- The Empire Club of Canada Addresses (Toronto, Canada), 2 Dec 1982, p. 127-141
- Eyton, J. Trevor, Speaker
- Media Type
- Item Type
- Exploring a few examples of government intervention in our lives where, in the speaker's view, this intervention is either excessive or simply wrong. Canadians' reliance on governments to help them and provide for them, and why this has been so. The massive nature of government participation in the Canadian economy, with illustrative examples. A look at government costs and their impact on the individual Canadian. The myth that Canadians contribute a reasonable portion of their income to governments. The reality of the increasingly heavy tax burden on Canadians. Other myths and realities of Canadian tax. A detailed consideration of the effectiveness of governments on the economy, through two current examples in the news: the National Energy Program; and at the provincial level, rent controls. Conclusions from this review. Proper role of the private sector. Suggestions for the public sector. What governments can and should do.
- Date of Original
- 2 Dec 1982
- Language of Item
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- Full Text
- DECEMBER 2, 1982
Dear Mr. Government, Love Me, But Leave Me--Alone!
AN ADDRESS BY J. Trevor Eyton, Q.c., PRESIDENT AND CHIEF EXECUTIVE OFFICER, BRASCAN
CHAIRMAN The President, J. Henry Stalder
Distinguished members and guests, ladies and gentlemen: In my search for background information about our guest of honour, I came across such qualifications as enigmatic, mysterious, and secretive, but generally, Trevor Eyton was very highly and respectfully spoken of. So as to reveal a little bit of his cautiously guarded private side, permit me to draw some parallels between two longtime friends: the Reverend J. Allastair Haig and Trevor Eyton. Both are graduates of Jarvis Collegiate. Both became prominent leaders in their academic careers and on the athletic field. Both are distinguished graduates of the University of Toronto. Both hold the much-coveted Bronze T, which one is awarded after excelling three times in senior sports. Both could have played pro football, be it as a kicker, fullback, or lineman and, who knows, maybe the Argos could have beaten the Eskimos. As well, both were chosen Captains of their football team.
But now we come to their involvement in Grenville Christian College. Al is Headmaster and Trevor is a Patron of this fine college where, amongst the patrons, you will find as well the Honourable Pauline McGibbon, the Honourable Jean Casselman Wadds, and one of our distinguished Past Presidents, Sir Arthur Chetwynd, BT. We have heard the fine Grenville Christian College Choir both on the occasion of our last Christmas luncheon and on Dominion Day. Currently, the College has a building campaign under way to raise approximately $1.5 million; and to encourage others to do the same, may I, on behalf of The Empire Club of Canada, remit an envelope with a cheque to the Headmaster, the Reverend Al Haig.
But our guest of honour is also with us today celebrating the seventieth anniversary of the incorporation of Brascan in 1912. At that time, the company acquired by share exchange substantially all of the shares of a number of Canadian power corporations operating in Brazil. Recently, the company divested itself of Brazilian assets to become one of the most dynamic and versatile conglomerates of Canada. Brascan has substantial, direct or indirect, interests in about twenty-six companies. A few of the more prominent ones are: Brascade, Noranda, London Life, Labatt's, MacMillan Bloedel, and last, but not least, the Blue Jays baseball team. Brascan itself is largely owned by Edper--Edward and Peter Bronfman--but managed by our guest of honour, John Trevor Eyton, Q.c., B.A., LL.B., President and Chief Executive Officer of the company.
Mr. Eyton was born in Quebec City in 1934. He obtained both his B.A. and his LL.B. from the University of Toronto. He read law with Tory, Tory, DesLauriers, and Binnington from 1960 to 1962, became an associate in 1962, and was made a partner in 1967. He is a member of the Upper Canada Law Society and the Canadian Bar Association.
I would like to end on a very personal note by conveying to you, sir, kindest regards from one of your predecessors who addressed our club twenty-six years ago, Henry Borden, o.c., C.M.G., Q.C., LL.D., D.C.L. Upon realizing that regrettably, he would be unable to be with us today, he immediately said to me, "Trevor Eyton is a fine chap and you will hear a good speech." Ladies and gentlemen, please welcome Trevor Eyton, Q.c., President and Chief Executive Officer of Brascan.
