[ Page 5277 ]

CONTENTS

Tabling Documents –– 5277

Estimates of Sums Required For The Service Of The Province. Hon. Mr. Curtis.

Introduction and first reading –– 5277

Budget address

Hon. Mr. Curtis –– 5277

Mr. Stupich –– 5289

Social Service Tax Amendment Act, 1985 (Bill 11). Hon. Mr. Curtis.

Introduction and first reading –– 5289

British Columbia Transit Amendment Act, 1985 (Bill 17). Hon. Mr. Curtis.

Introduction and first reading –– 5289

Tobacco Tax Amendment Act, 1985 (Bill 12). Hon. Mr. Curtis.

Introduction and first reading –– 5289

Hotel Room Tax Amendment Act, 1985 (Bill 13). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Insurance Premium Tax Amendment Act, 1985 (Bill 14). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Gasoline Tax Amendment Act, 1985 (Bill 8). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Gasoline (Coloured) Tax Amendment Act, 1985 (Bill 9). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Motive Fuel Use Tax Amendment Act, 1985 (Bill 10). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Income Tax Amendment Act, 1985 (Bill 18). Hon. Mr. Curtis.

Introduction and first reading –– 5290

British Columbia Railway Amendment Act, 1985 (Bill 15). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Business Licence Repeal Act (Bill 16). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Income Tax (Small Business Employment Tax Credit) Amendment Act, 1985 (Bill 5). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Corporation Capital Tax Amendment Act, 1985 (Bill 7). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Assessment and Taxation (Miscellaneous Amendments) Act, 1985 (Bill 6). Hon. Mr. Curtis.

Introduction and first reading –– 5290

Ministry of International Trade And Investment Act (Bill 20). Hon. Mr. Phillips.

Introduction and first reading –– 5290

Industrial Development Incentive Act (Bill 23). Hon. Mr. McClelland.

Introduction and first reading –– 5291

Small Business Venture Capital Act (Bill 19). Hon. Mr. McClelland.

Introduction and first reading –– 5291

THURSDAY, MARCH 14, 1985

The House met at 2:06 p.m.

Prayers.

HON. MR. GARDOM: Mr. Speaker, I know that all members would like to bid a very special welcome to the many guests that we have here today.

Mr. Speaker, before calling the order of the day, I would like to make an observation pursuant to standing order 45A, schedule 2, of the new rules. There is a time allotment prescribed for the Minister of Finance (Hon. Mr. Curtis) during this debate. I understand he may have the need to slightly extend that time. By agreement with my counterpart the House Leader of the official opposition (Mr. Howard) has agreed he may so continue.

MR. HOWARD: We have had prior discussions about that subject matter. Both the government House Leader and I — neither of whom is wearing flowers — would like to confirm that the minister can have that extended time.

Orders of the Day

HON. MR. GARDOM: Mr. Speaker, I call the budget debate.

HON. MR. CURTIS: Mr. Speaker, I move that this House at its next sitting resolve itself for this session into a committee to consider supply to be granted to Her Majesty.

Motion approved.

Hon. Mr. Curtis tabled the interim financial statements of the comptroller-general in accordance with section 8(4) of the Financial Administration Act.

ESTIMATES OF SUMS REQUIRED
FOR THE SERVICE OF THE PROVINCE

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Estimates of Sums Required for the Service of the Province for the fiscal year ending March 31, 1986.

Hon. Mr. Curtis moved that the said message and the estimates accompanying the same be referred to the Committee of Supply.

Motion approved.

HON. MR. CURTIS: Mr. Speaker, I move, seconded by the hon. Attorney-General (Hon. Mr. Smith), that Mr. Speaker do now leave the chair for the House to go into Committee of Supply.

BUDGET ADDRESS

HON. MR. CURTIS: In speaking to the motion, Mr. Speaker, it is my privilege to present the tenth budget of this Social Credit administration. It is perhaps the most important budget of this decade, as I shall propose measures for economic growth and renewal that will secure employment opportunities for British Columbians for years to come.

No budget is easy to assemble, particularly in the difficult economic environment we now face. But preparing this one has been very rewarding, as it contains the positive measures made possible by the efforts of the past three years. Because of the responsible decisions taken by this government in previous budgets we are now able to build on the strong foundation of our restraint program to create new employment through the development and diversification of British Columbia's economy, in partnership with the federal and municipal governments.

This is not to suggest that our difficulties are over. We continue to adapt to a very competitive and rapidly evolving world economy. Financial constraints and common sense dictate that we continue to exercise fiscal discipline. Restraint is now a permanent and a continuing feature of public policy in British Columbia. However, we have been through the hardest part of the adjustment, and we can look to improvement in the months and years ahead.

In the last budget, I indicated my intention to conduct a thorough review of the impact of taxation upon economic development.

Following a detailed comparison of the taxation situation faced by British Columbia firms, I undertook a series of 28 public meetings over the period September 5 to November 6 of last year. In many communities throughout our province I heard the comments and the suggestions of almost 400 British Columbians as to how the taxation system could be changed, focusing particularly on ways to foster economic development and job creation. I was impressed, during those meetings, with the realistic attitude and understanding of current economic circumstances and also the cautious optimism shown by individuals, businesses, groups and community leaders.

I want to express my gratitude to the panel members who accompanied me on these travels and thank all of those who made the effort to attend the meetings and to present their opinions. This budget is a better document because of their thoughtful views.

Over the last year my cabinet colleagues and I have met with and received representations from literally hundreds of British Columbians on a wide range of matters including regulatory reform, social policy, resource management and industrial development. This continuing process of consultation has been of great assistance to me in developing this budget.

[2:15]

As we look back on the last few years, British Columbians can be satisfied that, faced with very difficult financial and economic adjustments, we acted quickly and we acted decisively. This province had to make a major adjustment when the world economy began to undergo a significant transition in the first part of the 1980s. It was not possible to make this an easy adjustment, but forthright and well-conceived measures by the provincial government could and did ensure a positive result from the process. Had we not introduced bold and innovative policies of restraint, we would now, as in other parts of Canada, be facing even more difficult decisions. Instead, British Columbians have responded by moderating demands for wage increases and by increasing productivity. We are now ready to undertake a program to

[ Page 5278 ]

develop and diversify our economy, enabling us to meet the challenges of the new international trading environment.

Building on the foundation of restraint, this budget charts a new course for British Columbia, a course which I am confident will take us into an era of growth as we approach the 1990s.

The experience of 1984 demonstrated once more, Mr. Speaker, and very forcefully, that British Columbia is reliant on international markets for our major resource products. Despite the booming conditions of the United States economy, prices for forest and mineral products have been scarcely above the recessionary lows of 1982. Clearly, there has been a fundamental change from the time when strong growth in the United States could be automatically relied upon to fuel rising prices for our products and, in turn support rising incomes and employment in the province There is now very tough competition for the markets we once took for granted. Our challenge is to work harder, be more innovative and become more efficient as we move into the second half of the 1980s.

The causes of this fundamental change in world commodity markets are many and complex, but several merit attention.

First, there's been a large increase in the supply of natural resources to world markets as a result of the sharp increase in prices for these products during the 1970s. In particular, many less developed countries have elected to increase sales of natural resources in order to earn the foreign exchange needed to meet payments on foreign debt. This has caused special problems for metal mines, not just in our province but throughout the developed world.

Secondly, among the changes taking place in the developed economies, there is a shift away from the heavy industries which have consumed large volumes of natural resources in the past. Although the growth of the service sector and the trend toward high technology and communications industries should not be overstated, there is no question that changes are taking place, causing lower rates of growth in markets for many natural resource products.

Thirdly, the high interest rates of the 1980s have had a profound effect on world economic events. The 1970s were a time of high inflation and low real interest rates, fuelled by expansionary monetary policy and major increases in commodity prices. Resource-producing regions enjoyed extraordinary and, in retrospect, unsustainable economic growth. The last few years, by contrast, have seen extremely high interest rates in relation to the level of inflation and a consequent erosion in the prices of many basic resources.

Finally, there is an accelerating trend toward protectionist policies among nations whose traditional industries are unable to withstand the growing competition from foreign suppliers. These barriers to trade, whether in the form of quotas, regulatory restrictions or tariffs, represent a very serious threat to world trade and, consequently, to our own British Columbia economy.

Mr. Speaker, I know that some will ask why we should continue to rely on trade if we're faced with the effects of events beyond our control. Why not simply look inward, reduce our dependence on trade and concentrate our efforts on production for our own market? The fallacy in that reasoning must be spelled out.

British Columbia — in fact, Canada — has a relatively small population compared with major industrial countries. Producers in those economies have comparatively free access to markets of 100 million or more people, allowing significant cost reductions through specialized production and competition. Producing only for a small and widely dispersed market such as we have in Canada would mean much higher costs and much lower living standards than international trade has made possible. We've been able to achieve substantial production efficiencies, higher incomes and greater employment by specializing and selling into the markets of the world. British Columbia's history, therefore, has been one of development based upon international trade.

