowing obligations and the future uncertainty, as well as on the retardation of internal and as well as outside investment in Manitoba.
Full economic recovery in Canada will regrettably continue to be incomplete until this issue is perceived to be resolved both in Canada and abroad.

This economic impact is, of course, only one of the aspects - and perhaps not the most important aspect at all - of the current situation and the current question that faces Canada. I know that I speak for the vast majority of Canadians who would not want to see any division of Canada.

Mr. Speaker, may I say in conclusion that in many ways the Budget I have presented tonight could be characterized as a transitional report to the people of Manitoba. It describes the difficult economic and financial situation facing us, the reasons for these problems, and the strenuous course that our
administration believes must be followed for a medium and long-term recovery. It is our first Budget and it is a significant Budget. It sets fundamentally important goals and objectives for the future of Manitoba. It charts a new direction - a more responsible direction - designed to inspire pride and confidence in our province and in our ability to manage our public affairs in a common sense way in the difficult economic times which face the country.

But with co-operation, dedication, perseverance, and hard work, the people of Manitoba can and will overcome the effects of the last eight years and get our economy moving again.

Mr. Speaker, and to repeat an opening comment, our challenge is not to restrict essential government services for the people of Manitoba but rather to help build and maintain the economic base which will make those services possible.

Mr. Speaker, we can and we will.