Mr. Chairman, ladies and gentlemen: A person born into this world brings with him as an inalienable birthright, a shadow--a simple, dark silhouette unique to him, that follows him wherever he goes. Canadians, however, have an extra shadow. This extra shadow leads them, follows them, and walks beside them whether the sun shines or not, and unlike the first shadow, it isn't weightless, but, in fact, very heavy. This second shadow can and does do incredible damage to all things Canadian--the economy, business, even our individual characters. I refer, of course, to Canadian governments and hence, the plaintive wail of my title today, "Dear Mr. Government, Love Me, But Leave Me--Alone!" Today, I would like to explore a few examples of government intervention in our lives where, in my view, this intervention is either excessive or simply wrong.
From the very beginning, Canadians have relied on governments to help them and provide for them. This may have been because law and order was the basic requirement of the earliest Canadian homesteaders, or because, faced with a difficult and cruel climate, Canadians needed the imagined comfort and succour of more pervasive governments. So it was that our federal government inspired and financed construction of the CPR, our first national railroad. So it was that Canadians developed a belief in a "mixed economy" with the private sector and the public sector both actively engaged in the economy, sometimes as partners, sometimes as competitors.
I submit it is time Canadians questioned this belief in the mixed economy which continues, even though there is not, to my knowledge, any reputable analysis of its cost-effectiveness. Canadians have for a long time simply assumed government intervention in the economy was a "good thing." I suggest we are not rich enough to support and sustain massive and overgrowing government intervention.
Government participation in the Canadian economy is truly massive. Did you know, for example, that in the past year Ottawa's 176 Crown corporations required together federal subsidies totalling more than $3 billion? Of those 176, only three--Air Canada, Teleglobe, and CN--were in a position to pay out dividends aggregating a paltry $60 million or much less than 1 per cent of the invested capital. Did you know that tiny Saskatchewan, with a population of less than one million, has twenty-two separate Crown corporations, or one Crown corporation for about every four thousand people? Fortunately for Saskatchewan, its new premier is now carefully examining the need for this multitude of Crown corporations. My reference to Crown corporations is really only a footnote, but it is important because their operations do not appear in any government budget, although they represent massive intrusion in our economic lives.
Do you know the percentage of Canadian GNP eaten up by federal and provincial governments? It is enormous and steadily increasing. Furthermore, in addition to current tax revenue demands, federal and provincial governments are at the same time materially increasing their collective deficits. Governments have these increasing deficits because they serve to conceal the real level of current spending. The reality is that we cannot afford current levels of spending by Canadian governments both because they are too large in absolute terms and because the money is badly spent.
Let's take a look first at government costs and their impact on the individual. As we know, taxes take many forms--income tax, property tax, import duties, fuel tax, liquor tax, etc., etc. In 1961, for every dollar you earned, twenty-eight cents went to taxes. By 1978, forty-three cents of every dollar earned went to taxes.
One element, the consumer taxes paid by the average Canadian family, increased 515.3 per cent from 1961 to 1980. The expenditures of a family for the necessities of life--food, shelter, and clothing--increased from 1969 to 1980, but that increase pales by comparison to the accompanying increase in taxes. Taxes rose more sharply than any other area of expenditure, so that the average Canadian family, which had spent one-third of its cash income on taxes in 1961, was spending almost one-half of its cash income on taxes in 1980. It is interesting to note that income tax represented less than a third of this total; sales tax and property tax represented another 10 per cent, and the balance was made up of taxes about which the average taxpayer had only a hazy idea. Here in Ontario, more than 60 per cent of your gas bill is taxes--provincial and federal. On a $10 bottle of liquor, almost $8 is tax in one form or another.
I should point out that in 1975, when personal income taxes were "reduced," they were accompanied by deficits which have steadily grown. You and I will one day be faced with taxes to service these deficits, which at the federal level alone will approximate $25 billion this year. These hidden taxes are insidious. They travel incognito and increase our daily expenses without our knowledge or concurrence. Don't be fooled into thinking that governments draw their income primarily from income and sales taxes. Your second shadow has many covert ways of slipping its hand into your pocket and helping itself.
The myth is that Canadians contribute a reasonable portion of their income to governments. The reality is that Canadians are staggering under an increasingly heavy tax burden with more to come. The current impost already amounts to 43 per cent for the average family. The myth is that Canadian governments can afford to provide and maintain extensive services and social programs. The reality is that they are doing so only by allowing debts to balloon and deferring current costs into the future. I think it is clear that Canadian tax levels are, and will continue to be, inordinately high, failing some politically courageous decisions. Having looked at the cost side, I would like now to consider the effectiveness of governments on our economy, through two current examples in the news. The National Energy Program is a classic example of a federal initiative based on incorrect assumptions and designed and implemented without industry advice, all to the detriment of the industry in particular and Canadians in general. Do you remember a few years ago when Canada had a flourishing oil and gas industry? That was before our second shadow slid in to make Canada's energy future secure.
