[ Page 6153 ]

CONTENTS

Consumer and Corporate Affairs Statutes Amendment Act, 1985 (Bill 40). Hon. Mr. Hewitt.

Introduction and first reading –– 6153

British Columbia Railway Dispute Settlement Act (Bill 39). Report

Third reading –– 6153

British Columbia Transit Amendment Act, 1985 (Bill 17). Committee stage 6153

Mr. Williams, Mr. Davis, Mr. Howard, Mr. Cocke

Third reading

Gasoline Tax Amendment Act, 1985 (Bill 8). Second reading

Hon. Mr. Curtis –– 6155

Mr. Howard –– 6156

Mr. Davis –– 6156

Gasoline Tax Amendment Act, 1985 (Bill 8). Committee stage –– 6157

Mr. Howard, Mr. Cocke

Third reading

Gasoline (Coloured) Tax Amendment Act, 1985 (Bill 9). Second reading

Hon. Mr. Curtis –– 6157

Mr. Howard –– 6158

Mr. Cocke –– 6158

Hon. Mr. Curtis –– 6158

Gasoline (Coloured) Tax Amendment Act, 1985 (Bill 9). Committee stage –– 6158

Mr. Cocke, Mr. Howard

Motive Fuel Use Tax Amendment Act, 1985 (Bill 10). Second reading

Hon. Mr. Curtis –– 6159

Motive Fuel Use Tax Amendment Act, 1985 (Bill 10). Committee stage I 6159

Third reading

Committee of Supply: Ministry of Industry and Small Business Development estimates.

(Hon. Mr. McClelland)

On vote 44: minister's office –– 6159

Mr. Williams, Mr. Cocke

Appendix –– 6165

THURSDAY, MAY 16, 1985

The House met at 10:05 a.m.

Prayers.

Introduction of Bills

CONSUMER AND CORPORATE AFFAIRS
STATUTES AMENDMENT ACT, 1985

Hon. Mr. Hewitt presented a message from His Honour the Administrator: a bill intituled Consumer and Corporate Affairs Statutes Amendment Act, 1985.

Bill 40 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.

HON. MR. GARDOM: May I have leave to make, an introduction, Mr. Speaker?

Leave granted.

HON. MR. GARDOM: Mr. Speaker, there are a number of people in our gallery today who have not been introduced, and I see a number of students in our gallery also. I'd like to bid them a very warm welcome on behalf of both sides of the House.

Orders of the Day

HON. MR. GARDOM: Report on Bill 39.

BRITISH COLUMBIA RAILWAY
DISPUTE SETTLEMENT ACT

Bill 39 read a third time and passed.

HON. MR. GARDOM: Committee on Bill 17, Mr. Speaker.

BRITISH COLUMBIA TRANSIT
AMENDMENT ACT, 1985

The House in committee on Bill 17; Mr. Strachan in the chair.

On section 1.

MR. WILLIAMS: Section 1 is the borrowing of $600 million. You know, it's worthy of some reflection again. The amount of borrowing that we're going into in this province is very significant. We really have a debt bomb ticking away. We've gone into countless projects that are zero or minus rates of return. You can't keep spending money on projects that have a minus rate of return without getting into financial trouble. That's what we're doing by this legislation; that's what we've done by other legislation before this House.

We are continuing to borrow for projects that cannot, will not, will never pay for themselves. That's the way to spend yourself into the poorhouse, and that's what British Columbia is doing today. This is a project the extensions of which are costing — that is, for the ALRT line extensions — $50,000 a passenger, capital cost. Just imagine: for every rider on our new trolley in the greater Vancouver area, the capital cost alone of building the thing is $50,000. No other utility in North America, none of the richest cities in America, spends this kind of money on that kind of system. It's 10 times the cost of the new system in San Diego.

We are indeed spending our way to the poorhouse with the kinds of solutions that this government is coming up with, all of which — almost universally — have a negative rate of return. No business can accept a negative rate of return; at the very least they have to get a return equal to the cost of interest. It's a fundamental business principle. A so-called businessman's government over there doesn't understand the fundamental principles of business. You cannot borrow and have projects that will not pay back without getting into deep financial trouble.

An earlier premier in this province would be rotating in his grave at the prospect of the kind of spending that's gone on here. I think the phrase he used to use was dead-weight debt. What this number two administration is doing is getting us deeper and deeper into dead-weight debt, and this $600 million is just another anchor, another lead lifebelt in the Social Credit scheme of things.

[10:15]

MR. DAVIS: Mr. Chairman, first a comment on the interjection by the second member for Vancouver East. He mentions a figure of an investment of $50,000 per rider in the system. One could reduce that by a factor of five or ten depending on his optimism or otherwise with regard to ridership. The member and the critics generally choose to use very pessimistic figures as to future ridership. If you use more optimistic ones, the investment per rider is much less. When he uses an example such as the San Diego-Tijuana system, that's an entirely different animal. It runs on trackage normally used by freight trains; it doesn't run very often; it has many level crossings; it's simply not a rapid transit system. So those comparisons or analogies are irrelevant.

What does concern me is some aspects of the financial package, which I have not seen and to which some allusion has been made. I'm concerned about capitalization of interest. The figure mentioned in this clause is $1.5 billion. When you finance on the never-never plan, any number you choose is too small; $1.5 billion, therefore, if it is a meaningful number, has to assume that the capitalization of interest stops at some point in time. It has to stop within the next few years if $1.5 billion is enough to buy $100 million worth of new buses to pay for phase one of light rail rapid transit and to pay for extensions to Surrey and Coquitlam. If one ignores interest from now on, it's a close fit anyway, but capitalization of interest raises the figure, and it raises the figure in the order of 10 percent every year. As I understand it, the debt of B.C. Transit in this formula, as of the first of next year, will be of the order of $600 million, perhaps a little more, not likely less. Of course the year afterwards it will be of the order of $660 million; the year after that, of the order of $726 million; and up it goes. In ten years the number will have doubled; it will have reached $1.2 billion. Clearly, capitalization of interest is going to eat rapidly into the figure we're looking at — the $1.5 billion figure.

I suppose my first question to the minister is: is he serious when he says that these moneys will be sufficient to buy new buses and to extend light rail rapid transit into Surrey and Coquitlam?

[ Page 6154 ]

There are several other aspects to this. The municipalities are partners in this venture. They are partners in the proportion of 60 provincial, 40 municipal. The municipalities, therefore, are also tied into this never-never plan. They are tied into the capitalization of interest. They are tied in immediately to a debt of the order of 40 percent of $600 million, or $240 million. North Vancouver, for example, has to be concerned. It's tied in to the extent of $25 million right off, and the $25 million rises 10 percent a year; it'll be $50 million in seven years, and so on. Do the municipalities really understand that that's what they're in for? Do they know that we've started again into the kind of financing that we had for literally decades in B.C. Rail, when B.C. Rail was unable, for economic reasons, to pay its own way, certainly to pay anything on the capital? The device was therefore to borrow an additional sum every year and use it to pay interest. This is to be the process, apparently — for some time, anyway; I hope for a limited length of time — for financing the ALRT

I personally would have preferred the province to be more realistic. I don't agree with the hon. member opposite on the system — I agree it's the right system — but more realistic in the sense that if it's going to capitalize interest, it do it through the debt of the province, and simplify things. Don't try to hide this in the financing of yet another Crown corporation and, I think, undermine the credit-worthiness of the province by so doing. I think that if you're going to invest in a sizeable public project, it should be seen to be a decision of the province and an investment of the province.

