Weathering the Storm—Manitoba's Economy

MR. STALDER:

Distinguished members and guests, ladies and gentlemen: Winnipeg, where the new west begins, and where the jobless rate is about the same as that in Toronto but lower than that in Vancouver, is the hometown of our guest of honour.

Victor Schroeder was raised in Altona, Manitoba, and is a graduate of Mennonite Collegiate Institute of Gretna. He attended university at Winnipeg and obtained a law degree from the University of Manitoba Law School in 1973. Prior to that, he was a railway switchman and a professional firefighter, which reminds me of a fine toast--and here's to the firefighter who draws water instead of blood and thanks instead of tears. But, as I said, this was before he became a lawyer. Vic was a partner in the law firm Bellan, Schroeder, Baker, and Wasylin until 1981. In 1979, he was elected in the Rossmere constituency and is a Past President of the Manitoba NDP.

In such distressed times, we are very glad and comforted indeed to hear from a barrister and solicitor, a Manitoban, a Canadian, and Minister of Finance of his province. Ladies and gentlemen, please welcome the Honourable Vic Schroeder.

MR. SCHROEDER:

Mr. Chairman, ladies and gentlemen: I am pleased and honoured to address this distinguished group this afternoon. As the Minister of Finance for Manitoba, I hope I can give you an insight into how our government has set out to prepare our economy to take quick advantage of the national economic recovery when it comes. What, in essence, we are doing in Manitoba is carefully preparing our economy, as best we can, to weather the storm of the present recession. But at the same time, we have recognized that we must also take significant steps to help those individuals in our society who are suffering the most as a consequence of wrong-headed economic policies.

In Canada today, one out of every eight members of the work force is unemployed. The level of human tragedy represented by that figure cannot be measured. The loss of selfworth and the destruction of families--these are not phenomena that are easily measured. These are not quantifiable--there is no profit-and-loss measurement for individual wellbeing. And the impact of the current recession represents a permanent loss to our country's economy for 1982 of between $35-$40 billion--and if that were equally distributed, that would be $1,500 for every man, woman, and child in our country. This is a challenging time for governments. Governments must be innovative and thoughtful in how they order their affairs.

When it comes to this particular recession, I have to admit that Manitoba has had one advantage over the rest of the country--we experienced significant stagnation for four years before most of the country had even thought of recession in a serious way. The previous government in Manitoba believed, I have no doubt sincerely, that the best policy route for a provincial government to take was "hands off and do nothing!" Regrettably for Manitoba, that meant that our economy was already in a weakened condition at the beginning of the national recession. Between 1978 and 1981, Manitoba consistently showed up at the bottom of national economic comparisons. Total investment was low, economic performance was weak, and the province experienced a serious population loss for the first time since 1870.

For our new government, which took office after the 1981 election, the result was a lot of human hardship and misery which had to be addressed and addressed quickly. As a government, we set about our business:

- the minimum wage was increased;
- job creation programs were put into effect;
- hospital construction was substantially increased;
- the small-business tax rate was reduced by 9.1 per cent;
- the province's capital spending was increased by 40 per cent;
- we introduced Canada's first comprehensive interest rate relief program for farmers, businesses, and home-owners; and
- we introduced a $50-million home program that guarantees qualified purchasers long-term mortgages at reasonable rates.

Our experience tells us that this type of housing program is relatively inexpensive. In effect, we are borrowing money at the more favourable interest rates available to government and passing on the benefits to qualified Manitobans, with subsidies in very few cases. The actual direct costs of the program are quite small. Moreover, in the process, we will have created a substantial number of jobs, improved our housing stock, upgraded downtown neighbourhoods, and provided many of our citizens with affordable homes. From an overall perspective, the actual direct costs of this housing program will be considerably more than offset by the incomes and, yes, taxes generated and from the perspective of my department, that is tremendous. Through tax and price freezes, we also provided for: tuition fees; transit fares; hydro rates; and provincial gasoline taxes. This amounted to savings to Manitobans of $50 million this year. In a phrase, our policy has been "jobs now and building the basis for an early recovery."

In our efforts, as we assess our first year in office, we would seem to have been somewhat successful. The inflation rate in Winnipeg, at 8.5 per cent, is significantly lower than the national average. Our unemployment rate, as a province as opposed to just the city of Winnipeg, while uncomfortably high, is the third lowest in the country. And our job loss is a third of the national average. Retail sales have increased more in Manitoba than anywhere else in the country. Our population registered a significant increase and while the Manitoba economy, like that of other provinces, recorded a decline in real output in 1982, our province is projected to have the lowest rate of decline in the country, tied with Saskatchewan. In our view, this relatively good performance reflects not only our diversified economy but also the impact of our recessionfighting measures. When economic recovery begins, Manitoba can and will pull its own weight.

Our recession-fighting measures have had an effect on both our deficit and on our level of taxation. First, in order to embark on our budgetary program, a deficit was necessary. Current estimates suggest a 1982-83 fiscal year deficit of $498 million. We feel that this is reasonable, given the need to provide stimulus in light of the recession and its effect in shrinking the resources at our disposal. Recession also increases government costs for cushioning those who have been hit by unemployment. As well, it is important to note that over half of the projected deficit will be used to finance capital expenditure and investment in the future productive potential of our economy.

In our budget last May, we also introduced a new taxation measure, one that I understand my colleagues in other provinces are looking at with some interest. We introduced a levy for health and post-secondary education to be paid by employers at a rate of 1.5 per cent of their payroll, one-half of the rate which is now in effect on a similar tax in the province of Quebec. This taxation measure was made necessary by the changes in the fiscal arrangements act implemented by the federal government, which resulted in an average annual loss in Manitoba of $144 million in each of the next five years--the largest per capita loss among the provinces.