Let's take a look at the reality of the NEP. The federal government assumed it could regulate the industry sufficiently well to guarantee:
- security of supply; - opportunity for Canadians to participate in the energy sector and share the benefits of industry expansion; and - petroleum-pricing and revenue-sharing fair to all Canadians.
The program strategy to achieve these goals covered prices, taxes, incentives, and Canadianization.
The following facts are the cold, hard results of the NEP:
1981 had been forecast as a record year for the oil and gas industry. Instead, the impact of the NEP coupled with the results of the energy-pricing agreement between Ottawa and Alberta resulted in a dramatic decline in industry activity. drilling activity plummetted from record highs to record lows. Of the estimated ten thousand wells to be drilled in 1981; only sixty-nine hundred were actually drilled. Canada's drilling-rig fleet is one-third the size it was when the program was introduced, with more than two hundred drilling rigs moved to areas outside of Canada. Of those remaining, over 65 per cent are out of work.
geophysical activity is down 45 per cent.
industry exploratory budgets are down 40 per cent.
the decline in exploration activity had a significant impact on Canadian oil reserves. Remaining reserves at the end of 1981 were down to pre-1962 levels. Cash available for reinvestment was reduced 20-25 per cent; current taxes from the industry rose 75 per cent; and interest payments on debt were up 100 per cent. The return on investments of oil and gas prospects, even with the anticipated grants, is as low as 10-12 per cent.
Alsands, Cold Lake, and expansion plans for the Suncor and Syncrude plants were cancelled. Many other projects were suspended or postponed.
Twenty thousand jobs have been lost, primarily in the drilling and service sectors of the industry. Hiring freezes were adopted by many companies and layoffs were common. over $8 billion was spent on takeovers and acquisitions, much of it going out of the country.
The Canadian Petroleum Association estimates that $3.5 billion in investment went by the wayside in 1981 due to the NEP, adding that, as each dollar spent in the petroleum industry generates an additional $1.70 in economic activity, the Canadian economic output was, in fact, reduced by $9.5 billion.
Since the inception of the NEP, there have been eleven price increases as measured at the pump, 60 per cent of which are various taxes levied by the federal government. And this does not take into account additional taxes levied by the various provincial governments. One such federal tax was, of course, the Canadian ownership charge amounting to more than $1.46 billion, which enabled Petro-Canada to purchase Petrofina and other existing oil and gas assets. In addition, there have been increases in the petroleum compensation charge to pay for foreign imports of crude oil. For Canadian consumers, the end result has been an increase of 7.8¢ per litre (36¢ per gallon) at the gas pump. In fact, when you spend $15 at a Toronto gas pump, you pay $5 for gasoline and $10 in taxes.
Canada's crude oil imports account for 20 per cent of the country's total requirements. Due to the downturn in exploration, imports are now estimated to rise 33 per cent by 1985 and to perhaps 40 per cent by 1990, assuming a reasonably healthy economy. Pre-NEP, Canada expected to import $90 billion worth of foreign oil during the 1980s. The estimated import bill as a result of the NEP could now reach as much as $270 billion, assuming modest world price increases. These petro-dollars could be much better spent within the country creating jobs and opportunities.
And still on the subject of myth and reality, PetroCan--"It's ours!" they say. I didn't want it. I like to make my own investment decisions. Whatever money our second shadow invests in PetroCan very quickly becomes invisible and unaccountable and that money amounts to billions. You can't trace where your money has gone. You can't challenge the management at an annual meeting. You won't see a proper annual report. Nonetheless, we have PetroCan. The principle has been established. Be on the lookout for Auto-Can, GarmentCan, Food-Can, and Steel-Can, to name a few. We happen to own a brewery, and, fearing government competition, we keep our eyes peeled for the advent of Beer-Can. You may think this all sounds far-fetched. I refer you to our born-again Minister of Finance assuring us repeatedly that the NEP is a great success, all the while avoiding the facts. In fact, Mr. Lalonde is so convinced the NEP is right that he has suggested the same approach should be applied to the fishing and farming industries. Heaven help the fishermen and the farmers!
