The Ontario Budget—a Deterrent to Gross Inflationary Trends

MR. ARMSTRONG:

Distinguished guests, ladies and gentlemen: The premier of Ontario needs no introduction to this audience. I am honoured to welcome and present to you the Honourable William G. Davis who will speak to us on the subject: "The Ontario Budget-a Deterrent to Gross Inflationary Trends".

Mr. Davis.

THE HONOURABLE WILLIAM DAVIS:

In accepting an invitation to speak to as distinguished an audience as the membership of the Empire Club, careful thought is obviously required in the selection of both the theme and the substance of one's remarks. Fortunately, your breadth of interest combined with your high degree of public awareness provides a speaker with a rather wide range of choices. This is particularly so for the Premier of Ontario given the number of public issues that are now to the fore and which are commanding government attention.

Nevertheless, despite the relative importance of many items on the public agenda, there is no question that today one issue-one area of public concern-dominates all others and that is inflation. The world-wide trend that has seen prices rise dramatically, on all fronts and with sometimes devastating impact on the lives of many citizens, has led to calls for government action; calls for those measures that might slow, if not turn the tide of this relentless problem.

The Ontario budget, introduced earlier this month, had as its major purpose, the deterrence of gross inflationary trends. Admittedly, despite its importance to all of us, it is only one small measure in the total world's economy. Nevertheless, it was constructed to show that within the limit of our authority, the government of this province is prepared to take those steps necessary to achieve greater economic stability.

Now the subject of inflation or, indeed the varied changes that made up the Ontario budget, form too broad a topic for a single speech. I would, however, like to seize the opportunity of being with you today to concentrate on two specific elements of the budget. These are both innovative and pioneering measures which are major components of our efforts to control land prices. They are, of course, the land speculation tax and the land transfer tax.

It is not my intention to restate in full the part of the budget that dealt with these matters but a summary might be useful. The land speculation tax went into effect at midnight of April 9. It imposes an additional 50 per cent tax on the increase in value realized on the sale of designated land. Over and above this tax, normal personal and corporate income taxes will apply. The speculation tax is designed to bear most heavily on owners of land and properties that are purchased and resold without any real value being added.

The land transfer tax similarly came into effect at midnight, April 9. It deals with a current constitutional issue that as yet has not been fully resolved-namely, the non-resident control of Canadian land. It increases the land transfer tax on purchases of land by non-residents of Canada to 20% from six-tenths of 1% which I think you will agree is a very substantial increase.

At first glance, this might seem to be punitive, but I should point out that we shall continue to welcome the flow into Ontario of mortgage and debt financing from abroad; also, to ensure that industries which contribute substantially to the Ontario economy will not be penalized, that required legislation will establish a review procedure whereby the additional transfer tax may be rebated in certain instances.

Obviously, there are other details and ramifications that flow from these two measures, but that, in substance, is what they are all about. We believe them to be anti-inflationary and therefore having top priority. But more about that later in my remarks.

At the moment, however, I would like to stress that the seeds which gave birth to this legislation were planted long before inflation became our prime concern. Basically, they are the outgrowth of the circumstances of our times. They are the outgrowth of the fact that we in Ontario enjoy a relatively stable and affluent society-one that attracts both people and investors from other parts of Canada and from other countries of the world. To use a fairly recent and reasonably controversial phrase, there is no place that a lot of people would rather be than the Province of Ontario. Accordingly, we have to face up to the consequences that attend this time of popularity.

Land is a fixed resource, whether it be in an urban or rural area, and each should have its particular and productive use. In other words, you can't manufacture land.

It may surprise you to learn that approximately 90% of the land in Ontario is Crown land, and the parts of that 90% which are habitable can no longer be bought by non-residents of Canada. They can be leased, but not bought.

But where all of us are really feeling the squeeze in terms of demand exceeding supply is in our urban areas, and that's a major part of the remaining 10% of available and highly habitable land. Market forces come into play, as they should, in this sort of situation; but our society is such today that any government, irrespective of its political label, cannot allow the normal forces of the market place to sustain forever unrealistically high and inflationary levels.

So government, or responsible government at least, has to step in. And the fact that the land speculation tax and the land transfer tax received reasonably public plaudits, upon their introduction, indicate that the majority of our citizens have agreed that this was appropriate action. Privately, however, I know that there have been individuals who have been less than enthusiastic. The speculator, large or small, is upset. He says, in effect, "Those people at Queen's Park are tinkering with the Garden of Eden."

It's a charge to which I'll readily plead guilty, if only because as leader of the government, and as a cabinet minister in a previous administration, I like to think I've had some small part in adding to the delights of that garden in Ontario. My intention now, and the intention of the government I lead, is to preserve it.

This is not an insurmountable task by any means, but it does demand that some tough political decisions be made. These decisions cover just about every area of life in this province one way or another. As a government we have made them, we are more prepared to live with them, and we are also open to positive suggestions as to how we can better go about our task. On a number of occasions in the past year and a half, whenever government programs and policies have been called into question, I have asked: "What are the alternatives?" The response I have heard most frequently-and the one with which I am very ill at ease-in effect says: "Do nothing, or maintain the status quo." It is a response, I suspect, that Nero would have been quite happy with.