Exports from B.C. currently represent about 60 percent of total manufacturing shipments and provide, directly and indirectly, hundreds of thousands of jobs for our people. Our relative prosperity has been based largely on our ability to supply world markets with competitive products. It is essential that we expand and diversify our markets and our industries, never forgetting that British Columbia's future prosperity will continue to be strongly dependent on our ability to compete internationally.

The dramatic changes in the world economy have had, and continue to have, significant implications for government policy. During the commodity booms of the 1970s, rapidly rising resource prices caused large increases in corporate profits and government revenues. These in turn flowed through to increased employment, expanded public services, higher wages and salaries and higher share prices and real estate values. Buoyant economic conditions also attracted large numbers of people into the province, with the net inflow reaching a record 59,000 in one year, in 1980.

Although the momentum of in-migration, investment and public spending continued to sustain economic activity in B.C. through 1980 and early 1981, the fundamentals were undergoing change. Prices of key British Columbia exports declined sharply from the peaks which were reached in 1979 and 1980. For example, lumber, which sold for $322 per 1,000 board feet in August of 1979, had fallen to $166 by late 1981. Similarly, copper declined from a peak of $1.50 per pound in February of 1980 to 75 cents a pound in June of 1982.

As the worldwide recession continued into 1982, it became apparent that this was not a normal cyclical downturn. The changes taking place were much more fundamental than any since before World War II, and a return to booming commodity markets could no longer be considered a certainty.

Over this period there was a rapid and a sustained deterioration in the provincial government's finances. Revenues generated by the resource boom disappeared while the spending requirements of social programs introduced during the boom grew rapidly in response to the recession. From a surplus of $542 million in 1979-80 the government experienced a deficit of $257 million in 1980-81 and, despite several hundred million dollars in measures to broaden the revenue base, a deficit of $184 million in 1981-82.

By early 1982, forecasts showed a pattern of rising deficits with no prospect of returning to fiscal balance even with a normal cyclical economic recovery. B.C., like other provinces and the federal government, had developed what is commonly referred to as a structural deficit. Because the deficit had reached the point where normal economic recovery would not eliminate it, corrective action was required. The alternative was simply a legacy of public debt, interest payments and high taxes for future generations.

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At the same time, steps were needed to cushion the impact of the recession on those least able to cope. Responding to this very serious situation in February 1982, the Premier announced a policy of restraint comprised of two major elements. The compensation stabilization program introduced a system of guidelines to limit wages and salaries in the public sector, while the restraint on government programs placed limits on the expenditure of provincial and local governments.

CSP is unique among wage guideline programs in that it preserves the collective bargaining process and ensures equity among different employee groups in the public sector. The flexibility and productivity incentives inherent in the program have ensured its success and allowed it to develop into a permanent feature of public sector collective bargaining in British Columbia.

In addition, the limit on spending initiated the process of cancelling or modifying some less essential programs in order to reduce the permanent expenditure base of the provincial government to a level which could be reasonably afforded by taxpayers over the longer term. This process has continued for the past three years. By controlling the cost of government in the province, restraint has allowed essential social programs to be preserved and continued.

The government has also acted to soften the impact of the recession and of the economic readjustment through significant fiscal stimulus. By March 31, 1985 some $2.3 billion will have been borrowed to finance the maintenance of income assistance, health care and other crucial social programs, as well as the acceleration of employment-creating highway construction activity. Taken together with government-supported projects such as northeast coal, B.C. Place, Expo 86 and ALRT, this fiscal injection has directly or indirectly maintained thousands of jobs since the recession began.

Building upon the foundation provided by the restraint program, we must now move to the next phase — that of revitalizing the industrial and economic base of the province of British Columbia.

First — and I said it earlier — we must recognize the necessity of controlling our costs in a tough, competitive world economy. Steady progress has been made in the past few years in raising productivity and limiting wage increases in both the public and private sectors, but British Columbia's cost structure remains high compared with that of our competitors.

Secondly, we must recognize that our resource sectors, while continuing to provide a solid base for our economy, cannot alone generate the income and employment needed to meet the demands of a growing population. For the balance of this century, prosperity in B.C. will increasingly depend on our ability to expand the base by promoting further processing of our resources and by attracting and developing new industrial activities in which we can be competitive.

Third, we must be aware of the problems and opportunities associated with the emergence of the newly industrialized countries as both strong competitors and potential markets.

Finally, we have to be alert to the effects of rapidly changing technology on both employment patterns and markets. Scientific advances are changing our economy, just as they change our lives. To compete successfully, our industries must be able to respond and adapt quickly. Similarly, all who are consumers of government services must recognize that these services have to be paid for through taxation, which, if it becomes excessive, will erode incentives for productivity activity, threaten our competitiveness and ultimately cause the loss of jobs and a reduced standard of living.

I shall be announcing today an extensive series of initiatives aimed at renewing and revitalizing our industrial base. Because steps have been taken in the past three years toward restraining costs, this province is now well placed to sell to expanding markets and to take advantage of new opportunities. Creative incentives for investment, combined with continued fiscal discipline, will support the rejuvenation of our existing industries and make British Columbia a prime location for the establishment and growth of new businesses, both small and large.

Mr. Speaker, I turn now to the economic events of the past year and the current outlook for 1985.

[2:30]

Further evidence was provided in 1984 of the structural changes occurring in our principal markets. Although the United States experienced its highest rate of economic growth since 1951, markets for our natural resource products continued to exhibit low prices, while sales volumes of forest products were at or near record high level. In contrast with previous periods of expansion, most commodity prices declined in 1984, reflecting the abundant supply of natural resources from both developed and developing countries. The average price obtained by B.C. exporters for lumber declined by 13 percent in 1984, despite housing starts in the United States reaching their highest level since 1978. The price of copper, the most important metallic mineral for B.C., declined by 9 percent in 1984. Similarly, export prices of coal and natural gas were under some downward pressure during the past year.

In common with most other resource-dependent regions of the world, the provincial economy was weaker than expected and is estimated to have shown little growth in 1984. Retail sales increased by about 4 percent and personal income by approximately 2 percent during the year. The most positive economic indicator in 1984 was the inflation rate, which, at 4 percent, reached the lowest level in the 14 years that the Vancouver Consumer Price Index has been available.

The limited economic growth in 1984 was reflected in the higher unemployment rate. Although B.C. recorded an increase of 20,000 jobs between December 1983 and December 1984 — the highest number of new jobs, by the way, recorded in any of the four western provinces — this increase was less than the number of new entrants into the labour force. Unemployment in B.C. is recognized as our major problem. Our first and our most important priority is to accelerate growth in the number of permanent jobs in the province.

The measures I shall announce today are designed to encourage new investment, particularly by the private sector. Partly as a result of these measures, we can expect a greater increase in employment this year than last. Despite the improvement, the rate of unemployment is likely to decline slowly as British Columbia continues to attract people from other provinces in search of work. Over the last four years, during which the provincial unemployment rate has exceeded the national average, we've experienced a net inflow of approximately 38,000 persons from the rest of Canada. By contrast, our neighbouring province of Alberta has experienced a net outflow of 28,000. The movement of people to

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British Columbia, which does not appear likely to be reversed in the near term, puts pressure on our labour market, our public infrastructure and our social programs. Nevertheless, it is a positive sign that despite the current economic situation many people view our province as an attractive and promising place in which to make a home.

There are several reasons, Mr. Speaker, for cautious optimism about the provincial economic outlook for 1985. Internationally, the U.S. economy has strengthened in the last few months and growth should exceed 3 percent. Western Europe and Japan are also forecast to enjoy moderate to strong growth. Inflation in B.C. is expected to remain low. Export lumber prices have shown some improvement in recent months, and should remain generally higher in 1985 than in 1984, unless interest rates increase significantly from their current levels.

For 1985, I expect real growth in the British Columbia economy to be approximately 2.5 percent. Consumer spending is expected to strengthen slightly, and exports should increase in line with world economic growth. Business investment should also increase this year, as confidence grows in British Columbia's improving economic prospects.

But before leaving the subject of the economic outlook, I want to note some sources of concern. First, there are major risks present in international financial markets. Any significant increase in world interest rates would have a major impact on British Columbia's exports and on the ability of our businesses and individuals to cope with their debt. Second, as I mentioned earlier, there is that potential upsurge in protectionism. Third, there are dangers clearly associated with the massive federal deficit. Action is required, I suggest, to limit federal borrowing in order to reduce pressure on interest rates. But I sincerely hope that federal deficit reduction will not be achieved through tax increases which would place a burden on individuals and harm the competitiveness of our industries. If we avoid these potential negative influences, I'm confident, Mr. Speaker, that 1985 will be a year of improved economic performance for British Columbia.