Now, let's look at another example of myth and reality at the provincial level. We, all of us, own various possessions and need a place to put them--and ourselves. Although choosing our living place is still up to the individual, its cost is yet another area where our second shadow intervenes. I'm speaking of rent controls.
It's been said that those who don't know history are doomed to repeat it. Rent controls didn't work in Roman times. Rent controls have made parts of New York look like bomb sites. A
little history of the rental housing market in Toronto will also illustrate the ineptitude of governments in making assumptions, formulating plans, and taking ill-advised initiatives in economic areas better left alone. In the sixties and seventies, Toronto had a booming and free--as in unrestrained--rental market. Construction of new units was being undertaken with great vigour and as a result, the availability of units was very high. But why were there no calls for rent controls until 1974? In every year from 1960 to 1973, the cost of renting accommodations relative to purchasing them declined. Only in 1974 did this pattern briefly reverse itself, with rents rising faster than the cost of home ownership. By 1974, relative to their relationship to home ownership in 1963, Toronto rents had fallen by 30 per cent.
In fact, landlords were in competition with one another to secure tenants. A free month's rent, a free TV, and free carpeting throughout were a few of the carrots dangled before the choosey renters. It was, in short, a market where the renter had the advantage.
In the mid-seventies, with the federal introduction of the anti-inflation measures, the Ontario government introduced rent controls as a contribution in the battle against inflation. It was originally a six-month measure. The assumptions were first, that rapidly escalating rents were contributing to inflation and second, that rent controls would be to the advantage of renters. What the government failed to recognize is that housing is an industry where you must protect free enterprise and the multitude of small, but highly efficient, developers--in the long-term interest of renters.
Once controls were imposed, new construction stopped and the rental stock became static. New units built were sold as condominiums because it was the only way construction costs could be recovered. Other buildings were converted into condominiums because rent controls were not covering increasing costs. The only answer to realizing the units' true market value was through the sale of each unit, rather than through its rental.
In the early stages of rent control, it is the landlord who subsidizes his tenants as his profit margin shrinks. As time passes, governments subsidize tenants by providing freebies, initially indirectly by incentives and later, directly by building units themselves, for example, Crombie Park. In Toronto, subsidized rental housing starts rose from 13 per cent of the total in 1974 to a staggering 91 per cent of the total three years later, when rent controls had been in place two years. Another result was co-operative apartment housing, of which twentyseven thousand units were built last year alone. This bit of magic provides low rents by having governments borrow money at high rates (last year's bonds were 19 per cent) and then loaning it back to construct co-op units at about 2 per cent interest. The true cost of constructing the units remains the same, but the rental cost is held down because the taxpayer subsidizes the mortgage.
During the past ten years, rent controls have proved to be harmful. In the words of Robert Campeau, a man of many years' experience in the real estate development industry,
What may have appeared to some politicians and others in the short term as an attractive social measure to help the average wage earner to afford reasonable rental accommodation has proven over the long term to be a disastrous piece of legislation.... It was approved over the strong objections of the real estate development industry, backed by the massive evidence of run-down tenements in New York City after years of rent controls. In the process, it has spawned a new bureaucracy at considerable expense to the taxpayer and a major, expensive, time-consuming hassle for the owner of rental housing. And it has been a heyday for lawyers and accountants.
Rent control is an emotional subject. Tenants march, make loud protests, and frighten politicians when they feel rents are climbing too high. Politicians, quite naturally being motivated by votes and the spectre of yet another election, ignore economic logic, pull rent controls out of their electoral bag of tricks, and wrap up buildings in government-controlled ribbons. This is done even though rent control ribbons strangle the very people they are designed to protect. The recent Cadillac/ Greymac/Kilderkin saga is a current, rather tortured example of what can happen when governments impose a regime of rent controls.
Undoubtedly, the transactions look contrived and complicated, but who of the following can be criticized?
- the owner who thinks he should be free to dispose of his property when he wants at a price agreed upon between himself and the purchaser; - the tenant with no financial commitment to the building and a short-term interest who, none the less, demands owner's rights and a continuing subsidy from the public; or - the government which operates in what it considers the tenants' best interests by ignoring basic property rights and contributing to the fallacy that the tenants may determine who buys their building and at what price.