This is an important project. I think it should be seen to stand substantially on its own feet. I think it should be seen in the general context in which it was adopted. It's an intermunicipal project, not an intramunicipal project. The formula that's been chosen is an intramunicipal formula. The highway formula for assistance within municipalities is 50 percent. That's the one that's been chosen. We should have chosen the formula for highways crossing municipal boundaries. In this case it'll cross several boundaries — eventually a significant number of municipal boundaries — and therefore it should be seen for what it is, an interurban project. It should have been financed 100 percent — at least as far as the highway aspect of the development is concerned — by the province. I would have argued that the $275 million grant had been double that amount, and then the entire project could have been funded from the outset, or the residue funded from the outset, on the customary B.C. transit financing formula. It would have been fully understandable. It would not have involved the never-never plan. It would not have involved capitalizing interest. It would have added to the direct debt of the province, admittedly, but what we're getting here is a similar addition initially to the indirect debt of the province and, I think, in the longer run a greater addition to the total debt of the province — certainly something that could hurt the credit rating of the province.

So, Mr. Chairman, I would appreciate it very much if the minister could let us know how long this capitalization of interest will continue, and how he sees the municipalities meeting their share of this rather odd formula for their assuming a very significant debt.

HON. MR. CURTIS: Mr. Chairman, when the member for North Vancouver–Seymour raised the point the first time, he wanted assurance that the borrowing authority which is before us was sufficient, and I can assure him that it is. It is sufficient through into the 1990s. The last time the borrowing authority was increased for transit was 1981, I believe, and this will carry us into 1991 or 1992.

I can't answer the question with respect to the municipalities, Mr. Chairman, for the very simple reason that I present this as the fiscal agent for B.C. Transit, not the minister responsible for arrangements that are made with other levels of government.

MR. CHAIRMAN: The last point, by the way, is well made. The debate in committee stage of Bill 17 has strayed somewhat. I appreciate that it's a one-section bill and has one principle, but the principle in this case is clearly the borrowing limit, and that is what we should limit our debate to.

MR. HOWARD: With respect, Mr. Chairman, we also have to look at the effect of this borrowing limit: interest rates and all those sorts of things. It can't be an isolated, barren set of figures here.

I want to tell you how much I enjoyed listening to the comments of the member for North Vancouver-Seymour (Mr. Davis), speaking in his capacity as parliamentary secretary to the Minister of Finance. I want to say that there are great things slated for that member for North Vancouver–Seymour. With his grasp of fiscal matters, he should probably be the Minister of Finance.

MR. CHAIRMAN: To the section, please.

MR. HOWARD: Given this government's ability to do, I suppose, what one would politely call imaginative bookkeeping; given their history of dealing with the amount of somewhere between $1 billion and $1.5 billion of subsidy that the taxpayers of B.C. will be pouring into the Japanese steel industry through northeast coal, and the fact....

MR. CHAIRMAN: Now we are straying, hon. member.

MR. HOWARD: I'm using that as a comparison activity, to show what is possible with respect to this bill, the borrowing power sought by it and the results therefrom, and to point out what had happened in another set of circumstances and that the same thing can happen here. I need to draw that comparison, Mr. Chairman.

...that the government, managed by a series of manipulative techniques — legislative ones and gift ones — to hide completely the amount of subsidy to the Japanese steel industry from the taxpayers of B.C.... They did it by dealing....

MR. CHAIRMAN: Order, please. Hon. member, one moment, please. As I indicated earlier, we are in committee stage of the bill. The member's comments might have been most appropriate during second reading, when one discusses the principle, but we are in committee now, and we must adhere to the relevancy rule in committee and deal with the section, which deals only with the British Columbia Transit Act and the borrowing increase. We must confine our debate to that. Other analogies or hypothetical arguments are not appropriate during committee stage.

MR. HOWARD: I can see, Mr. Chairman, B.C. Transit itself establishing a limited liability company as a subsidiary for debt-financing purposes, just the same as done with B.C.

[ Page 6155 ]

Rail Ltd, and then issuing through this limited liability company preferred shares to investors on the market, which was done with B.C. Rail Limited, and thus put onto the equity side of some ledger an amount of what otherwise would be debt, and so befuddle the bookkeeping that.... The questions raised by the member for North Vancouver–Seymour and the subsidy involved and the loss involved in this whole venture as indicated by the member for Vancouver East show clearly that the general public will never be able to find out how much of their tax dollars are being siphoned off into dead holes, just as we will never be able to find out by looking at the books the fact that we will be subsidizing the Japanese steel industry by $1 billion. That's what is going to happen here, unless before that event takes place we turf that crowd over there out of office. Then we'll be able to change matters.

MR. CHAIRMAN: Order, please. Now the member is clearly out of order.

MR. HOWARD: Then the truth will be known to the general public.

MR. CHAIRMAN: Hon. members, some latitude has been allowed inasmuch as this is a one-section bill, but nevertheless we are in committee stage now. Specifically, we are dealing with the British Columbia Transit Act and no other act or any other authority, and we are dealing with a borrowing increase. We are in committee stage; debate in committee stage must be specifically relevant to this section before us.

[10:30]

MR. COCKE: The House leader on the government side is getting a little bit nervous or itchy. In a hurry?

Anyway, Mr. Chairman, it strikes me that, fiscal agent or not, the Minister of Finance should be able to answer adequately the member for North Vancouver–Seymour's questions. If in fact he needs the assistance of the minister responsible for transit, then she should be here to provide that information.

As one of the contributing municipalities, New Westminster — and of course my colleagues from Burnaby and Vancouver and elsewhere — is going to be most interested in what's happening, and particularly interested if in fact we're living a legacy of capitalized interest for years and years to come. I've sat in the legislature for 16 years, and I've watched other Crown corporations and their antics vis-a-vis increasing their debt just by the interest that is necessary to service the debt that they now had.

AN HON. MEMBER: The Argentina syndrome.

MR. COCKE: That's right. Mr. Chairman, we continually do this and hide it from the public, because it is never a direct government debt. The only time it ever sees the light of day is when we have a discussion, as we do every year, virtually, about Hydro and BCR and all the rest of the Crown corporations — a very brief discussion, never covered to the extent that it should be by that illustrious press corps that we have around here.

But in any event, the public are not able to assess what's happening in this province. What's happening in this province today is the final reading of a $600 million addition to bring our debt on transit up to a $1.5 billion borrowing.

So I really think that the member for North Vancouver–Seymour, the member for Vancouver East, etc., have the right to hear precisely what's going to happen — and particularly to that level of government that's not here to argue. If, for instance, New Westminster argues that our 40 percent is larger than what we wish to contribute.... They should have that say, but they don't have that say. We make all the decisions in this hallowed hall, and we don't even do it in the light of day. Secondly, we're not getting the answers.

Section 1 approved.

Title approved.

HON. MR. CURTIS: I move the committee rise and report the bill complete without amendment.

Motion approved.

The House resumed; Mr. Speaker in the chair.

Bill 17, British Columbia Transit Amendment Act, 1985, reported complete without amendment, read a third time and passed on division.

HON. MR. GARDOM: Second reading of Bill 8.

GASOLINE TAX AMENDMENT ACT, 1985

HON. MR. CURTIS: Bill 8 accomplishes five measures which were announced in the budget address on March 14. It reduces the tax rate on aviation fuel; it clarifies that aviation fuel purchased outside the province but delivered into British Columbia to fuel aircraft is taxable; it clarifies the authority to make assessments against purchasers; it limits the maximum period subject to audit to six years — and I say that bearing in mind the comments made by the member for Nanaimo (Mr. Stupich) yesterday; and finally, it provides for increased penalties and fines on July 1, 1985, at the end of the consumer taxation amnesty program.