The government's current and projected fiscal situation reflects the actions taken in the past three years to stabilize a deficit which threatened to grow out of control. From its peak in 1983-84, the deficit has been reduced in the current fiscal year and will be reduced further in 1985-86. As we approach the end of fiscal year 1984-85, I am now forecasting a deficit of $970 million, about $300 million higher than originally estimated, but still $50 million below the previous year's deficit. The increase from budget has been caused by additional spending on income assistance and by expansion of the government's highway construction program. Both allocations have helped sustain the province during a period in which our export markets have been weaker than anticipated.

In preparing this budget, my primary goal has been to provide scope for the government's economic renewal initiatives. It's become clear, both from the information I received during the public meetings on taxation and economic development and from independent studies, including those commissioned by the government, that our taxation structure, as it affects business, is in need of reform. If our industries are to compete nationally and internationally, and provide a lasting base of employment, we must ensure that our tax burden is in line with that of competing suppliers in other areas of North America.

During the 1970s, I suggest, we developed an excessive reliance on taxes, which are inflexible with respect to profits.

In the current weak international market such taxes have become unaffordable and a hindrance to job creation and economic expansion. I shall announce today changes to ease tax burdens which, while supportable during the resource boom years of the late seventies, have become excessive in this newer, more competitive environment.

I shall also describe, as part of the partnership program for economic renewal, a range of expenditure initiatives representing investment in the future of British Columbia's economy. It should be clearly recognized by all British Columbians that this new program has been made possible by the measures taken in the past three years.

Before taxation adjustments, government revenue is estimated at $8,214 million for 1985-86, an increase of 5.6 percent from the revised forecast for 1984-85. Revenue measures are expected to reduce estimated revenue by $48 million in 1985-86 to $8, 166 million. Certain other tax reductions will have the effect of increasing expenditure by $88 million in 1985-86. Some of the tax reductions are phased in over a period of three years, and the total impact by the third year will be $480 million. The expenditure budget for 1985-86 provides stable funding for the basic programs of the government and a major allocation for economic renewal initiatives. In total, government expenditure is budgeted at $9.056 billion for 1985-86, for an increase of 3.5 percent over the revised forecast for 1984-85.

Even with major tax reductions and expenditure programs to spur growth and development, the government's budgetary deficit is estimated to decline further in 1985-86 to $890 million, from the level of $970 million now forecast for the current fiscal year. To achieve a further decline in the deficit during a year in which the government is undertaking fiscal initiatives for economic renewal, through both revenue and expenditure measures, of some $694 million is an accomplishment in which we can all take great pride.

I'll say again, Mr. Speaker, that we can afford to introduce these measures now only because of the success of our restraint program in bringing the deficit under control and because the permanence of restraint allows us to plan tax reductions affecting future years.

We should not become complacent. While our fiscal situation is improved, we must still borrow heavily to finance government programs. I am convinced that the economic renewal program will pay dividends in future years in the form of business activity, jobs and government revenue. Nevertheless, we must continue to control the cost of our programs. We must seek ways to increase productivity, eliminate waste and reduce overhead costs in government.

Public sector compensation costs, in particular, must not again become a source of fiscal instability. Except for increases already established, the budget for 1985-86 contains no provision for salary increases for direct government employees or for employees in the agencies funded by government. If salary demands by government employees reflect the taxpayers' ability to pay, further layoffs can be averted. The same condition will apply to other public sector employee groups when their employers have completed the process of adjustment. This is a stringent requirement, I admit, but it is one which the private sector has been forced to work with and to meet in order to survive.

As the economy expands over the next few years, we have to continue to work toward reducing and eventually eliminating the deficit. Accumulated direct debt for government purposes will exceed $3 billion by the end of next year, in

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spite of restraint. Interest payments alone are estimated at $384 million next year, or more than $1 million each and every day of the year. The government is committed to halting and reversing the growth of this debt burden on our taxpayers.

Now let me describe a number of major initiatives in the government's program of partnership for economic renewal. As I suggested earlier, the changing world dictates the need for innovative policies to encourage and assist the development and the diversification of our economy. We've moved through the most difficult part of the adjustment, and we are now ready to seize new opportunities.

The program will represent a comprehensive approach to strengthening our industrial base and attracting new industries to the province. I am today announcing four major elements: taxation measures to reduce the cost burden on business and industry and to provide incentives for new investment; industrial development programs to encourage and assist the establishment and expansion of industries in the province; new programs of investment in our natural resource base, providing jobs now and in the future; investments in major public projects to provide employment now and benefits for years to come. Further elements of the program will be announced by my colleagues.

Achievement of our goals will require partnership and cooperation with the private sector and among governments. Last fall British Columbia signed an Economic and Regional Development Agreement with the federal government to set the framework for delivery of joint economic programs. The Minister of Industry and Small Business Development (Hon. Mr. McClelland) is negotiating subsidiary agreements with the federal government to provide a wide range of industrial and resource development programs under the ERDA umbrella. Although specific terms and funding levels for ERDA subsidiary agreements have not been finally settled, this budget provides the provincial portion of a joint funding allocation for British Columbia totalling $650 million over five years. We are confident that British Columbia's representatives in the federal house will ensure that we receive the fair treatment that this province deserves.

[2:45]

The provincial government will also be inviting local participation in the program through municipal partnership agreements. I have authorized the Minister of Municipal Affairs (Hon. Mr. Ritchie) to offer participating municipalities a 50 percent reduction in non-residential school property taxes for all new industrial improvements. My colleague will announce the full details of this new program of partnership, which represents an exciting innovation in public policy. It is my expectation that most municipalities in B.C. will enter into this venture of cooperation with the provincial government.

A further aspect of partnership involves working with business and labour to find innovative solutions to the problems of adjustment faced by our basic industries. I am prepared to work on this with others through a commissioner of critical industries, who is to be appointed shortly.

Now, Mr. Speaker, I have referred several times to the importance of new taxation policies for encouraging further development in the province. The results of our analysis and my public meetings have indicated that certain British Columbia taxes on business are somewhat higher than taxes in competing jurisdictions.

In the discussions over the past year on tax measures to encourage development, I was presented with two alternative approaches. Some participants argue that the government should provide targeted incentives to certain favourite sectors or to industries which are thought to have high growth potential or which are in need of government support. Others proposed that the government should implement general tax reductions and allow market forces to determine which industries flourish in the province.

With these views in mind, I am today proposing a balanced package of taxation measures with three major objectives: firstly, an attempt to provide a significant degree of tax relief to a broad range of businesses in the province; secondly, to reduce or remove elements of the tax system which are out of line with competing jurisdictions, creating a disadvantage for existing businesses and impeding new investment; thirdly, a series of measures included to offer benefits particularly to sectors of the economy with strong potential for growth.

In order to provide the maximum possible assistance within the fiscal constraints, and reflecting my confidence in our ability as a government to maintain fiscal discipline, the government will phase in several major tax measures over the next three years. This will provide a firm basis on which new and existing businesses can plan future investments.

First, for taxation years commencing after March 31, 1985, and for a period of two years, the provincial government will provide a small business employment tax credit equivalent to approximately $300 for each employee of a small business corporation.

Time and time again during the public meetings, I was told, as we all know, that small business is the keystone of our economy and the major creator of jobs. Fixed expenses such as unemployment insurance contributions, Canada Pension Plan contributions and Workers' Compensation Board assessments were identified in these meetings as significant disincentives to hiring new employees. The government believes that the encouragement of small business is essential to the partnership for economic renewal. Most important, the growth of our small businesses is essential for the achievement of our first priority: jobs for the men and women who wish to gain employment in our province.

Having examined the issue very carefully, I concluded that a refundable tax credit based on wages and salaries is the most appropriate means of encouraging small business activity and providing an incentive to employ more people. This is not a minor program, Mr. Speaker. It is expected to reduce the cost of employing some 250,000 persons in the small business sector, with the full tax reduction estimated to be $75 million annually.

Over the two years this program will be in operation, $150 million of stimulus will be given to small business. It is intended that this program be provided through the income tax system which is administered by the federal government. Federal agreement will therefore be required. Based on discussions I have had with Mr. Wilson, the federal Minister of Finance, I am confident that that approval will be forthcoming.

Secondly, the imposition of property taxation on machinery and equipment will be phased out over three years, starting this year. In addition, property taxation will not be applied to new machinery and equipment installed after September 30, 1984. The school property tax rate applied to machinery and equipment will be reduced by one-third in

[ Page 5282 ]

1985, by two-thirds in 1986, and will be eliminated in 1987. This tax reduction will cost an estimated $69 million in fiscal year 1985-86 and $358 million over the next three years. Machinery and equipment tax rates for non-school purposes will be phased out over two years, beginning in 1986. For the 1987 and subsequent assessment rolls, machinery and equipment will not be assessed nor taxed.