The reality is that rent controls are widely recognized as a disastrous failure wherever they have been tried. However, at this stage, weaning a market from rent controls is like taking an addict off drugs. It is essential for health, painful to do, and should be done gradually. The alternative is for us to go the collective way and thrust responsibility for all housing on the shoulders of governments. I'm sure not many in this room would favour that.
It is obvious from the examples I have given that we need to take a cold, hard look at the massive interventions of governments in our lives. I suggest to you these interventions are not, for the most part, cost-effective and indeed, are a luxury we cannot now afford. Furthermore, while in my view our governments have done things they ought not to have done, they have not performed well in their traditional roles, that is, the administration of justice and the maintenance of internal and external security.
For example, it appears that Canada's national defence hasn't been as poorly tended since before the War of 1812! While governments are gobbling up private companies, hardselling their policies such as they are, and promoting their virtues, expenditures on national defence have been dwindling away to almost nothing. The establishment of a strong, efficient, well-trained military is something government can and should do. It is not a job for the private sector. As well, there is increasing mistrust of governments when they are not candid about their own affairs. The total all-in cost for BP was initially announced at the end of October as $347.6 million. We are now told a month later that the cost will be $674 million. That is an increase or miscalculation of 94 per cent! If I were to make that kind of disclosure, you'd find me in a government-subsidized jail cell.
A recent Gallup poll asked the question: "Speaking of the future, which do you see posing the greatest threat to Canada--big business, big labour, or big government?" The answers which came from Canadians in all walks of life showed that 46 per cent saw big government as the greatest threat, 29 per cent big labour, 13 per cent big business, and the more or less constant 12 per cent didn't know. I feel the distrust by Canadians of big government is entirely justified. I want to go further and state my belief that our federal government and their brothers in the provinces, even in a more enlightened state, cannot provide the answers to our present difficulties.
Let's look briefly at the other side of our "mixed economy." What is the proper role of the private sector? Make no mistake, it is the private sector that generates wealth, creates jobs, and develops this country. The private sector means business--big and small--and it also means you--as a home-owner, as an investor, and as a consumer with some choice. As an individual, only you can make the best decisions about how, when, and where to spend your own money. The disciplines of the market place are tough, but the market place is the one mechanism that will provide the best goods and services at the best price. Don't surrender your choice in the market place to bureaucrats who are all too eager to choose for you, to charge you twice the price, and to hide the real price in an endless variety of ways, all the time assuring you it is in your best interest.
The private sector must continually be improving its productivity. It must be lean, efficient, competitive, and tough. It must trim costs and run a tight ship. It must set the standard for efficient management that becomes the norm--the only acceptable way of operating--and it must demand the same of governments. Sure, current times are tough, but I believe Canadians in all walks of life have learned some valuable lessons--about the inevitability of the market place, about the need for productivity, and about the severe limits on what our governments can and should do.
What can governments do? They can and must spend less so that more is available to the private sector. For example, they must stop job creation programs which, as currently conceived, are short-run, unproductive, and demeaning. Paying men to rake leaves and make parks is not a genuine solution to unemployment or any material assist to our future. Governments must allow the private sector to spend more, recognizing that it spends "better," because if it does not, it will be penalized by the market place. In so doing, governments should especially encourage greater investment in capital plant and in research and development.
And to governments generally, I commend the true story told to me by a friend. It appears my friend was driving by a farm one day, when he noticed a beautiful pig in a pen in front of an attractive farmhouse. He was especially intrigued because the pig had a wooden leg, and curious, he decided to stop at the farmhouse to learn more about this splendid pig. The farmer, clearly pleased at my friend's interest, proceeded to tell him that the pig was extraordinary because one year before, he had broken out of his pen in the middle of the night to rush into their burning farmhouse, arousing his entire family and leading them to safety. In addition, the farmer told my friend that his pig had broken out of his pen just a few months earlier to save his five-year-old son from drowning in the pond and more recently, the previous week he had broken out of his pen to prevent thieves from ransacking their home while the family was away. Of course, my friend was astounded at these heroics, but noted that none of these explained the wooden leg. The farmer hesitated for a few minutes and observed, "A good pig like that you can't eat all at once."
To make it absolutely clear, that generous, helpful, loving pig is the private sector, and I hope Canadian governments will recognize it as such and preserve it, having eaten only one leg. Personally, I don't want anyone at my door saying, "I'm from the government and I'm here to help you."
In truth, dear Mr. Government, if you love me, you'll leave me alone!
The appreciation of the audience was expressed by Michael Meighen, a Director of The Empire Club of Canada.