With respect to the first measure, the bill provides for an interim rate of tax on aviation fuel of 2.95 cents per litre from March 15 to March 31, 1985. That was the action taken in the budget. The interim rate represented a reduction from 5.37 cents per litre to 2.95 cents per litre. As of April 1 the rate became 2.81 cents per litre, and is determined by the new quarterly ad valorem adjustment formula in another act, the Gasoline (Coloured) Tax Act, which sets the rate at 7 percent of the pretax selling price of gasoline.

[Mr. Ree in the chair.]

The new rate of tax for aviation fuel is consistent with the general reduction in the tax on coloured fuels used off public highways. Under the former method of calculation, the tax rate on aviation fuel had increased significantly since 1981. The airline industry and others had suggested that it was unreasonably high when compared to other taxing jurisdictions. The level of tax on aviation fuel was given very careful consideration in the public meetings I held last fall, and I made the decision to lower the rate. The new rate ensures that the tax level in B.C. is in line with the rates in other provinces.

[ Page 6156 ]

A related amendment ensures that imported aviation fuel is subject to the same tax as fuel purchased from our domestic refineries. The existing legislation does not clearly enable the province to collect tax in situations where aviation fuel is purchased outside the province but delivered into the province to fuel aircraft in B.C. This situation....

MR. COCKE: Lougheed will love you.

HON. MR. CURTIS: I think the member has perhaps misunderstood what is happening here, Mr. Speaker. This situation results in unfair competition for our domestic refineries. I'm confident that this amendment, in conjunction with a lowering of the tax rate on aviation fuel, will result in an improvement in the ability of our airline industries to serve the public and ensure that all fuel purchases are treated fairly.

The bill also clarifies the authority to make assessments against purchasers when they have failed to pay tax. This lack of authority, which I've alluded to in some other bills in this sequence, became evident in the course of administering the Social Service Tax Act. This provision is therefore being added to several of the consumer tax statutes, including this one.

The fourth amendment provides that the audit period in the act be six years. Again, I dealt with that in another statute yesterday. In a related amendment to the establishment of the six-year audit period, the Crown will limit the time period for taking formal collection proceedings to seven years from the date the tax initially became due. That parallels other action which has been approved by this chamber. This amendment allows the one additional year beyond the six-year audit period.

The final group of amendments provides for increased penalties and fines on and after July 1 of this year, and will be effective at the end of the consumer taxation amnesty program which applies to all consumer tax statutes. I spoke about the evasion which has been occurring over a number of years, and I will not be repetitious in that regard when dealing with Bill 8.

In summary, the amendments introduced in this bill provide for a lower rate of tax on aviation fuel and ensure that aviation fuel delivered to aircraft in British Columbia from outside the province — and the member for New Westminster (Mr. Cocke) has left his seat — does not escape taxation. The bill also contains the amendments to introduce the common administrative provisions contained in a number of our consumer tax statutes. I move second reading of Bill 8.

MR. HOWARD: There's only one concern I want to express. It has been expressed on other occasions but needs repeating. One of the provisions of this act.... This may well be the case in other provinces. The minister may say that this happens elsewhere so therefore we should do it here. But whether it happens elsewhere or not does not make it correct — the provision that provides for a quarterly adjustment by way of a formula which is incorporated in another act. But a quarterly adjustment means that the price or the tax will be adjusted depending upon what others do outside of this chamber, not upon what this chamber does. In other words, we're leaving the level of the tax, or the alteration in the tax, subject to the mercy of whoever else outside might determine what the price of aviation gasoline is going to be at any given time, because it is a percentage figure.

I think it's wrong in principle for a taxing authority like the Legislative Assembly to abandon its responsibility for the amount of tax to be paid to some outside forces that have no allegiance to the province of British Columbia, no responsibility in any political sense, which this Legislature has. I think that's a wrong principle to follow, whether it relates to this, to tobacco, or whatever.

MR. DAVIS: Mr. Speaker, I support this bill. The hon. member who has just spoken questions the nature of the tax. It's like the social service tax generally. It adds 7 percent to a price; 7 percent is the amount of the tax. I don't have any problem there. On the face of it one might criticize this legislation in that the tax is reduced, and the assumption might be made that revenue to the province would be reduced. In fact, I think it will be the opposite, because aircraft — and particularly large commercial aircraft — are now much more likely to fuel up in British Columbia than they have been in recent years. They've been fuelling up, if possible, in Seattle or in Calgary. They fuel up anywhere they can as long as the cost of carrying that additional fuel to the Vancouver airports doesn't exceed the tax they would otherwise pay.

The province increased its tax a few years ago, and did so because the federal government increased the federal tax. The federal government got into its situation because it had legislated lower fuel prices in Canada than prevailed world wide. For some years international airlines, shipping and so on fuelled up in Canada because the controlled prices in Canada were below world prices. Eventually Ottawa woke up; it decided to equate the cost of fuel in Canada to what otherwise would be the price had world prices prevailed, and it imposed a tax. But the federal tax was at a sliding rate, and as Canadian internal prices rose to the world price, the federal tax extinguished; the increased provincial tax did not. So increasingly there was a penalty to fuelling up in British Columbia, and this applied, as I've said, particularly to the major commercial operators — those who had the alternative of taking on aviation fuel outside our boundaries.

So while on the face of it revenue would be reduced by reducing the tax, in fact I believe the total flow of revenue to the province will increase, and I think all round this is beneficial.

HON. MR. CURTIS: In another bill relating to tax matters, I complimented the member for North Vancouver–Seymour on having been correct on a couple of tax statutes, and I thank him again. I heard his comments with respect to this particular one.

On the question raised by the member for Skeena, there are interesting comments with respect to ad valorem and we've had those debates in this House before. One aspect that I think is a plus is that with the use of ad valorem in northern B.C., the tax level is set so that the tax is the same across the province. We examined that aspect of the ad valorem question, recognizing that there are pros and cons. We examined that when it was introduced a number of years ago.

This is Bill 8, one of the gas tax acts, and I move second reading.

Motion approved.

HON. MR. CURTIS: With leave, I move that the bill be referred to a Committee of the Whole House now.

[ Page 6157 ]

Motion approved.

[10:45]

Bill 8, Gasoline Tax Amendment Act, 1985, read a second time and referred to a Committee of the Whole House for consideration forthwith.

MR. NICOLSON: On a point of order, Mr. Speaker, when leave is asked for, it's not by a motion. It's just a request: "Shall leave be granted?"

Interjection.

MR. NICOLSON: I know you asked for leave. I'm saying that the Chair put a motion rather than simply asking about leave. I wouldn't want us to start thinking that leave was something that could be settled by a majority vote of the House.

DEPUTY SPEAKER: The member's point of order is well taken.

GASOLINE TAX AMENDMENT ACT, 1985

The House in committee on Bill 8; Mr. Strachan in the chair.

Sections 1 to 7 inclusive approved.

On section 8.

MR. HOWARD: I think I missed what the minister said in second reading about the limitation period of seven years. Did I understand him to say that that was a comparable or the same limitation period with respect to a number of other statutes that relate to the same subject, namely that of taking action to recover taxes? Is that seven years universal?

HON. MR. CURTIS: Mr. Chairman, it is becoming universal through the several tax acts that we're dealing with in this session. The main thrust with respect to another bill, about which I will not speak, is that we've reduced the audit period from ten years to six, so we're looking for commonality in six years. Again — and I think I'm speaking to the section — the member for Nanaimo (Mr. Stupich) yesterday raised the question with respect to why it wouldn't be less than six. I've undertaken to meet with him, or at least that message will be sent to his office, to discuss the pluses and minuses with respect to six years.