During my consultations in the fall, the taxation of machinery and equipment was widely criticized in this province as being burdensome, unfair and counterproductive to investment. In the current economic climate it represents a serious impediment to businesses considering investment in the province, and it places our producers at a disadvantage with respect to competitors in other provinces and in other countries. The exemption of new machinery and equipment will encourage immediate expansion and the establishment of new business, while the phase-out of property taxes on existing equipment will rapidly eliminate the burden on our existing industries, particularly forestry and mining.

Third, the school property tax rates applied to industrial and commercial property will be reduced over the next three years from a level more than three times as high as residential tax rates to a level of approximately twice residential tax rates. This process will begin in 1985, with the rate applied to industrial properties reduced from a ratio of 3.4:1 to a ratio of 3:1, compared to residential rates. This will reduce taxes on the industrial property class by an estimated $15.5 million in 1985-86 and by an estimated $144 million over the next three years. Residential taxes will not be affected by this change.

Along with the machinery and equipment tax, the high property tax rate on industrial and commercial classes was identified in our comparative tax analysis, and in my public meetings, as a major source of disparity between the tax burden on businesses in B.C. and that in competing jurisdictions. The gradual reduction in these rates will bring British Columbia's property taxation to a level which will allow us to compete on an even basis.

Fourth, effective midnight tonight tax rates applied to off-road use of motor fuel and aviation fuel will be reduced to 7 percent of the pre-tax selling price of gasoline. In the case of marine bunker fuel, where price changes can be substantially different from those for gasoline, the tax will be 7 percent of the pre-tax selling price of that fuel. This change will lower the tax rate on aviation fuel, marine bunker fuel, coloured gasoline, coloured diesel fuel and fuel used by farmers and commercial fishermen. All of these fuels are presently taxed at a variety of higher rates in the range of 10 percent to 20 percent of the selling price. This measure will reduce revenue by an estimated $55 million in 1985-86 and an estimated $172 million over the next three years. The new 7 percent rate represents a significant reduction, and it makes these fuels taxable at a rate equivalent to that for goods subject to the social service tax. Clear fuels used on public roads will remain taxable at present rates, in order to provide a contribution towards the cost of constructing and maintaining our extensive network of public highways.

Fifth, the corporation capital tax will be phased out over the next three years, except as it applies to major banks with head offices outside the province of British Columbia. The phase-out will be accomplished by replacing the present $1 million exemption with a deduction of $5 million, effective for years ending on or after April 1, 1985; $10 million, effective for years ending on or after April 1, 1986; and for years ending on or after April 1, 1987, the tax will be eliminated — except, as I indicated, for certain large banks. The gradual elimination of this tax will reduce revenue by $3 million in 1985-86 and by $96 million over the next three years.

Again, throughout my meetings last fall — indeed, ever since I became Minister of Finance — I've received almost unanimous recommendations to repeal this tax — and that's putting it kindly. It is a capricious and ill-conceived tax, which this government has previously committed itself to eliminate. I'm therefore very pleased to be able to announce its termination today. The tax will be retained only for large externally based banks to ensure that these corporations make a reasonable contribution to provincial tax revenues.

Sixth, Mr. Speaker, effective midnight tonight a series of items purchased for use in the aquaculture industry will become exempt from social service tax, placing this industry on a similar basis to agriculture and fishing. We believe that aquaculture has the clear potential to be a growth industry in British Columbia for the rest of this century. We're well behind such competing nations as Norway and Japan in farming the seas, but our natural advantages give us the chance to develop this sector very quickly. British Columbia is ready to move into aquaculture in a serious way. The new exemptions will assist the industry and demonstrate that we mean business.

Seventh, effective midnight tonight a number of items used by British Columbia firms in the manufacture or servicing of goods will be exempted from social service tax. Exemptions will now apply to jigs, dies, moulds and patterns, abrasives such as sandpaper and grinding wheels, and certain items used by photographic, printing and publishing industries. Representations made during those public meetings last fall argued very convincingly that materials which are consumed or used during the production process should not be taxed, because the final product is subject to tax. Today I've taken a step toward achieving that goal in its entirety.

[3:00]

Eighth, effective for the 1985 taxation year the government will provide a provincial income tax credit to purchasers of newly issued common shares in small business venture capital corporations. The credit will equal 30 percent of the amounts received by the venture capital corporations for their shares, and a grant mechanism will be established to provide for payment of an equivalent incentive to non-taxable entities such as pension funds. The venture capital corporations will in turn provide equity capital to small businesses engaged in manufacturing and processing, research and development, tourism and aquaculture.

The provision of risk capital to finance new ventures is an important ingredient in a dynamic and growing economy. This aspect of financing has not been adequate in Canada, and accordingly this government is encouraging equity investment through this new mechanism. As a result of this measure, there will be a new source of investment capital for innovative small businesses and an incentive for individuals to realize tax savings by increasing their investment in the province. Legislation governing small business venture capital corporations will be presented by my colleague the Minister of Industry and Small Business Development (Hon. Mr. McClelland).

[Mr. Strachan in the chair.]

[ Page 5283 ]

Ninth, effective for the 1986 property taxation year the provincial government will forgive 50 percent of the school property tax on new industrial investment in non-municipal areas. This incentive, which parallels and complements the provincial initiatives forthcoming in the municipal partnership agreements, will continue to the end of the 1990 taxation year. Property taxes are often cited as a barrier by prospective investors in industrial facilities, because full taxes must be paid before a new plant is fully operational and profitable. This tax measure for non-municipal areas, so-called rural areas, and the equivalent measures to be provided in participating municipalities will create an incentive for industries to accelerate their investment plans in order to take maximum advantage of the tax reduction. As a result, it will create construction jobs now and more permanent jobs in the next few years.

Tenth, water rental fees for the generation of hydroelectric power will be frozen for five years beginning in 1985. The government previously announced the deferral of the 6.1 percent indexing adjustment for 1985. There will be no further indexing of water rental rates until 1990.

These ten major revenue measures comprise the taxation portion of the program of partnership for economic renewal. Over the next three years these and other tax changes in this budget will cost the government an estimated $955 million. I can say without hesitation, Mr. Speaker, that this represents the most significant reform in provincial tax policy in at least 40 years, and probably in the history of our province.

I want to thank the many people who contributed in a variety of ways to the assembling of these measures. Their comments, criticisms, submissions, suggestions and hard work resulted in a set of tax changes for economic development which I'm honoured to be able to introduce today.

Before leaving the subject of taxation measures for economic renewal, I'd like to describe three further initiatives that we plan to implement in the coming months.

The importance of increased business investment to future economic well-being is not confined to our province; it is also vital to the national economy. But business can only invest in modernization and expansion if funds are made available for this purpose. It is our view that the recovery will be greatly assisted if individual Canadians are encouraged to invest in Canadian businesses. The savings of individual Canadians are at a high level, and channelling these savings into equity investments in Canadian industry would finance modernization and expansion without imposing on industry the risks associated with a heavy burden of fixed debt. The benefits to Canada from increased equity participation by individuals would include a better understanding among the public of the function of profits in the economy, an increased awareness of the effects of business cycles, and an enhancement of the entrepreneurial spirit of Canadians.

Although income from equity investments already receives certain advantages under the Canadian tax system, the government believes that a new instrument could create a direct incentive for individuals to become equity participants and provide some risk protection for new investors.

To meet these goals, our government has designed a national plan, the Canada equity plan, to encourage investors to purchase new equity shares in Canadian public corporations. The plan was presented by the Premier at the first ministers' conference on the economy in Regina a few weeks ago. It's our hope that the federal government will introduce a national initiative in which all provinces can participate. If the federal government is unable to proceed, we are prepared to develop a provincial plan to be administered through the income tax system.

The proposed Canada equity plan would provide a 20 percent income tax credit to investors in newly issued common shares of Canadian public corporations. The maximum credit available to an individual would be restricted on an annual basis and as a percentage of taxable income. The cost of the plan, estimated to be $100 to $200 million annually, could be shared by the federal and provincial governments on a two-thirds/one-third basis. Details of this proposal are provided for all hon. members in an appendix to this document.

A second measure on which we are working, of course, is the establishment of special enterprise zones. The government has proposed the creation of zones in order to attract industries which, given present costs, tax and regulatory considerations, would not otherwise locate in Canada. Special enterprise zones could allow British Columbia to take advantage of its Pacific Rim location, access to tidewater, existing transportation networks and a skilled workforce to bring to the province new types of industry with a potential to employ growing numbers of British Columbians in quality jobs.

A firm locating in a zone would be eligible for a series of financial and taxation incentives. The federal government has agreed to administer certain provincial measures and has been approached to offer corresponding incentives. The tax incentives will result in little or no revenue lost to government, since the objective of the zones is to attract firms that would not otherwise locate in our country. A tight screening mechanism is proposed to ensure that the production will not cause injury to other domestic or established producers.