The situation with which governments in industrialized countries, states or provinces are today faced, was identified very astutely a number of years ago and summarized with his usual precision and economy by Ian Macdonald when he wrote: ' . . . whereas one hundred years ago it was said that the best government was one that interfered least with the life of the citizen, today government is subjected to the paradoxical demand for action in every imaginable field, combined with minimal interference with the rights and in the lives of individuals. "

You could spend a lifetime pondering that specific and very real conundrum, but from where I sit I find that the riddle often has to be solved in the space of a year, a month or a week . . . and therein lies one of the major challenges of modern government.

As you know, there has been and will continue to be criticism that this month's budget has taken the government much more fully into the life of the private sector and into control over the economy. There is, however, an important distinction to be drawn, and it is this:

There are major forces at work, both economical and social, over which the citizen has no control and which, if left unattended, lead to a kind of society and economy that he or she does not necessarily want.

The purpose of the government is not to diminish in any way private initiative or the work of the private sector. Rather, the purpose is to set fair rules of the game within which the private sector is to be encouraged in the direction of economic activity and a higher standard of living for everyone.

Therefore, if the government, for example, says that certain lands will be retained in agriculture or that other lands cannot be . used for industrial purposes, then this simply means that industry knows the rules of the game and knows where it can and cannot locate.

This is the purpose of the Toronto-Centred Regional Plan and it is the type of planning that I think we can expect to see increasingly in this province. You would all agree, I'm sure, that everyone has an interest in retaining a healthy and compassionate society in Ontario, and I think you would similarly agree that the sensitive role of the government is to ensure that the rules of behaviour in society are such as will contribute to that end.

For government to have this concern is not something that should be misread as opposition to the private sector. Rather, it should be interpreted as being a recognition, by government, that the opportunities and advantages for the private sector will be greater in the long-run if we can have a well-planned and orderly society.

I mentioned earlier in my remarks the problem of inflation, and, quite frankly, I expect to be mentioning it often in the months to come. At this stage, however, I would suggest to you that this month's provincial budget represents a truly major effort against inflation. I would go further and say that its efficacy will be measured to some extent by the degree to which the federal government considers it to be an example.

As a provincial government we have shown a willingness to move in those limited areas that are available to us. Obviously, no one government in a confederation can hope to turn back the tide of inflation alone. Accordingly, we think there is now a major challenge for the federal government to move in a similar direction.

We in Ontario have tried not only to relieve the consequences of inflation, but also to stimulate the supply of goods and services that is essential in winning the final battle. Our economy-indeed, the Canadian economy-remains one of the strongest in the world. We can keep it that way-but only if we are realistic about not just the threat, but the fact of inflation, and are willing to make some short-term sacrifices to counteract it.

As I near my conclusion, let me return to the two new taxes I mentioned at the outset that are contained in the Budget, even at the risk of becoming repetitive. Taxes are aimed at a target, and the target here is the unreal escalation in value of land, both as a result of speculators selling land without adding any real value to it and as a result of foreign money bidding up market prices.

As to possible further action, I should emphasize that we have not yet had an opportunity to conduct a full review of the recommendations of the Select Committee on Economic and Cultural Nationalism, and, as I pointed out earlier, there is still some doubt about our constitutional capacity as a province to control foreign ownership of land in Canada.

The ultimate control of Ontario land by Ontario residents is, however, of great concern to the province and we are prepared to go further if it becomes necessary to ensure that this result is preserved. The point is that the measures we have introduced thus far are moving us in the right direction.

Also, it is important to understand that the data that will be provided by these new taxes will give us really for the first time, a reasonable assessment of foreign investment in Ontario property. Since these are new, and therefore pioneering measures, we have not hesitated to stress that amendments will have to be introduced as we gain experience with their applications. But, in principle, I think it can be said that the land speculation tax and the land transfer tax, even as they now stand, are mutually reinforcing.

As a final comment, let me say that I believe the Ontario budget for 1974-75 is as much a social document as it is a fiscal one. It reflects a concern for returning to society some of the gains of economic activity that truly belong to society.

For example, the new taxes in mining and on timber are designed to recapture for the citizen a part of the return that accrues to the resources of the country. At the same time, they are designed in such a way that while all of us will get the advantage in good times, the companies involved-the people who put the money up front-will not be inhibited in bad times.

History has shown us that change can develop from revolutionary or evolutionary developments. We are fortunate in this country that it is the latter course which has prevailed. But, as I've just indicated, our social evolutions, have often reached our consciousness after the fact. Only then did we ask ourselves, like the ancient mariner: "Was there anybody on the bridge?"

I suggest to you, very sincerely, that a careful perusal of this month's provincial budget will reassure you that the Ontario bridge is well manned and that our social and economic radar is working.

Thank you very much.

The appreciation of the audience was expressed by Colonel Edward A. Royce.