What happens in this section, particularly, is a seven-year limitation for a collection action to recover assessed overdue taxes, except in the case of wilful fraud or default. The seven year period comprises really two parts: six years, which is the audit period we've been speaking of in several statutes; plus the one additional year for collection of taxes which are due by way of a collection proceeding. The straight and simple answer is that we started out with what had been in place for a long time — a ten-year audit period — and that's far too long, We've moved down to six. Cases can be made for perhaps less, but it's six plus one for the collection proceeding.

Sections 8 and 9 approved.

On section 10.

MR. COCKE: Very briefly, I conclude from the minister's answer on section 8 that section 10 is excluded from that particular situation. This is the section dealing with fraud. There is no limitation to that, I gather?

HON. MR. CURTIS: Mr. Chairman, to the member for New Westminster, that is correct. There's no exception in that regard, where the....

Interjection.

HON. MR. CURTIS: Well, ten years, fifteen years, twenty years, where it's wilful evasion and the penalties are dealt with elsewhere and they're pretty significant. They're in section 10(c).

AN HON. MEMBER: Guillotine?

HON. MR. CURTIS: Not quite, but a full recovery of the tax which has been evaded and a fine or imprisonment.

Sections 10 to 12 inclusive approved.

Title approved.

HON. MR. CURTIS: Mr. Chairman, I move the committee rise and report the bill complete without amendment.

Motion approved.

The House resumed; Mr. Speaker in the chair.

Bill 8, Gasoline Tax Amendment Act, 1985, reported complete without amendment, read a third time and passed.

HON. MR. GARDOM: Second reading of Bill 9, Mr. Speaker.

GASOLINE (COLOURED) TAX
AMENDMENT ACT, 1985

HON. MR. CURTIS: Mr. Speaker, I move second reading of Bill 9. This bill accomplishes four measures, which were also announced in the budget on March 14 of this year. It reduces the tax rate on off-road or coloured fuels, clarifies the authority to make assessments against purchasers, reduces the maximum period subject to audit from ten years to six years and, as with other bills, provides for increased penalties and fines on July 1, 1985, at the end of the consumer tax amnesty program, which is now in effect.

The most important measure in the bill from an economic development perspective perhaps is the provision for reducing the tax rate applied to motor fuels used off-road to 7 percent of the pre-tax selling price of gasoline. In the case of marine bunker fuel, where the selling price is substantially different from that of gasoline, the tax is reduced to 7 percent of the pre-tax selling price of that fuel. As an interim measure, the bill also established a tax rate for coloured gas and marine bunker fuel for the period between budget day and April 1, 1985. Then on and after April 1 of this year the tax rates were determined on a quarterly basis by the new formulae.

The interim rates of 2.95 cents a litre for coloured gasoline and 1.65 cents a litre for marine bunker fuel represent

[ Page 6158 ]

pre-budget estimates of the tax. As of April 1, 1985, the rate was determined by formula. The current rate is 2.81 cents a litre for coloured gasoline and 1.66 cents a litre for marine bunker. The current rate represents a substantial reduction from the pre-budget-day rates of 5.37 cents a litre for coloured gasoline and 4.19 cents a litre for marine bunker fuel.

I think that members, having tracked other gas statutes, will be quite familiar with what is proposed by the government with regard to Bill 9. I therefore move second reading.

MR. HOWARD: The thought I expressed about tying the tax rate to an indexing formula or to a price outside of this legislative chamber — in other words, letting somebody else make the determination as to what the tax will be — is as valid here as it was with the preceding bill. I want to express some disagreement with that process.

With respect to the formula — this is a very intriguing part, Mr. Speaker — if we take the formula to be 0.07 times the product of 32.58 divided by the lesser of the gasoline auto and truck component of the consumer price index or the gasoline auto and truck subcomponent of the consumer price index of Vancouver multiplied by the lesser of the tax payable under this act on March 31, 1985, or the day before that, whenever the new one came into effect, plus the amount of tax per litre levied under section 5 of some other act, and cross that over with the multiple of the minister's age, we'll have some understanding of what this means.

MR. COCKE: Mr. Speaker, this is probably the first time that I have felt that we are in a computer age beyond doubt. There is no possible way a human being could figure it out without the assistance of the minister's handpeople.

HON. MR. CURTIS: Mr. Speaker, one could lurch into a fairly risque limerick, but I have no intention of doing so with respect to Bill 9; in fact, I can't remember all of it. We can perhaps deal with that at greater length in committee, but then again we might not.

I hear the comments of the member for New Westminster (Mr. Cocke) regarding the formulae, and indeed there's an amendment which is intended to clarify it all. I'll move that in committee. I believe that those who administer the tax in terms of its sale are competent and comfortable with the formulae and determining the formulae. We notify them; we assist them through the consumer taxation branch of the revenue division to the greatest extent possible, and of course much of it is done by computer. No question about it: it is very much done by computer. I guess we should not lose sight of the fact that what we're really doing here is significantly reducing the tax on off-road fuel, including marine bunker.

I move second reading.

Motion approved.

HON. MR. CURTIS: Mr. Speaker, with leave, I move that the bill be referred to a Committee of the Whole House now.

Leave granted.

Motion approved.

Bill 9, Gasoline (Coloured) Tax Amendment Act, 1985, read a second time and referred to a Committee of the Whole House forthwith.

GASOLINE (COLOURED) TAX
AMENDMENT ACT, 1985

The House in committee on Bill 9; Mr. Ree in the chair.

On section 1.

HON. MR. CURTIS: I move the amendment standing in my name on the order paper with respect to section 1, Mr. Chairman. [See appendix.]

On the amendment to section 1.

MR. COCKE: Speaking to the amendment, Mr. Chairman, when we suggested that the formula was confusing, we couldn't have been wrong, because it was so confusing that they put it forward improperly in the first place and had to bring in an amendment themselves. This is the kind of formula that's going to govern this whole question in the future. I hope there aren't any other mistakes that we have to come back and amend some other time in the future.

HON. MR. CURTIS: Speaking to the amendment, it was a missed cross reference, Mr. Chairman. One of the reasons that it's important perhaps with some tax bills to have them on the order paper for a good long time is so that they can be reviewed by members of this House and also by officials who serve the public of B.C.

The House amendment to this bill, which has been on the order paper, was required to correct an error in the explanation of the tax indexing formula. In section 6(2), "PT" refers to the tax payable on clear gasoline, which is subject to tax under the Gasoline Tax Act rather than the Gasoline (Coloured) Tax Act, as previously stated.

MR. HOWARD: It's like that song that Harry Belafonte used to sing: "It's clear as mud but it covers the ground."

Amendment approved.

Section 1 as amended approved.

Sections 2 to 13 inclusive approved.

Title approved.

HON. MR. CURTIS: Mr. Chairman, I move the committee rise and report the bill complete with amendment.

Motion approved.

The House resumed; Mr. Speaker in the chair.

MR. SPEAKER: When shall the bill be considered as reported?

HON. MR. CURTIS: With leave, now, Mr. Speaker.

MR. HOWARD: One should have the opportunity to review the words that have been altered in the context of the

[ Page 6159 ]

total, and if it's agreeable to the minister, we could hold it for another day.

MR. SPEAKER: When shall the bill be read a third time?

HON. MR. CURTIS: At the next sitting, Mr. Speaker.

Bill 9, Gasoline (Coloured) Tax Amendment Act, 1985, reported complete with amendment to be considered at the next sitting of the House after today.

[11:00]

HON. MR. GARDOM: Mr. Speaker, I call second reading of Bill 10.