It's the government's intention to proceed with creation of the first zone once Ottawa has indicated whether or not federal initiatives will be provided. I emphasize today that we are ready to proceed as soon as possible.

The third initiative concerns the development of the financial sector in British Columbia, and particularly in our largest city of Vancouver. Growth in international trade is crucially dependent on a world-class financial services industry. The government is committed to encouraging the establishment, in Vancouver, of an international financial centre which, by attracting financial transactions involving non-residents, would be complementary to the development of our domestic financial services sector. It is my hope that a joint federal-provincial review of the taxation and regulatory measures necessary to attract international financial business to Canada, and in particular to Vancouver, will be undertaken in the coming year.

Before turning to a number of other elements of our program, Mr. Speaker, I want to advise the House that I shall announce later today a number of additional tax measures designed mainly to improve the fair application and administration of the tax system.

The second set of initiatives about which I wish to speak is comprised of industrial development programs which, by encouraging and assisting private sector activity, will generate new investment in British Columbia and will create jobs. The programs are directed toward industries and sectors of the economy with the greatest potential to contribute to economic growth and diversification. These include the industrial incentive fund to encourage strategically important

[ Page 5284 ]

investment opportunities, the industrial development assistance program for small- and medium-sized secondary manufacturing and processing firms, the small manufacturing incentive program for small businesses and the tourism infrastructure incentive program to establish and improve tourist attractions.

The Minister of Industry and Small Business Development (Hon. Mr. McClelland) will provide details on the operation of these new assistance programs and will present enabling legislation to this Legislature.

The new Minister of International Trade and Investment (Hon. Mr. Phillips) will be instrumental in stimulating industrial development and job creation. New and broader markets for British Columbia exports will be sought to encourage the expansion of wealth-creating activity. In addition, by attracting capital and investment to B.C., the ministry will make a major contribution to our economic renewal. As well as increasing British Columbia's profile abroad through additional representation and marketing programs, the ministry will undertake a series of high quality investment seminars for potential investors abroad, involving professionals, business people, government members and officials from B.C. Other initiatives include a program of agricultural market development, measures to encourage expansion of the food processing industry, a program of assistance for science and technology projects and an enhancement of the successful discovery enterprise program for advanced technological industries.

We shall also introduce a new and comprehensive public sector purchasing policy which has been developed in the Ministry of Finance. The massive purchasing power of the provincial public sector will be harnessed to create opportunities for expansion of our industries. Significant provincial assistance will be provided to those industries which form the traditional basis of our economy — forestry and mining. Many of the taxation measures which I have outlined will help these industries regain their competitive position in world markets.

In addition, we shall be undertaking a major program of investment in our resource industries to create jobs now and preserve jobs in the future. The forest resource development program, for which we hope to obtain federal participation under ERDA, is expected to provide $300 million over the next five years for reforestation, intensive silviculture and related research. Jobs will be created and future timber supplies will be assured through this investment.

Another program for which federal participation under ERDA has been sought is an initiative to help the mining industry identify new resource development opportunities. An accelerated program of mapping and exploration will provide valuable information upon which the renewal of the mining industry will be based.

A third natural resource program to be undertaken with the national government is the agricultural and rural development program. This will provide assistance for applied research and technology transfer, resource development and the provision of production and marketing facilities and support services.

Our resource industries have clearly undergone a difficult period of adjustment, and they've emerged more productive and competitive than ever before. The provincial government's role in resource management must also be changed to ensure that industries have incentives to remain productive and efficient. The small business enterprise program in the Ministry of Forests is one example of the way that resource management is gradually being adjusted. A new system will be introduced for financing forest access roads for timber harvested under this program. Bonus bids paid on timber sold through auctions will be made available through a special account to finance access roads, ensuring that new roads are justified by the value of the timber being harvested. Over the long term this and other adjustments will help to achieve a balance in restoring resource-management expenditures and revenues.

[3:15]

A number of major capital projects are underway or are being introduced to provide both immediate jobs and lasting legacies in the form of lower transportation costs and worldwide exposure.

The Coquihalla Highway will shorten the driving time between Vancouver and various interior communities by up to two hours and will provide a scenic route to and from the lower mainland time for Expo 86. It is intended that a portion of the saving to users will be levied as a toll which will contribute significantly toward meeting the cost of accelerating this project.

Funds will also be provided for the construction of the Annacis Bridge. This additional crossing of the Fraser River, providing improved access to Vancouver from the south, will also be constructed in time for Expo 86.

Another major project which will provide thousands of construction jobs in the coming year is ALRT. This project will be operational in January 1986, providing significantly improved transit services for people in Vancouver and a fast and efficient transportation system for commuters in the lower mainland. The government is able to take advantage of competitive construction costs at this time and provide economic stimulus through these expansions to our provincial transportation network.

Other capital projects to be undertaken in the coming year include the development and maintenance of facilities in our provincial parks and acceleration of diking construction.

Finally, Mr. Speaker, and most important, our world exposition, Expo 86, will generate jobs and economic activity across the province and will bring the world to British Columbia. New markets and investors will be introduced to our province through Expo. We must all work together to ensure that British Columbia is prepared to take the best advantage of this truly unique opportunity.

The broad set of economic measures that I have described today will launch British Columbia on a new path of growth and development. Its success will depend on the response to this invitation. Through partnership and cooperation, we shall be able to build on the strengths of our economy, to generate the jobs and the incomes needed to meet the aspirations of all British Columbians.

Let me turn now to a brief review of the expenditure budget for 1985-86. As I said, the government expects to spend $9.056 billion in 1985-86, including $558 million associated with the economic renewal program. Despite this major fiscal injection to bolster our economic base, total expenditure is estimated to increase only 3.5 percent from the latest forecast for the current year.

The efforts of the last three years to improve the efficiency of government, to control costs while maintaining essential services and, where necessary, to redirect taxpayers' funds to meet public goals more effectively, have proved successful. We can now see the benefits from the

[ Page 5285 ]

restraint program and experience the dividends through reduced taxes and economic renewal initiatives.

Clearly, a major factor in the success of restraint has been the equitable functioning of the compensation stabilization program. The flexibility built into the program has enabled more than 2,000 compensation plans to be settled in the public sector under the voluntary guidelines, not under the compulsory regulations. The commissioner of CSP has never found it necessary to impose a settlement under the compulsory regulations. For all of 1984, public sector plans approved under the program showed average increases of 2.1 percent compared to average settlements of 2.5 percent in the private sector. A continuation of this trend in settlements is required if the government is to maintain control over expenditure growth and provide scope for future reductions in taxes.

Although the emphasis in this budget is on job creation, the government is maintaining a very strong commitment to essential social programs. Expenditure on health, education and social services in the coming year will exceed $6.3 billion. That's an increase of 6.9 percent from the estimates of 1984-85. Over 70 percent of total expenditure is allocated to these programs, compared to 65 percent just five years ago.

Health care continues to be of major importance to the government. The health budget will rise by 5 percent to $2.677 billion. New acute-care, extended and intermediate beds will be opened in several communities throughout the province. The government assigns a high priority to preventive health programs which can reduce further pressure — future pressure as well — on other parts of the health care system. These alone will receive a 6.5 percent increase to accommodate higher utilization. Emergency health services will also be improved through the replacement of an additional 50 ambulances, at a cost of $1.8 million.

There has recently been considerable public comment reflecting the fact that the government is increasing its spending on health care at a faster rate than on education. There's one very important reason for this difference in growth rates, and it's often overlooked by our critics: it's the aging of the province's population. Since 1980 the total increase in the province's population has been 9 percent, while the number of people aged 65 or over has increased by 19 percent. On average, people in that age group require health care expenditure that is more than five times that of younger people. This clearly represents a major source of pressure on health services. Over the same period there has been a decrease of 2 percent in the population between the ages of 6 and 24 years. This changing age composition has certainly affected relative requirements for the different program areas in government. If our funding allocation failed to reflect the reality of these changes in our population, our programs would inevitably become less responsive to the needs of the people we serve.

It's important to make clear today that in the coming year we shall continue to fulfil our commitments under the federal-provincial established programs financing arrangements for the provision of health care and post-secondary education to our citizens. It is sometimes incorrectly suggested that the EPF arrangements require the provinces to allocate expenditure on these programs in fixed proportions. The proportions usually referred to represent an arbitrary and unilateral division of federal contributions, unchanged since 1975-76 when these programs were funded on a cost-shared basis. The federal legislation imposes no such allocation on the provinces, and if the provinces were required to maintain such an outdated allocation, provincial programs would become increasingly less relevant to the needs of provincial residents. In 1985-86, as in each and every year since the EPF program was introduced, federal contributions to British Columbia under this program will represent less than 50 percent of our expenditure on health care and post-secondary education.