Inevitably, when a new tax measure is introduced, there are cries of foul and predictions of doom and gloom. This has been a ritual in Canada for many years. In fact, it's been a very successful ritual. I believe government has done a deplorable job of informing investors of the effects of cumulative tax changes in the past decade.

In the 1955-59 period, corporate profits amounted to 11.2 per cent of gross national product in Canada. Over the last five years, corporate profits have increased slightly to 11.6 per cent of GNP. But corporate taxes have declined from 16.2 per cent of government revenues in the 1955-59 period down to 9.4 per cent of government revenues today and it was during those days when business paid almost twice as much proportionally of government revenues that we experienced our greatest period of growth. Increasingly, personal income taxes are being relied upon to finance government operations.

In the last ten years alone, twenty separate initiatives have been announced by the federal government to reduce corporate taxes in attempts to stimulate investment and economic activity. We are not arguing against them, we are just saying they are there and let us be aware of them, everything from decreases in income taxes to federal sales tax, MURBS, investment tax, and credit oil subsidies. Supporters of the notion of further tax cuts or those who feel tax levels are too high should review the record of the last ten years. As well, those same people should review Canada's record in the matter of wealth taxes, which we occasionally hear about. Of all the OECD countries, Canada, along with Italy, has the lowest wealth taxes, about a seventh of the rate in the United States.

However, prior to the budget, cabinet had been satisfied that the levy for health and post-secondary education was the most

balanced and fair tax available to us. At the request of the Federal Minister for Manitoba, the Honourable Lloyd Axworthy, we carried out a thorough investigation of Manitoba's comparative position in terms of costs for both employees and employers.

The results of that survey were most encouraging, confirming other independent assessments. When all factors were considered, including wages, taxes, rents, and utilities, the cost of operating a business office in Winnipeg, Manitoba is less than in any other major city in Canada, considerably less, other than Saskatoon. Saskatoon was very close to us; we were slightly cheaper, but compared to any other major Canadian city, it was considerably less. The same findings held for cost of living, except for Saskatoon, whose employees' cost of living is lower than that found in Winnipeg. Perhaps, if information like this were more widely available to business, more head offices and branch offices might be located in my province. Certainly, I would urge anyone present here who has any kind of influence of that nature to give serious consideration to Manitoba.

I started my speech by talking about the incalculable losses our nation is suffering due to unemployment and I want to conclude on that same topic. Three weeks ago, federal and provincial ministers of finance met to discuss the economic situation in this country. Every minister in attendance agreed that the crisis of unemployment should be the focus of attention in the months ahead. At that conference I proposed, on behalf of Manitoba, an eight-point program for national economic recovery. It was based, in part, on recent experience in Manitoba, which we believe has been modestly successful. In our province we have sought, wherever possible, to reallocate and "re-priorize" existing resources in support of programming which has maximum economic and job creation benefit. We have expanded consultation and co-operation among the various sectors of our economy in recognition of the fact that business, labour, and others share with government in the collective responsibility for development of the economy.

Through the recently concluded economic summit, business and labour have agreed to work with government to develop joint strategies for strengthening the Manitoba economy. We expect that the process for open dialogue we have established will continue to benefit Manitoba's economy. I want to add here a word about confidence. Often, we hear people talk about the crisis in business confidence and how serious that is for our economy, and I agree. It is a significant problem but there is another problem that is also important but is discussed less and that is the crisis of consumer confidence.

The monetary policy of our national government as established by the Governor of the Bank of Canada has frightened Canadians. Canadians, instead of spending their hard-earned dollars on Canadian manufactured goods or services or houses, are saving at record rates. Instead of spending, they are saving because they have no confidence that tomorrow's interest rates will not again skyrocket. Until consumers have more confidence in the future and begin to spend again (and perhaps that won't be until we have a Governor of the Bank of Canada who is prepared to renounce monetarism and playing ping-pong with interest rates in favour of a clear policy of attempting to achieve stable, reasonable rates as a top priority), the task of building for economic recovery will be that much more difficult.

Governments have an important role to play. The experience of other jurisdictions, like the United States, has clearly delineated the need for the approach Manitoba has proposed. Despite massive cutbacks in social spending, the deficit in the United States for this fiscal year is forecast to be $225 billion in Canadian funds--and that is by a government committed to legislation to eliminate the right of governments to deficit financing.

The key to our proposed attack on unemployment is coordination. Provincial and federal governments must work co-operatively. A second important aspect of our proposal is the use of expanded and accelerated public investment to create jobs. In 1983, business investment is expected to fall 5 per cent or more. Capital spending of $4 billion would be required to offset this decline, from already-low 1982 levels. Business cannot be expected to increase capital spending while at 70 per cent of operating capacity. We believe governments, through capital spending, can pick up a measure of this slack and at the same time create valuable employment and lasting beneficial assets. Such a program of spending for investment will cause a temporary increase in debt figures. But we believe this is a small price to pay if it will successfully point our economy back in the direction of prosperity.

No single sector of our economy has the ultimate and final responsibility for national economic recovery. Governments alone will not be able to turn around our present situation, nor will business working in isolation be able to reverse present trends. But government, business, and labour working together should be able to get the job done.

These are very hard times for our country. The high rates of unemployment in each province and territory threaten the social and economic fabric of our nation. I believe that all governments recognizing the seriousness of this situation will want to take action to calm its effects. This is the challenge for all governments in Canada--a challenge we must meet. Manitoba has already demonstrated its willingness to co-operate with Ottawa, the other provinces, business, and labour to ensure that effective action is taken early in 1983.

The appreciation of the audience was expressed by Mr. H. Allan Leal, a Past President of The Empire Club of Canada.