MOTIVE FUEL USE TAX AMENDMENT ACT, 1985

HON. MR. CURTIS: Bill 10, Motive Fuel Use Tax Amendment Act, 1985, is a companion in some respects to bills which have been dealt with earlier today. In the budget on March 14 I announced administrative and enforcement changes to be introduced in this and other consumer tax statutes. The bill contains amendments which clarify the authority to make assessments against purchasers, limit the maximum period subject to audit to six years from ten, and provide for increased penalties and fines on and after July 1.

The question of assessments against purchasers when they fail to pay tax: the lack of authority to assess purchasers became evident in the course of administering the Social Service Tax Act, and this provision is therefore being added to several of the consumer tax statutes, including this one.

I have spoken previously about the second amendment in what is in effect something of an omnibus bill: this is the reduction of the audit period to six years.

The Crown will also limit the time period for taking formal collection proceedings to seven years; that parallels other legislation. The final amendment provides for increased penalties and fines on and after July 1 of this year, effective at the end of the consumer tax amnesty program which has been introduced for all consumer tax statutes.

Mr. Speaker, that essentially is what is occurring in Bill 10, which is companion to several others moving through the Legislature during this session.

I move second reading of Bill 10.

Motion approved.

HON. MR. CURTIS: With leave, I move that the bill be referred to a Committee of the Whole House for consideration now.

Leave granted.

Bill 10, Motive Fuel Use Tax Amendment Act, 1985, read a second time and referred to a Committee of the Whole House for consideration forthwith.

MOTIVE FUEL USE TAX AMENDMENT ACT, 1985

The House in committee on Bill 10; Mr. Strachan in the chair.

Sections 1 to 9 inclusive approved.

Title approved.

HON. MR. CURTIS: Mr. Chairman, I move that the committee rise and report the bill complete without amendment.

Motion approved.

The House resumed; Mr. Speaker in the chair.

Bill 10, Motive Fuel Use Tax Amendment Act, 1985, reported complete without amendment, read a third time and passed.

HON. MR. GARDOM: Committee of Supply, Mr. Speaker.

The House in Committee of Supply; Mr. Strachan in the chair.

ESTIMATES: MINISTRY OF INDUSTRY
AND SMALL BUSINESS DEVELOPMENT

(continued)

On vote 44: minister's office, $196,194.

MR. WILLIAMS: I think it might be interesting to reflect on the pattern that has existed in the province with respect to this ministry and similar economic ministries relative to the main industry of the province.

It seems to me there's been an inherent assumption on the part of ministers of industry in this province that the forest sector — that is, the industrial sector — was being accommodated and looked after elsewhere. While they have dealt with some of the questions with respect to our prime industry in a marginal way, they haven't ever addressed themselves to the whole broad and important question of industrial strategy with respect to forests, and the whole question of the industrial structure that we have in British Columbia. That's probably an inherent weakness in the breaking up of departments. This is a new minister. It's something that he might address, because we've historically mixed these things up in British Columbia. We've tended to think that the forest industry thing is okay, and that's going to be dealt with by somebody over there. We tend to mix it up with the land question; that is, the management of forest lands. We make an omelette.

What I'd like to talk about is the industrial side, because we tend to deal with the omelette all the time, instead of the pieces. That's a fundamental error, in my view. Historically we have had this department of industry that traditionally ignores the basic industry of the province. We are all the losers there.

The industrial question. We have a serious problem in this industry of ours because we're now about two generations behind the Scandinavians in technology, marketing and genuine entrepreneurship. This is maybe the greatest weakness in the provincial economy, beyond living with this administration. The greatest single weakness, in my own view, is the whole business of the strength of entrepreneurship within our basic forest industry.

There have been studies of late, one by Prof. Sten Nilsson from Stockholm, an expert in forest industry questions. He has concluded that the lack of entrepreneurship within the forest industry is one of the serious problems we face in

[ Page 6160 ]

British Columbia. I think our strategies have enforced that over the years. We've tended to accept the idea that supply of material to our forest industry should be a non-competitive supply, unlike most of the rest of the western world. In Scandinavia they face a competitive supply situation. In America they face a competitive supply situation. In British Columbia there is not a competitive supply situation. It allows our industry, therefore, to get lazier in terms of dealing in an efficient way with what they're supplied. It's ironic that from this so-called free enterprise government we have anything but free enterprise in our basic industry, at least in the supply end.

We tend to think that another ministry is looking after these problems, because we have another ministry called Forests. But the training, the direction and orientation of that other ministry is all toward the forest end and land management, rather than the industrial end. One tends to think that maybe this ministry has all the expertise in the industrial end. I'm satisfied they don't either. So we in British Columbia, in terms of significant economic planning at the public level, are falling between stools. There is the assumption that those tree guys over there are looking after the industrial side; and they've scrambled a little bit, but they're not. At the same time this ministry, which has the broader responsibility for the industrial sector of the province, hasn't really developed competence in this area either. So in a way we've got the worst of all worlds. We've got this ministry that works over on this margin, and another ministry that works over on that margin, and in the meantime, in the significant core area, America is moving ahead of us, Scandinavia is moving ahead of us, and competitively we're slipping further and further back. What we need is a kind of new grand strategy to rebuild, retool and remarket our basic products in British Columbia.

Let's look at the industrial structure we've got, and let's look at why we've been falling behind. A lot of experts have been looking at this field over the last few years. It's worth looking at some of the work. As I said, work has just been completed on this industrial side by Sten Nilsson under Dr. Peter Pearse at UBC. Work has been done by Woodbridge, Reed and several others as well. What's interesting is that they're all starting to tell us the same thing, that we are desperately slipping behind our competition, that government hasn't taken the problem seriously, and that unfortunately industry has created conditions for itself that almost prevent it from grappling with the problem, because industry is overloaded with debt at the moment in British Columbia and can't move on to what it has to do to build a new competitive situation.

Our broad problem in this industry in British Columbia is that we're turning out bottom-of-the-line lumber products in the form of 2-by-4s and studs, and bottom-of-the-line products in terms of market pulp, not fine finished papers, and bottom-of-the-line products in terms of newsprint, rather than finished papers and white papers — value-added materials. It's a fundamental problem. The irony is that within this area of our strength in the forest products industry the growth has been in the value-added products. British Columbia isn't into the value-added products at this time on any significant scale. So it's a fundamental weakness that we have.

[11:15]

We've got growing problems in terms of wood costs, especially on the coast, which make the industry less competitive on the coast. We haven't really moved to the new kind of product mix that is necessary in terms of value-added. There have been a few that have. MacMillan Bloedel has moved, in terms of one machine at Powell River, into the white, glossy newsprint stuff that you get in your advertising supplements. That's the first new step in that area. The Hammond mill of B.C. Forest Products has moved into value-added material in red cedar. They've worked in terms of value production, not volume production. So we're getting significant beginnings. But the real improvements in terms of value-added have come, in fact, from the small forest products companies in British Columbia, not the big ones. A couple of the big ones are starting to change, but they've got financial problems. The small ones, by and large, have been doing the job.

We've slipped back in technology. We could be doing much more. The approach of government in this last while, as things have been tumbling down, has been to say: "What can we do to prop up our problem industries?" There's another bill before the House — the commissioner of critical industries. One can't argue about that in the short term, and we've indicated that we will support that in the short term, but it's a focus that's dangerous. We're not taking a medium- or longer-term view of our basic industry here. Much of the attention and talent available will be used in this process of propping up existing industries that are already in a vulnerable position, even in the broadest sense. They're vulnerable in terms of price. Lumber, in real value, has gone down in price over the last several years. The other commodities are very vulnerable in terms of exchange rates and generally in terms of the product line. So if we spend most of our effort in propping up what is basically a weak product, which is what we have in British Columbia, we're doing the wrong thing.