The government has maintained over the last ten years a strong commitment to funding education in the province. Compared to the level of spending ten years ago, expenditure on education in 1985-86 will show an increase of 125 percent. Education funding to the province's school districts next year will be provided in accordance with the fiscal framework system, with two important additions. As a result of adjustments, school districts have been notified that they will be provided with $25.6 million more in 1985-86 than was contemplated when the framework was introduced. This ensures that sufficient funding is provided for essential service levels for a quality education. However, school boards now have the opportunity to increase their annual operating budgets above the fiscal framework level, provided that the increase is approved by a majority of the local electorate voting in a special referendum. In common with other programs of the government, the schools fiscal framework funding provides no funding for negotiated salary increases in 1985.

For post-secondary colleges and institutes, there will be no reduction in total funding from 1984-85. A special allocation of $12.7 million is included in their funding to support high-priority employment training programs in cooperation with the federal government, and to allow the institutions to make program adjustments.

The university system in our province, and throughout Canada, is faced with difficult issues as it seeks to carry out its function more effectively. At the request of my colleague the Minister of Universities, Science and Communications (Hon. Mr. McGeer), the Universities Council of B.C. and the three universities are reviewing all university programs and developing a five-year academic plan. This plan will emphasize the strengthening of the institutions through building on areas of excellence. As in the case of colleges, there will be no reduction in total university funding in 1985-86. Included is a special allocation of $14.9 million to assist our universities in becoming more responsive and effective institutions. This allocation will be used for initiatives to strengthen priority programs and to meet phase-out costs associated with reductions in less essential, low-demand programs. Details of this arrangement, Mr. Speaker, will be announced by my colleague.

The encouragement of academic excellence is an important aim of the provincial government and the university community. To provide additional support to graduating university students showing high academic achievement and demonstrated financial need, the government has allocated $1 million for an expanded provincial scholarship program in the coming year. This will take the form of a provincial loan remission program which will reward performance. The Minister of Education and the Minister of Universities, Science and Communications will administer this program for university students, including those who transfer from the college system. In the coming year, the government will examine the possibility of extending scholarships to other post-secondary graduates.

[ Page 5286 ]

Social services will receive increased funding for 1985-86, as the government maintains its commitment to provide income assistance. The amount to be paid in GAIN benefits is expected to increase by approximately 2 percent.

Costs under the Pharmacare program continue to increase rapidly. An increase in the annual deductible amount under the universal component of the program from $175 to $200 will provide some saving, but I note that the costs next year will be more than twice the level of just five years ago.

[3:30]

This budget also includes additional funds for a worthwhile program providing services primarily to recipients of income assistance. A major problem for many single parents is that they do not receive regular and adequate maintenance payments from their spouses for the support of their children. The Ministries of Human Resources and Attorney-General have introduced a family support program to help income assistance recipients to obtain those maintenance program payments. This program will be extended from Richmond, where it was first introduced as a pilot, to the city of Vancouver. Actions in family court may be required to ensure that maintenance payments are received. The Ministry of the Attorney-General will receive $700,000 in the coming year to provide support for the costs relative to this program.

As a result of decisions taken by the federal government there will be an increase in funding allocations for programs required to meet the provisions of the federal Young Offenders Act. Operating costs for new facilities, additional staff and contracting of community-based services are expected to cost over $30 million in the coming year,

The government wishes to improve the stability of revenues available to municipalities under the Revenue Sharing Act. Fluctuations in provincial revenue are reflected in the transfers to municipalities under the current revenue-sharing formula. Although this has enabled municipalities to share in revenue upswings in the past, the experience of recent years has been difficult. After discussions among the Union of B.C. Municipalities, the Ministry of Municipal Affairs and my ministry, the government has decided to propose a stabilization mechanism to retain a portion of the revenue for distribution in future years. The Minister of Municipal Affairs (Hon. Mr. Ritchie) will introduce the necessary legislative measure.

There will be a small increase in the funds available under the revenue-sharing program for distribution in the coming year. A total of $204 million will be allocated to municipalities, and a further $31 million will be retained in the fund for future stabilization purposes.

The Ministry of Lands, Parks and Housing will be examining its Crown land use policies in the year ahead to ensure that they are relevant to current conditions and that the process for review of applications is minimized. The pricing policy for Crown land is also being reviewed, including lease rates for marina operators and agricultural land.

Additional measures are being taken to reduce the costs and administrative burden of government. The Ministry of Consumer and Corporate Affairs has now completed arrangements for the partial self-regulation and licensing of the brokerage, insurance and real estate industries. The government will continue to receive a portion of the licensing fees, but will be relieved of some of the administrative costs.

The reorganization of the central government personnel function in the Ministry of Provincial Secretary and Government Services will save over $2 million in the coming year.

Legislation, members will recall, to establish the new personnel division was passed just a short while ago.

In its search for ways to improve services to the public, the government of British Columbia is continuing to extend the computerization of records.

Administrative controls over the GAIN program will be strengthened through the use of computer terminals for immediate updating of client records. Savings are estimated in 1985-86 alone at some $2.7 million.

Access to information in the central registry of the Ministry of Consumer and Corporate Affairs will be improved through the development of an on-line system which will permit more efficient use of existing staff.

Mineral and petroleum records in the Ministry of Energy, Mines and Petroleum Resources are being computerized, with savings both in staff and in other costs for the government and, most importantly, with improved service to industry.

The land titles branch of the Ministry of Attorney-General will be provided with an additional $2.8 million to accelerate the computerization of its records. Annual net savings of approximately $1.6 million are expected, on full completion throughout the province in about two years' time.

These initiatives, Mr. Speaker, demonstrate that governments can improve their services and efficiency while still reducing program costs. Duplication of services between the Ministry of Labour and the Workers' Compensation Board will be eliminated by the transfer of the occupational environmental branch to the Board. WCB has made excellent progress in improving efficiency and in controlling costs over the last two years, permitting a reduction in the unfunded liability and a freeze in assessment rates for 1985.

The government will provide $1.4 million in the coming year, through the Ministry of Energy, Mines and Petroleum Resources, for the natural gas extension assistance program. Provincial grants, together with federal contributions, will enable line extensions to be constructed in the Shuswap area.

The Ministry of Agriculture and Food will provide special financial assistance, estimated at $2.8 million, to farmers in the Peace River region, who suffered severe crop losses in 1984.

During the past year, the government made the decision to establish the British Columbia Lottery Corporation in Kamloops. An estimated $4 million will be injected into the province as a result of this move. More than 100 jobs will be created in that region once the Lottery Corporation is fully staffed. Additional benefits will be provided through the purchase of computer hardware from B.C. manufacturers and suppliers.

The government's contribution to public transit in the province, for 1985-86, will be $74.3 million. No provision is made for the operating costs of the ALRT system in this coming fiscal year, as it is planned to capitalize net costs for the startup period, January 1 to March 31, 1986. Beginning in 1986-87, the operating costs of ALRT will be shared among riders, local government and the provincial government.

Mr. Speaker, I've already outlined a significant number of taxation and revenue policy measures in describing the economic renewal program. I now propose to present a series of additional measures to simplify and to improve the tax system, and to generate some additional revenue. Central to this package of measures is a new consumer taxation amnesty program.

[ Page 5287 ]

Over the past few years a disturbing trend has been observed in British Columbia and elsewhere. A growing number of businesses have been failing to remit to the government the taxes collected from their customers. These public moneys, collected in trust for the government, have instead been retained for use by the businesses. Another problem is the growing frequency of situations where businesses or individuals who purchase taxable items such as cars or boats are not paying the tax owing on these purchases.

I emphasize today that the businesses or individuals who consciously withhold taxes collected, or fail to pay taxes due, represent a very small proportion of the total; nonetheless, the practice has been increasing. It cannot be allowed to continue if the integrity of our tax system is to be maintained. Clearly we have a duty to the vast majority of businesses and individuals who are complying fully with the legislation. We have to ensure that the non-complying minority are not able to abuse their position of trust.

The consumer taxation amnesty program, which commences at midnight tonight and ends on June 30, 1985, is designed to encourage businesses and persons who have not paid or remitted taxes to voluntarily disclose and pay these amounts. During the amnesty period, any taxes which were due prior to today and have not been reported to the consumer taxation branch can be paid with only interest added to the amount of tax owed. No penalties will be applied, nor prosecution undertaken, if such taxes are voluntarily disclosed and paid under the amnesty. All voluntary disclosures will be treated in strictest confidence.

At the end of the amnesty, new penalty and fine provisions will become effective. In cases where a vendor has collected tax from consumers but wilfully withheld it from the government, the penalty will increase from 10 percent to 100 percent of the tax which has not been remitted. This is a significant increase — I admit that — but these taxes represent funds collected from consumers and held in trust for the people of the province.

