Hansard — Thursday, March 20, 1986 — Afternoon Sitting

CONTENTS

Tabling Documents –– 7437

Budget Address. Hon. Mr. Curtis –– 7437

Mr. Stupich

Education Excellence Appropriation Act (Bill 4). Hon. Mr. Curtis

Introduction and first reading –– 7449

Health Improvement Appropriation Act (Bill 5). Hon. Mr. Curtis

Introduction and first reading –– 7450

Assessment Amendment Act, 1986 (Bill 7). Hon. Mr. Curtis

Introduction and first reading –– 7450

Income Tax Amendment Act, 1986 (Bill 8). Hon. Mr. Curtis

Introduction and first reading –– 7450

Motor Fuel Tax Amendment Act, 1986 (Bill 9). Hon. Mr. Curtis

Introduction and first reading –– 7450

Insurance Premium Tax Amendment Act, 1986 (Bill 10). Hon. Mr. Curtis

Introduction and first reading –– 7450

Taxation Statutes Amendment Act, 1986 (Bill 11). Hon. Mr. Curtis

Introduction and first reading –– 7450

Forest Stand Management Fund Act (Bill 6). Hon. Mr. Heinrich

Introduction and first reading –– 7450

THURSDAY, MARCH 20, 1986

The House met at 3:05 p.m.

Prayers.

HON. MR. NIELSEN: Mr. Speaker, on behalf of the government and members of the assembly, may I welcome the many distinguished guests in the House today, representatives from industry, labour, the investment sector and governments. Many of our visitors come from outside of the province and many from outside the country. I would like to welcome them all.

MR. HOWARD: Her Majesty's Loyal Opposition joins the government in welcoming the guests today. I hope that they go away pleased and contented.

HON. MR. NIELSEN: Mr. Speaker, I would like to advise the House that by agreement, question period today will be deferred until tomorrow morning.

MR. HOWARD: I rise on a point of order. The point relates to the televising of the proceedings today.

It is a custom for the budget presentation of the Minister of Finance to be televised. There was a select standing committee of this House that unanimously reported to the House and recommended, or thought that it was a good idea, that the proceedings of the House should be televised to the whole of the province. That hasn't yet come to be, but I submit that we can make a move in that direction by, as again is the custom, Your Honour's putting the question to the House as to the possibility of televising the address tomorrow of my colleague the member for Nanaimo (Mr. Stupich), who will make the first response to the budget. If your Honour would do that, and we could test the House in that regard, I am sure we would go a great deal in the direction of bringing the proceedings of this House to all of British Columbia.

MR. SPEAKER: As the Chair has advised the member on previous days and in a previous manner, such a motion cannot be put at this particular time and certainly not in the guise of standing on a point of order; and if it is the wish of the House to undertake that kind of coverage, the Chair is more than pleased to so do. But hon. members cannot do so without the proper steps being taken, and hon. members are aware of the steps that must be taken in so doing.

MR. HOWARD: I put that to you to test the sense of the House.

MR. SPEAKER: Order, please, hon. member. As the member is fully aware, there is a time and a method for a motion of that kind to be put, this being neither the time nor the place; but I'm sure it can be addressed in the proper theatre.

MR. HOWARD: Your Honour, you're doing exactly the opposite to what you did on July 8, 1983. On that day you put that question to the House. You asked the House for leave to televise the remarks of the member for Nanaimo.

Interjections.

MR. SPEAKER: One moment, please.

Hon. members, notwithstanding the reference by the hon. member to actions in 1983, the Chair may have inadvertently or inappropriately put such a motion to the House, but in view of what has happened in the last little while and the motions that have been put forward, this is not the time for such a motion to be put to the House. Members are aware of the rules that guide us in this House, this motion being no different from any other that would be so put and so refused by the Chair.

Orders of the Day

HON. MR. NIELSEN: Mr. Speaker, the budget debate.

HON. MR. CURTIS: Mr. Speaker, I move that the 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 public accounts of British Columbia for the fiscal year ended March 31, 1985 in accordance with section 8 (3) of the Financial Administration Act.

HON. MR. CURTIS: Mr. Speaker, I move that the public accounts for the fiscal year 1984-85 be referred to the Select Standing Committee on Public Accounts and Economic Affairs.

Motion approved.

Hon. Mr. Curtis tabled the comptroller-general's interim financial statement for the ten months ended January 31, 1986.

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, 1987, recommending the same to the Legislative Assembly.

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

Motion approved.

HON. MR. CURTIS: I move, seconded by the hon. Minister of Human Resources (Hon. Mr. Nielsen), that Mr. Speaker do now leave the chair for the House to go into Committee of Supply.