I should be the last to suggest it, but it is a potential lemon-socialism program, in the classic British model. I think this government should be the last to consider the lemon-socialism option. The commissioner-of-critical-industries approach and propping up old low-value industries is potentially that, unless you take the bulk of your talent and energy and move toward new technology and new product and new marketing.

Now if we're going to move into that realm of new product, one of the things a lot of the new products will take is energy. We're fortunate in that regard. We have a publicly owned utility in this province that has excess electricity, and we have cheap electricity as well. Our electricity is available at about half of what it is among our competitors in the United States and might in fact be less. So if we're going to move into state-of-the-art pulping and that sort of thing in British Columbia and value-added in terms of hard papers and coated papers and a range of things like that, then part of what's needed is low-cost electricity. Low-cost electricity is what we do have in abundance. So there is the makings of a new industrial strategy for our forests. It's not beyond us.

But we have this other irony over here in the private sector. Our forest companies in British Columbia have borrowed too much. They are now over-leveraged entities: they borrowed too much, they face interest-rate problems, and too much of their funds is now geared to paying back the bank loans. So we have an industry highly leveraged in a position where, if they're going to keep up with the rest of the world, they are going to have to retool, spending money on new technology and new plants, but they're locked in with old debt. That's a pretty serious problem. So this whole question of upgrading our basic industry in the province is before us

[ Page 6161 ]

now. The private sector is in a real dilemma, because they don't have the funds to grapple with the basic problems.

While we're looking at such modest stuff in terms of decision-making over there, they've been grappling with a modest little agreement with the feds — the ERDA of $575 million shared fifty-fifty over five years. Sten Nilsson, the man from Stockholm, when he did his overview, said that in reforestation and industrial rebuilding to catch up with the Scans will take $35 billion, if we're going to try to get close to them by the year 2000. We're talking about $575 million over five years in a federal-provincial agreement. What does that amount to in percentages? It's just minuscule. It means we're going to keep sliding back relative to our competition, in this basic industry — two generations behind our main competition in this industry. We've slipped behind eastern Canada too. We tend to think of British Columbia as being ahead of the east, but in this sector we've slipped behind them as well.

If you look at the value of paper-converting in Canada, it's down 2.6 percent in B.C. and up 7 percent in Canada, an indication of the increased production and retooling that is taking place in eastern Canada.

We've got a problem in this province too in terms of research and development. There just isn't an R and D capacity in terms of our basic industry. The Scans again devote significant funds to research and development, and that's why they've moved ahead of the rest of the world. They now have new products that nobody else in the world is producing, particularly in terms of fine papers, packaging papers and a whole range of things like that, and new products such as the one they call Tetra-Pak.

We now have only one forest industry in British Columbia that has an R and D capacity, and even that has been cut down by about 25 percent. Ironically, through these rougher times our basic industry has cut back on their marketing staff and marketing skills. What we desperately need as we evolve new products is the linkage in terms of marketing, in terms of back and forth, in terms of understanding the products that are really needed out there, and starting to produce them.

If we look at the overall value of our forest product in B.C., in 1973 we produced 51 percent of the value within the country in terms of forest products. In 1983 we produced only 42 percent of the value of forest products in the country. We still have half the trees, but what it tells us is that eastern Canada, like the Scandinavians, are moving ahead of us in terms of increasing value and value-added. That, Mr. Chairman, is what wealth creation is all about; that is, using technology, capital, labour and our raw resources in a more creative, productive way is the wealth-generating game. We've been slipping behind in terms of wealth-generation. So I think that's the main point: we have to move into these value-added products, we have to start changing the industrial structure, and we have to start changing some of the other systems.

We have a problem in B.C. for our sawmills in terms of them catching up as well. Our sawmills on the coast have been desperately slipping behind, and some of the others have as well. Part of that is related to what they pay for the product in terms of pulp mills. We could upgrade all of our sawmills in British Columbia quickly with internal cash flow within those sawmills if they got a decent price for the chips or the residuals that they produce.

At the moment, sawmillers in British Columbia get only 50 percent of the value for the chips that the companies would otherwise have to pay for roundwood. So we have a sawmilling economy in British Columbia that is distorted because it doesn't get a fair price for all of its product. As a result, there are those real distortions.

So the main point is that our industry is terribly vulnerable at this time, Mr. Chairman. Lumber is already a mature or no-growth product. It's likely to decline because of changes in the market and other products that will replace it. It's highly sensitive to both exchange rates, and it's highly vulnerable currently, as we all know, to tariff pressures as well. That's pretty serious.

The question of value added.... It's worth looking at some of the numbers. In Canada, value added in terms of wood products didn't increase very much in the last decade. But if we look at Sweden in the last decade, value added increased by 80 percent. The overall figure for Canada was 16 percent in terms of value added in the last decade, British Columbia being less than the Canadian average because of what's happened in eastern Canada, as I said. But the Swedes have increased value added onto their forest by some 80 percent in the last decade. That's from a higher base, so they started out in terms of a value per cubic metre of wood of something like around $80 Canadian and have moved up significantly since then, whereas B.C. is down in the $30 range somewhere.

So we're talking about a fourfold difference in value added, in terms of a chunk of wood. Just think about that: in terms of the application of capital and technology, the Swedes are now putting value onto a piece of wood that's about four times what we do. That is, they're getting four times the wealth out of an acre of forest land that British Columbia is. You might multiply that because of forest management problems as well.

It tells you very quickly where the opportunity is in British Columbia to create wealth. The opportunity for wealth creation here is in this basic industry, because we're so far behind. We can very well have the Minister of Science (Hon. Mr. McGeer) saying that technology is it, and that all the growth is going to be there. The significant opportunity is here in an area that historically we've been strong in but which we're currently getting very weak in. We can move into new products just in terms of lumber. Do you know that the truss industry in the United States now accounts for 25 percent of their wood product in terms of that sector? We're not doing anything there to speak of. Treated woods. Something like 25 percent of the southern forests in the U.S. are treated woods — that is, treated with chemicals and various products like that.

Secondary manufacturing in terms of specific commodities is where we have to go as well to tailor ourselves to specific markets, like the Japanese and others. That means avoiding log export and moving into specific product. Even something like plywood. The Japanese have officially removed tariffs now on plywoods, and the dimensions they work with are 3-by-6. We don't have one plywood operation in British Columbia that produces other than 4-by-8. Something as basic as that is something to reflect on. We're not tailoring ourselves to the new growth markets that are available elsewhere in the world.

In pulp and paper, again we've been working at the basement level rather than moving up the ladder. We're not turning out printing paper, we're not turning out paperboard, and so on. In terms of pulp mills, we're still operating basically with a 1950 technology. H.R. MacMillan is the guy

[ Page 6162 ]

who brought the new pulping technology to British Columbia in 1950, and he brought it for the Harmac plant. That was when we had entrepreneurs in the forest industry, and H.R. MacMillan was one of them.

AN HON. MEMBER: You told us that before.

MR. WILLIAMS: Yes, and it's something to be told to you people again. It's a learning process for the people over there. It is a slow process, but if it's repeated and repeated, it'll finally be impregnated in even the most impossible circumstances, so I think it's worth repeating.

It's worth reflecting that we now have one new mill, CTMP mill in Cariboo, that involves the Japanese and it's interesting. That takes half the amount of wood for the same amount of pulp, and it's a kind of pulp that there is more demand for now.