Where a taxable purchase has been made by a business or individual, and the purchaser has consciously made a false statement or wilfully avoided paying the tax, the penalty is increased from 10 percent to 25 percent of the tax which has not been remitted — again, at the end of the amnesty program. In other circumstances, such as late tax returns, where the business has already received one warning notice within a 12-month period, the penalty will remain at the current 10 percent rate. In addition to these changes in penalties, I shall be introducing legislation which will make provision for the courts to impose significant fines for fraudulent evasion of tax.

The amnesty and increased penalties and fines at the end of the amnesty period will apply to the Social Service Tax Act, the Hotel Room Tax Act, the Tobacco Tax Act, the Gasoline (Coloured) Tax Act, the Gasoline Tax Act and the Motive Fuel Use Tax Act.

In this budget, we have adopted many measures to assist the business community in British Columbia. Business must also be responsible, and ensure full compliance with the tax legislation, which applies to all residents of British Columbia. The amnesty will provide a period of grace for individuals and businesses to get their affairs in order, and the increased penalties will ensure that this very important component of the province's revenue base is protected.

Other administrative measures to be introduced for this budget include the following:

Effective midnight tonight the maximum period subject to audit under the Social Service Tax Act and the Gasoline (Coloured) Tax Act is reduced from ten years to six years, except for wilful evasion of tax. In my view, it is unreasonable for vendors or taxpayers to be expected to retain the detailed business records required for sales tax audits for more than six years.

Effective midnight tonight purchases by non-residents of vehicles and aircraft which are registrable will be given point-of-sale exemption from social service tax. To ensure that British Columbia businesses are able to compete with other jurisdictions for sales of these items to non-residents, this exemption at the time of purchase will replace the current and very complex provisions for a rebate of tax.

Effective for the 1986 revised assessment roll, the impact on a property's actual value of the restrictions contained in some Crown leases will be incorporated into the calculation of the assessed value. Since restrictions on use contained in some Crown leases in non-municipal areas are analogous to municipal zoning, the impact on property values of these restrictions should be and now is recognized.

During this session it is my intention to introduce legislation to consolidate the three existing fuel tax statutes. One of the oft-repeated requests from persons presenting views during the public meetings was that all levels of government simplify tax legislation. The consolidation of these statutes is a step in the right direction.

Over the coming year the government will investigate the feasibility of instituting an identification card system for bona fide farmers, to ensure that the farm purchase exemption under the social service tax is restricted to those whom the exemption is intended to benefit and to eliminate unnecessary paperwork for businesses and government.

Over the next few months I intend to review the application of the social service tax to sales and leases of assets between individuals and companies which have a close relationship. This area of taxation is, as I have learned, complex, and all points must be considered most carefully. Until this review is completed, the current regulations will apply.

I am also proposing to introduce a series of minor administrative measures which are described in appendices to this document.

[3:45]

In addition to these administrative changes, a number of tax changes are required to achieve equity and revenue objectives. The following sales tax changes will be introduced:

Effective midnight tonight a new temporary use provision will be introduced under the Social Service Tax Act for specified equipment used for seismic studies for petroleum and natural gas exploration and development. This change in the method of collecting that tax will address a specific problem in the northeastern region of the province and encourage more efficient use of drilling equipment in our oil and gas exploration industry.

Mr. Speaker, effective midnight tonight returnable milk bottles will be exempt from social service tax.

Effective midnight tonight propane and natural gas used by farmers for grain-drying will be exempt from social service tax.

Effective midnight tonight portable buildings will be taxed on the cost of the component materials rather than on the sale or lease price of the building.

Effective with the first monthly billing period commencing on or after April 1, 1985, charges for pay television will

[ Page 5288 ]

be subject to social service tax. Basic cablevision charges remain exempt from tax.

Effective April 1, 1985, British Columbia Railway Company and its subsidiaries will be subject to fuel, social service and hotel room taxes. Exemption from taxation was initially provided in 1912, and with last year's financial restructuring of this important Crown corporation the railway is now able to pay these taxes, as does any other efficient business.

Effective April 1, 1985, the tax rate on cigarettes, cigars and packaged tobacco will increase by 10 percent. This measure will increase revenue from this tax by $15 million in 1985-86, and the existing ad valorem adjustments on March 1 and September 1 of each year will continue.

In the area of assessments and property taxation, the following changes are proposed.

Mr. Speaker, a small item, but one of considerable nuisance — departing from my text for just a moment: legislative provision will be made for municipalities to exempt non-profit occupiers of school buildings from property tax.

Provisions permitting long-time owners of non-conforming residential property to enjoy the benefits of assessment at residential values will be broadened to provide this benefit to all persons who have owned and occupied non-conforming property for ten years or more. This is an adjustment to the so-called 1959 rule.

As was previously announced, legislation will be introduced in the next weeks exempting ALRT from property tax for 1985 and subsequent taxation years.

Since the nations, corporations and companies who will come to Expo 86 will be our guests for only a few months, the Expo 86 site will be exempt from property taxation effective the 1985 taxation year.

Effective the 1986 taxation year holders of grazing licenses and other short-term tenures will be exempt from property tax on that land.

Effective the 1986 taxation year manure storage facilities will be exempt from property tax in order to provide an incentive to improve environmental management in the agricultural industry. Mr. Speaker, I said I would travel the province and listen to concerns. That was a concern. It's changed.

Effective the 1986 taxation year certain recreational land will be taxed under a class 8 designation rather than a class 6 designation. The name of class 8 is changed to "Recreation Property/Non-profit Organization." This change will substantially reduce the level of tax on recreational land by taxing it at the same rate as residential land.

[Mr. Speaker in the chair.]

For the 1986 taxation year the minimum property tax payment will be raised from $175 to $200 per year for those property-owners who do not qualify for the supplementary homeowner grant. For those who do qualify for the supplementary grant, including the elderly, the minimum tax will remain at $1 per year.

For the 1986 taxation year rural property taxes will increase from $1.30 per thousand dollars of value to $1.40 per thousand dollars of value.

Under the Income Tax Act provisions will be introduced to ensure that provincial personal income tax payable does not exceed federal tax payable for low-income taxpayers for the 1985 taxation year.

With respect to the Corporation Capital Tax Act, effective April 1, 1985, bankers' acceptances will be included in the tax base. These instruments, Mr. Speaker, are being increasingly used to avoid payment of the tax. During the period this tax is being phased out, it is appropriate to include them in the tax base.

Under the Insurance Premium Tax Act, the following changes will be proposed.

Effective January 1, 1986, the general insurance tax rate will increase from 2 percent to 3 percent. Premiums for life, accident and sickness insurance will continue to be taxed at the existing 2 percent rate.

Effective January 1, 1986, insurance premium tax will be phased in for marine insurance policies for pleasure boats at the rate of 1 percent, increasing to 2 percent effective January 1, 1987, and to 3 percent effective January 1, 1988.

Effective for 1985, provincial business license fees levied in non-municipal areas are abolished. These fees are not required for any provincial administrative purpose, and therefore their abolition will reduce the regulatory burden of government on the private sector.

Mr. Speaker, this rather long list of administrative and taxation changes reflects those from among the many suggestions that I received during my public meetings which I identified as beneficial for the equity and fairness of our provincial tax system.

At this point I want to reflect briefly on the path which has brought us to this day. We in British Columbia have been tested and have been found equal to a difficult challenge. We've made the sacrifices and shared the burden, and in so doing we've made possible the new measures for job creation that I have announced today.

Some three years into a very difficult adjustment period, we are all aware that we had to face fundamental changes. Because British Columbia is reliant on international resource markets which are particularly affected by the adjustment, economic conditions have been worse in our province than for many other regions of the world. But we are not alone. One can look to Alberta, to Texas, to Washington state and Oregon, or to virtually any regional economy dependent upon natural resources, and see shades of the same adjustment problems.

We should, however — we can — have confidence that our economic difficulties will not prevail indefinitely. The past few years have taught us to respect the unpredictability of human events. Problems which seem insurmountable can quickly fade into obscurity. Opportunities which seem limitless can evaporate as events pass them by. I am not suggesting that we ignore our problems, but if we look beyond them, we shall see that British Columbia remains one of the truly favoured regions of the world. Despite slow growth and high unemployment, people continue to move to our province.

The most fundamental source of optimism for British Columbia lies in what we have achieved together in these three short years, and in the very substantial steps that we're taking now toward economic renewal. We have restored the cost of government to a level which is affordable in a more competitive world economy, and we have done it in a manner which has preserved our most vital social programs. We've made an adjustment which many others have yet to face, reacting to the recession firmly, but fairly and quickly. We're now able to undertake economic programs and initiatives which otherwise would not have been possible. We are able to recognize in a substantial and tangible way the critical

[ Page 5289 ]

priority which now must be attached to the enhancement of our economic base.