BUDGET ADDRESS

HON. MR. CURTIS: Mr. Speaker, I'm honoured to present the 1986-87 budget for the province of British Columbia in Victoria on this beautiful first day of spring.

As this Social Credit administration enters its second decade in office, we can look back with pride on our accomplishments during a turbulent and difficult period in the world economy. Through decisive actions over the past four years, we have put into place a strategy to move British Columbia forward with confidence towards the challenges of the twenty-first century.

[3:15]

We have chosen to build a strong economic structure that will stand the test of time. It has taken patience and hard work, and at first some questioned our approach. We built a solid foundation by getting our financial affairs in order at a time when the deficits of other governments were galloping out of control. At the same time we began the critical process of bringing down the cost of doing business and providing public services, to restore the competitive position of our economy. Last year in this House we established the basic structure of economic renewal with a major tax reform and important public investments. Just over one year ago I presented to the Legislative Assembly a comprehensive set of initiatives, including: major tax cuts to make business more competitive and important tax incentives to stimulate new investment; industrial development programs to assist new and expanding businesses; and investments in the natural resource base and in major construction projects to provide jobs now and in the future.

In the months that followed, we added more elements to that economic renewal program: the Provincial-Municipal Partnership Act, special industrial electricity discounts, the commissioner of critical industries, the public sector purchasing policy, and the Special Enterprise Zone and Tax Relief Act, among others. Our program has helped British Columbia join the ranks of the leaders in the worldwide race for new investments and jobs.

Today I shall announce further measures to strengthen and diversify the provincial economy, building on that framework which was created last year. I shall focus particularly on one element needed to make our structure strong and secure: that is, people — skilled, educated, adaptable people; optimistic and healthy people. To this end, I can announce today new multi-year funding packages for health and for education. These will not only provide additional funding but will also tap the energy and the creativity of our educators and those who provide our health care services to assist in determining priorities.

We believe this year of Expo 86 represents for British Columbians not only the successful culmination of many years of planning and hard work but also the beginning of a new period of growth and prosperity, an era marked by an expanded world role for this province. The talent and initiative of our people, supported by dynamic and creative government policy, will, I believe, give us the future we all seek.

The economic environment remains challenging. In 1985 we faced highly competitive international markets, generally declining commodity prices, moderate worldwide economic growth and a very modest increase in the value of international trade, the same challenges we have faced since the international recession of 1981-82. Despite tough competition, 1985 saw the strongest period of economic performance since that recession began.

It's encouraging to see that our ability to meet and overcome these challenges is growing. We've witnessed, in the last year, excellent cooperation among all groups in our economy: employers, workers, municipalities and the provincial government. This unprecedented spirit of partnership was demonstrated in very many ways.

Employers and workers are cooperating by entering into flexible compensation packages that are responsive to market conditions. These agreements place a higher value on preserving employment and improving output than on propping up outdated work practices.

To date, Mr. Speaker, 111 municipalities have entered into partnership agreements with the provincial government and many more are pending. Municipal property tax reductions, accompanied by provincial government assistance, have been granted to industrial firms throughout the province. These actions have already created many new jobs.

The commissioner of critical industries, Mr. Speaker, in only 11 months has saved or restored at least 1,500 jobs by bringing people together. Mines, sawmills and plywood plants that would have otherwise gone out of business are operating successfully. Plants threatened with closure have been kept running and closed operations reopened by showing people ways in which to cooperate. Concessions have been made by every person concerned: employees have given up wage increases, often in exchange for a share of profits; municipalities and the provincial government have forgone property taxes; financial institutions have deferred loan repayments and reduced interest charges; and British Columbia Hydro has lowered electricity rates.

The commissioner's efforts have paid off not only in jobs, but also in output. In addition to the 1,500 people who are working today in communities throughout the province, these plants are doing over $200 million in business annually, and their continued operation will contribute over $10 million a year to provincial revenues. None of this would have happened without cooperation and flexibility.

This flexibility is essential, Mr. Speaker, if we are to improve our standard of living in a world economy subject to rapid change. This province has undergone a permanent transformation over the past four years. Our export industries have succeeded in adapting to tougher world markets by boosting productivity and lowering costs. But success must not be taken for granted. We must continue to adapt if we want to maintain and further advance our competitive position.

There are some favourable signs beyond our borders as well. Last year, after several years of unprecedented strength, the United States dollar, and with it the Canadian dollar, began a sharp decline against the Japanese and western European currencies. This foreign exchange correction has markedly improved the competitive position of British Columbia producers in our overseas markets. In Japan, our most important offshore market, the increase in the foreign currency value of the yen has reduced the effective cost of our commodity exports more than 30 percent in the two years up to February 1986.