[11:30]

So that gives you the kind of idea. We're operating with 1950-style pulp mills in British Columbia, and the 1985 state-of-the-art mill will take half the amount of wood to create the same amount of product. So what does that tell us about this industry? Again, think of the wealth-creation potential if we retool our pulp mills and develop a program there. Again we're talking about large amounts of capital, but that's clearly the way we have to go if we're to meet the competition. The experts tell us that this is the only way to go; that we have to upgrade our product if we're going to survive in the international world. That requires a tremendous amount of linkage and coordination between the government, the public sector, labour and the private sector. There is the need for a grand alliance, in terms of rebuilding and retooling our basic industry. It's a tremendous challenge, but there's no indication yet of the capacity, in terms of tooling up even the staff of government, to deal with this challenge that's before us. We haven't begun, even in the private sector, to rebuild the human capital, let alone the plant capital, to deal with the modern world.

AN HON. MEMBER: Is that why the pulp mill you were talking about is non-union?

[Mr. Ree in the chair.]

MR. WILLIAMS: I just wish that the people on the other side could actually, at some point in time, carry on a kind of relevant debate.

We're talking about the fundamental industry of the province and how far we've slipped behind in your decade. You people have had a decade here: ten years to rebuild and redirect this provincial economy. Everything has been short-term. It's always been to get away from this basic industry. "We're going to do it with northeast coal; we're going to redo it that way." Look at how we've fallen on our face there, instead of looking at our fundamental industry in a serious, long-term way.

The Scandinavians saw this problem at the beginning of the '70s, and they saw it again.... They saw their high wood costs as a problem, just as they are for us now. Government got together with industry and labour, and worked out a long-term program. That's why now.... You check our markets in Asia; the Scandinavians are beating us there. You check now in parts of America, and the Scandinavians are to starting to beat us there.

AN HON. MEMBER: There's no difference in the distances at all, is there?

MR. WILLIAMS: One would tend to think that we on the Pacific Rim would have the edge. In fact, we don't, because the Scandinavians have retooled; they have long-term plans. They don't have this kind of situation, where you've got a Forests ministry that doesn't really know anything about the industrial structure, and where you have an Industry ministry that ignores the forest sector. That's what we've got in British Columbia — the worst of all worlds. The Scandinavians put it together a long time ago, but we haven't put it together. That's why this industry is sinking behind to the extent that it is.

The lack of entrepreneurship in the core of our basic industries is one of the most serious problems we have. It is complicated by the way we supply them with wood. The Americans are right to be concerned about the way we manage this industry. There are fundamental questions that have to be addressed. We should be doing this — as a people — internally, without pressures from outside. Those pressures from outside are mounting. They are serious. It isn't quite good enough for Mr. Apsey to go — for the Council of Forest Industries — and use his pop-gun in Washington, D.C., and say: "You want a trade war?" We're one and they're ten; we don't win in that kind of trade war. Let's not kid ourselves. The job we have is to rebuild at home, retool at home and make ourselves competitive at home. Then we will avoid that spectre on the horizon that is getting closer all the time in terms of American protectionists wanting to deal with us.

I have more to say in terms of what Mr. Nilsson himself specifically said in his report, but I'd appreciate some initial response from the minister.

HON. MR. McCLELLAND: Mr. Chairman, I appreciate the member's attempt to do the forest minister's estimates under my estimates, but nevertheless the responsibilities given to us by cabinet do detail that the Forest minister is responsible for debating the general nature of the forest industry, so I don't have very many comments to make about what the member said, except perhaps to say that in some instances the member is talking about the exact things that are the whole thrust of this budget and the economic programs which will be put before this House, in terms of value added. All of our programs are targeted to processing, manufacturing and upgrading, and those are the only targets that we have. The forest industry is, as the member said, our basic industry, and it's going to be a prime target for many of those programs, whether they be retooling, whether they be expanding for export markets or whether they be in fact to help bring new kinds of industry related to our basic industry to British Columbia. So I have to agree with the member that that's where our thrust should be, and that's where our thrust will be over the next many, many years. The private sector itself has a responsibility to carry its share of the load as well. Perhaps in the past — in some parts of British Columbia at least — the private sector didn't clearly see the need for upgrading and retooling, but I don't believe that's the case at the present time. I think the industry is well aware of where its shortcomings have been and where it needs to go in order to overcome them.

I won't comment on the critical industries commission aspect. I don't want to invade the territory of legislative debate on a bill that's before the House. The idea is not to prop up industries which are non-viable. The idea, instead, is

[ Page 6163 ]

to bring all parties together, whether it be government, labour, management or anyone else who may become involved to ensure that a viable industry can be made to operate with a little help. The help is not necessarily from the government, as in the case of the Victoria Plywood situation, for instance; the help came from all parties. That's what the critical industries commissioner's role will have to be: bringing those parties together.

I find it hard to understand the member's comments about the strength of our entrepreneurship in the forest industry. There has probably been some weakness, but at the same time the member points out that the growth and the exciting things that may be happening in the forest industry are coming from the small companies, and that's the truth. But that's always been the case, and I believe it always will be the case that the small entrepreneur, the person who has his sights on growth, is the person who — not only in the forest industry, but in every industry in this province — drives that engine. Perhaps there's some kind of an inherent weakness in getting big: that you lose your entrepreneurial drive once you get to a certain size. I guess we in British Columbia will always prosper on the backs of the small business that wants to grow and wants to provide new jobs.

As far as the Ministry of Industry's interest in the forest industry and our involvement in planning for the forest industry, I think we do that at a committee level. I just happen to be chairman of the cabinet committee on economic development as well. All planning comes before that committee, and that includes planning for all industrial activity in the province.

As far as many of the other very thoughtful comments by the member are concerned, Mr. Chairman, I will certainly ensure that a copy of the member's remarks are laid in front of the Forests minister for his perusal as well.

MR. WILLIAMS: Well, that's appreciated, Mr. Chairman.

If this is where the thrust will be, then there's a lot of work to be done. I don't think you've got the staff. I don't think you've got the tools to do the job. We're now two generations behind. The big increases in your budget this year are for propaganda, for advertising. That's where the big increases are in your budget this year, just as in every other budget of this administration, as we go into an election year. That's the growth industry at the moment: advertising flash-in-the-pan exercises like Expo — again, short-term projects and advertising.

But I'm more than pleased that the minister, as chairman of the Cabinet Committee on Economic Development, agrees that this will be the area of significant thrust. I happen to believe that small is beautiful, and I am pleased that the minister has some recognition of what small processors and manufacturers achieve.

But I wonder if the minister is aware that everything that this administration and government does in British Columbia has a bias towards the large, the big and the integrated. We have a forest industry that is totally biased towards the big producers. We could totally retool all of our sawmilling industry in British Columbia if that bias was not there — and that's with the sawmillers' internal cash flow. We have a system in which they don't get paid the true value for their products. Sten Nilsson tells us, after private consultations with the pulp companies and the sawmillers, that the sawmillers only get half of the real value of their chips. In Scandinavia the sawmillers get the equivalent of round log costs. That provides them with money to retool the industry. Mr. Nilsson tells us there is no hope of rebuilding the sawmill sector of British Columbia — on the coast it has to be rebuilt, and some of it has to be rebuilt in the interior — unless we have something closer to a market system for chips. So the internal potential for the good small company, the unintegrated company, to rebuild itself with its own cash flow and profits that are the result of its own skills and genius is not there, because we've accepted a rigged economic game that the big companies control. That's what has happened.