Economic renewal means jobs. It means a more stable and growing economy, and it means financial security for British Columbians. Through major taxation reforms, programs to develop new industry, and investments in our resource base and our public capital facilities, the provincial government is providing leadership for the tasks ahead. For this program of economic renewal to succeed and get British Columbians back to work, there must be an effective partnership. Cooperation from the national government is essential. Local governments will also play a key partnership role at the community level.

While concerted action by the three levels of government is necessary, it is not enough. Business and labour must complete the alliance. New investment is essential to expand production capacity, enhance competitiveness, and diversify into new product and service lines. Industrial relations must achieve new levels of cooperation and stability. Compensation demands must reflect a recognition that now is not a time to pursue catch-up or to seek enrichment. Until employment stability and renewed economic strength is achieved, all partners must endorse the principle of equal commitment. Competition for larger shares will destroy the basis for recovery that is so essential to the entire province.

New measures to create employment for our citizens have been made possible today through a realistic program of restraint. Our business taxes are today being brought into line through reductions targeted toward encouraging the private sector to perform its vital role of creating jobs and economic activity.

This budget provides key elements in the framework for economic renewal. The challenge is to use them to create a better future for all British Columbians.

MR. SPEAKER: In order that certain documents referred to can be circulated to the members, we will take a very short recess — it shouldn't be more than just a few moments. We will reconvene at the sound of the bells.

The House took recess at 4 p.m.

The House resumed at 4:12 p.m.

MR. STUPICH: Mr. Speaker, very briefly at this time, may I congratulate the Minister of Finance. He read well; he kept himself within the self-imposed time limit of two hours, and that is something to be congratulated on.

Interjection.

MR. STUPICH: No, I'm serious about that. I don't recall ever sitting through a budget speech that was completed in less than two hours. So certainly I do congratulate the minister on that.

I congratulate him, and we will support him on some of the tax expenditures proposed today. On one of them, of course, they'll throw it at me that we started it — the corporation capital tax. Yes, we did. We imposed it when we were in government, and for some years now we have been saying it's time to get rid of it. It never should have been there. We will support the move by government to remove that tax, and there are others that we will support.

Unfortunately, we can't support the whole budget, Mr. Speaker. To us it doesn't read as a self-congratulatory message of pride about a restraint program, which has culminated in six years of deficits by this administration, as the minister told us today. The budget is the first time it's been spelled out so clearly. And although this year's deficit is presented to us as being some $90 million less than last year's, it's some $200 to $300 million higher than the original estimate for last year. So we're mixing apples and oranges.

The budget proposes only a nominal increase in forest expenditures, when there's widespread recognition of the need to do very much more. It proposes an increase of only 2.3 percent, much less than the inflation rate will be.

We're told that the government has always supported education. The increase there is just equal to what the inflation rate will be — 5 percent. In health, an increase of only 4 percent. So there isn't any increase in human services.

I will have a lot to say about the budget tomorrow, but at this point I would simply like to move adjournment of this debate until the next sitting.

Motion approved.

[4:15]

Introduction of Bills

SOCIAL SERVICE TAX AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Social Service Tax Amendment Act, 1985.

HON. MR. CURTIS: Mr. Speaker, I note that under our new practice it would be possible to make brief remarks, but may I simply indicate that a number of the bills being introduced today from His Honour relate to matters that were dealt with in the budget address.

Bill 11 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

BRITISH COLUMBIA
TRANSIT AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled British Columbia Transit Amendment Act, 1985.

Bill 17 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

TOBACCO TAX AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Tobacco Tax Amendment Act, 1985.

Bill 12 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

[ Page 5290 ]

HOTEL ROOM TAX AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Hotel Room Tax Amendment Act, 1985.

Bill 13 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

INSURANCE PREMIUM
TAX AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Insurance Premium Tax Amendment Act, 1985.

Bill 14 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

GASOLINE TAX AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Gasoline Tax Amendment Act, 1985.

Bill 8 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

GASOLINE (COLOURED)
TAX AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Gasoline (Coloured) Tax Amendment Act, 1985.

Bill 9 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

MOTIVE FUEL USE TAX
AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Motive Fuel Use Tax Amendment Act, 1985.

Bill 10 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

INCOME TAX AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Income Tax Amendment Act, 1985.

Bill 18 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

BRITISH COLUMBIA RAILWAY
AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled British Columbia Railway Amendment Act, 1985.

Bill 15 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

BUSINESS LICENCE REPEAL ACT

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Business Licence Repeal Act.

Bill 16 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

INCOME TAX (SMALL BUSINESS EMPLOYMENT
TAX CREDIT) AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Income Tax (Small Business Employment Tax Credit) Amendment Act, 1985.

Bill 5 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

CORPORATION CAPITAL TAX
AMENDMENT ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Corporation Capital Tax Amendment Act, 1985.

Bill 7 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

ASSESSMENT AND TAXATION
(MISCELLANEOUS AMENDMENTS) ACT, 1985

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Assessment and Taxation (Miscellaneous Amendments) Act, 1985.

Bill 6 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

MINISTRY OF INTERNATIONAL
TRADE AND INVESTMENT ACT

Hon. Mr. Phillips presented a message from His Honour the Lieutenant-Governor: a bill intituled Ministry of International Trade and Investment Act.

HON. MR. PHILLIPS: Mr. Speaker, I move that the bill be introduced and read a first time now.

[ Page 5291 ]

Mr. Speaker, this government is committed to renewal of the British Columbia economy, as witnessed by the budget that we just heard. If we are to be successful in meeting this challenge, we must increase the export of goods and services, and we must create a receptive environment to attract invest ment. That, Mr. Speaker, is the key to job creation in this province, now and in the future.

Mr. Speaker, I take considerable pride in introducing the Ministry of International Trade and Investment Act. It is further evidence of this government's leadership and indeed this government's boldness in furthering the economic interests of British Columbia around the world.

There are three aspects to the mandate of this new ministry: international marketing, investment promotion and trade policy.

The vitality of British Columbia's economy is directly linked to our ability to export goods and services. One-fourth of world production is now exported, double the proportion of a decade ago. Over the past 20 years exports increased from less than one-fifth of Canada's output to almost one-third. British Columbia is one of the leading trading provinces, with export reliance being double that of Canada as a whole.

The nature of British Columbia, and aspirations for economic diversification, demand enormous amounts of investment capital. Much of this must come from outside of Canada. With an improved business environment as a result of this budget today, my new ministry will bring to the attention of the world business and investment communities....

MR. HOWARD: Mr. Speaker, I have a point of order relating to the practice recommendation, one aspect of which is two minutes' limitation. The purpose of this procedure is so that the person introducing the bill can explain its purpose, not to embark upon a mini-debate about some other subject matter.

MR. SPEAKER: Hon. members, the two-minute allocation for explanation purposes is.... It is difficult for the Chair to interpret just what the minister would say until he's had an opportunity to say it. In any case, with 17 seconds remaining, the minister will conclude.

HON. MR. PHILLIPS: Yes, Mr. Speaker. Did you take out the time for the applause?

MR. SPEAKER: Yes, hon. member.

HON. MR. PHILLIPS: Mr. Speaker, British Columbia wants to be an active partner with Ottawa and with the other provinces in ensuring that the trade policy environment in Canada reflects aims, aspirations and interests of all regions.

But I will close, Mr. Speaker, by saying that the British Columbia government cannot do the job alone. My new ministry will intensify its interaction with the private sector and ensure that all of our programs and activities reflect their interests and are geared to the opportunities that they can address.

MR. SPEAKER: Hon. members, I would commend to all, particularly ministers of the Crown, an opportunity to read page 37 of the standing orders. It will be to the benefit of the proceedings of the House.

Bill 20 read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

INDUSTRIAL DEVELOPMENT INCENTIVE ACT

Hon. Mr. McClelland presented a message from His Honour the Lieutenant-Governor: a bill intituled Industrial Development Incentive Act.

HON. MR. McCLELLAND: For the benefit of the member for Coquitlam-Moody (Mr. Rose), this bill provides for a special-service account for $50 million to establish a flexible and very responsive mechanism that will provide tailored incentive packages to stimulate private sector investments in key sectors and projects in our province.

Bill 23 read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

SMALL BUSINESS VENTURE CAPITAL ACT

Hon. Mr. McClelland presented a message from His Honour the Lieutenant-Governor: a bill intituled Small Business Venture Capital Act.

HON. MR. McCLELLAND: Mr. Speaker, as outlined in the budget speech by the Minister of Finance, this bill will allow tax credits and/or cash rebates in the amount of some $40 million over the next five years to, again, encourage new private sector equity investment in smaller British Columbia firms in a number of selected industries and sectors, so that permanent job creation can be facilitated.

[4:30]

Bill 19 read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

Hon. Mr. Gardom moved adjournment of the House.

Motion approved.

The House adjourned at 4:31 p.m.