The minister can say: "Yes, we do ride on the skills of the small companies." It's true we do, but we also push them under because we have a system that doesn't give them access. We don't let any new people into this industry. You have to buy out the old and the incompetent. That's how you get into the forest sector in British Columbia. You have to buy out the old, the fat and the incompetent to become a new producer, because there's nothing new available for people in this sector.

So it's a concern. Again, as I've mentioned before in terms of newsprint production in British Columbia, we're now at the point where 50 percent of our machinery in newsprint is pre-1950, and 58 percent of it is almost 40 years old. No wonder we're slipping behind. The Swedes have newsprint machinery only 7 percent of which is pre-1950. No wonder they're getting ahead of us. No wonder they're able to sell at a lower price than us. No wonder they're able to invade our traditional strong market areas.

You know, the captains of industry on occasion get up and give speeches. Adam Zimmerman, who is the boss of most of our forest companies in British Columbia, said that we've got to increase productivity, and Adam Zimmerman's way of increasing productivity in British Columbia is to get all the workers to take a 25 percent cut. Well, that isn't the way to increase productivity. The way to increase productivity is to retool and bring in the new technology so there is more output per man.

AN HON. MEMBER: Lay them off.

MR. WILLIAMS: No, there would be more product and more wealth and more value added, and in the end that requires more workers.

If we look at what the new-technology sawmills on the coast — and we don't have many of them — turn out in terms of man-hours and cubic metres.... It's 2.46 cubic metres per man-hour with existing technology. With the new technology it's significantly different, almost a doubling. The pattern is there. If the money is applied in terms of capital and technology, then you can pretty well double the production per man. That's the opportunity we have in British Columbia in terms of retooling. We can create a great deal more wealth, greater productivity per man, but it's going to take money and technology, and we're behind in all of that.

[11:45]

If we look at what Professor Nilsson said in the conclusions of his significant study of our forest industry, he said: "The only way to improve the lumber industry situation is through investing in modern technology and producing higher-value-added products. Full compensation for chips" — that is, the byproduct of the sawmills — "is necessary in order for these steps to be taken." He is telling us that unless these people get a decent price for what they produce, rather

[ Page 6164 ]

than the rigged 50 percent price, we're going to get into trouble.

He says with respect to the state of the plywood industry that most of the plywood plants will be closed by the year 2000. He says we must improve recovery in terms of production out of these mills; and we can do that. Again, the Swedes and the American south are significantly ahead of us as well. Then he says: "Manipulating the sector's economic conditions by having the price of chips supplied to the mills at less than full delivered wood cost results in a decrease in the total economic results for the sector." What he tells us then, this economist, is that we're not going to get full value out of our forest sector until we tell the big companies: "Quit manipulating price when you're dealing with the small players in the game." That's what he's telling us. And he's telling us that all British Columbia loses when we let the big pulp mills and the big integrated companies manipulate price with respect to the small companies. That's significant. You over there built in a system that is preventing us from achieving our potential.

Professor Nilsson also says this about our major industry. He predicts a high degree of obsolete pulp capacity on the coast by the year 2000. Does that surprise us? Has anybody ever visited Woodfibre? Has anybody ever visited Port Alice? Does anybody think those mills will be operating by the year 2000? They're antique mills. They are antique mills owned by companies that borrowed the money to buy them. When Rayonier left this province they sold a bunch of junk in terms of machinery. What they were really buying, in terms of Western Forest Products, were our forests. The $400 million-plus that was paid to Rayonier — who now of course are in New York — went to them for our forests. The new company is stuck with their antique machinery and their antique pulp mill. But this man from Sweden looked at that and some of our other producers and said that there's going to be a high degree of obsolete pulp capacity on this coast.

What we're talking about to retool here is hundreds and hundreds of millions of dollars. We have to address that. But what we've got here is a minister who's been arguing over his $500-odd million deal with the feds for five years; $100 million a year he's talking about. And we have classic, fundamental, structural problems in our major industry that he doesn't seem to have the capacity to address, the manpower to address or the funds to address — and another ministry that fools around more in forest management and hasn't got the beginning of an idea about restructuring the basic industry itself.

Mr. Nilsson carries on. Regarding newsprint, when we've got all these — again — antique newsprint plants on the coast, he says: "Even under optimistic economic conditions, obsolete capacity will be between 130,000 and 370,000 tonnes by the year 2000." Again, in newsprint we're moving totally toward obsolescence in terms of competing in the world. So here we are, this province that's blessed with a fantastic forest landscape, with an industrial structure that is now two generations behind.

In terms of product out of logs, again we're way behind. In terms of yields we're way behind. In terms of productivity per man-hour, in British Columbia we're now 20 percent behind the Swedes. They can use one-fifth less manpower now as a result of what's happened. What's happening elsewhere in terms of productivity? Right now, productivity in the American south — our competitors on this continent — is going up about 3 percent a year. We're really slipping behind.

Again, if we look specifically at the numbers in terms of the debt-equity ratio within this industry, in 1979 it was .58 to 1; in 1983 it was up at 1.06 to 1. The common normal value in industry, in terms of living with a debt load, is .65 — half. A major industry in British Columbia has double the debt load that it should have to do its job. That means they don't have the capacity in terms of capital to carry on and do the job in terms of catching up with the American south, catching up with the Swedes.

So what's going to be done? Clearly, you've got a job figuring out how to provide new capital in terms of our basic industry. We now have an industry that is not capable of doing it itself. They cannot find the new capital themselves to do the job that's got to be done to create the wealth, the jobs that we need in British Columbia. That means some major coordination and activity on the part of government to make this whole thing work again for us to renew this basic industry.

I'll just sum up what Nilsson said in concluding: "Industry has to take some of the blame." That's Nilsson from Stockholm. He says the industry invested too little during the seventies, when it was making good profits compared to all the other regions of the world, so what he's saying is that they dissipated their profits elsewhere in inadequate ways. We all know that M&B and others invested in projects that failed outside of British Columbia. They didn't put the money back in British Columbia, and they and the rest of us are losers. He says the industry failed to attract foreign capital internally as well. He says the industry has not been sufficiently market-oriented in keeping up with the new markets.

Nilsson says the industry has not devoted enough energy to solving problems with unions — fair enough; and he says the industry displays little entrepreneurial spirit. This is the Swede talking. He says there is a low degree of entrepreneurship in this sector, and that's it. That really sums it up. Our basic industry isn't real hustling entrepreneurs any more.

Since 1950 and the end of MacMillan himself in MacMillan Bloedel, it's all changed. Old HR predicted it himself. An old forester told me that he went hunting with HR when they were moving into the paper end of things, and the old man was actually crying in the woods with his hunter friend and said: "I can see it all changing, because the bureaucrats are taking over and the entrepreneurs aren't going to be around much longer." That's precisely what happened. The old man had reason to cry. The bureaucrats have taken over, and they have to become entrepreneurs again.

MR. COCKE: Mr. Chairman, I have a few words to say about the New Westminster waterfront, but I gather that it would be probably in our best interests at this moment to move the committee rise, report progress and ask leave to sit again.

Motion approved.

The House resumed; Mr. Strachan in the chair.

The committee, having reported progress, was granted leave to sit again.

Hon. Mr. McClelland moved adjournment of the House.

Motion approved.

The House adjourned at 11:56 a.m.

[ Page 6165 ]

Appendix

AMENDMENTS TO BILLS

9 The Hon. H. A. Curtis to move, in Committee of the Whole on Bill (No. 9) intituled Gasoline (Coloured) Tax Amendment Act, 1985 to amend as follows:

SECTION 1, in the proposed section 6 (2) by deleting "PT = the tax payable under this Act" and substituting "PT = the tax payable under section 4 (2) of the Gasoline Tax Act".