Another favourable sign is the growing interest among Canadians in removing international trade barriers. This province shipped international exports worth approximately $12 billion in 1985, directly supporting hundreds of thousands of jobs. We in B.C. have much to gain from trade liberalization, and much to lose if protectionist attitudes prevail and trade barriers are erected.

British Columbia's position on trade negotiations is very clear. We favour multilateral negotiations to address the new types of barriers and new trade issues that have arisen since the last round of talks under GATT. We also support the federal initiative to negotiate a bilateral trade agreement with the United States to secure access to Canada's largest foreign market. The two goals are not inconsistent, Mr. Speaker. It is reasonable and appropriate, within the context of GATT, to have a special agreement covering Canada-United States trade, the largest international trading relationship in the world. Many issues arise in such an intensive relationship that are too complex or too specific perhaps to be dealt with effectively in multilateral talks. Our other trading partners, who collectively take more of British Columbia's products than the United States, may rest assured that a Canada-United States agreement will not reduce our commitment to multilateral talks or to overseas trade.

Trade negotiations are always difficult. Canada's negotiators must take a strong position and must represent all regions. While the federal government must speak for Canada, provincial participation is essential to reflect regional interests and to ensure comment on matters under provincial jurisdiction. British Columbia will seek security of access for our lumber and other resource products, as well as greater opportunities to sell our newer products, such as electronic equipment.

We shall also look for reduced barriers to trade in services such as engineering and business consulting, which have the potential to grow rapidly and create thousands of high-quality jobs for British Columbians.

Finally, while we are committed to more open trade, we recognize that some sectors of our economy may find it difficult to adjust to a more open trading environment. We shall, in this government, be working with Ottawa to develop appropriate measures to assist those affected during that adjustment period.

I would also like to offer cautions concerning several threats to our improving prospects. First, and it is no news, international financial markets continue to be volatile due to large imbalances in international payments and the massive debt loads of many less developed countries. The resulting gyrations in interest and exchange rates could inhibit investment and disrupt our export markets.

Second, the recent sharp decline in oil prices, while welcome in many respects, could be disruptive. Reasonable stability in price and supply of this vital commodity is essential to the industrial world. Continued weakness in oil prices could negatively affect markets for other energy sources, including natural gas, electricity and coal.

Third, we remain concerned about the size of the federal deficit and the measures taken to bring it under control. The massive tax increases announced in the May 1985 budget and the February 1986 budget will slow the growth of the national economy, increase the inflation rate and damage the competitive position of our producers.

Let me be clear about this. We recognize the federal deficit as a national problem, the result of 15 or 20 years of fiscal mismanagement, and we have agreed to cooperate in bringing it down. Accordingly we have accepted the recently imposed reduction in the rate of increase of federal contributions to health and post-secondary education. Having put our own house in order, we are able to accept funding limitations and still increase our own spending on these programs. We have also offered to work with the federal government to eliminate duplication of activities between the two levels of government and identify areas where we can work jointly to reduce the cost of providing public services.

It is my hope that the federal government will rely increasingly on these and other cost reduction measures, rather than tax increases, to bring down its deficit. Make no mistake, if the current federal government does not succeed, the future impact on all taxpayers and the threat to social services will be far greater than the burden of current federal tax increases and expenditure limitations.

Mr. Speaker, I want to touch briefly on British Columbia's economic performance during the past year and our outlook for 1986. In 1985 the provincial economy experiebnced its est year since 1981, with estimated real growth of 3 percent. Improved performance in British Columbia and Canada was achieved despite weaker growth experienced by our major trading partners. The United States economy grew only 2.3 percent in 1985, well below the rate of the previous year. In the industrial world as a whole, economic growth slowed to less than 3 percent from 5 percent the year before. This slowdown contributed to weaker markets for our natural resource products. Canadian dollar prices of our major commodity exports fell an average 2.8 percent for the year.

Despite the lower prices, British Columbia's sales volumes were high, and the total value of commodity exports appears to have increased slightly. Cost control, higher productivity and lower taxes have enabled the mining and forest industries to retain their markets in the face of a general worldwide oversupply.

The lumber industry is a good example of how exporters have coped. Although prices for lumber in 1985 were 5 percent higher than in 1984, they were still considerably below the levels of 983. The industry has overcome the burden of the price decline over the past two years through greater productivity, increasing its production volume by 7 percent. Several of our major commodities experienced export price declines in 1985, with wood pulp down by 16 percent, natural gas 16 percent and coal 4 percent. Some other commodity prices improved last year. In addition to the increase for lumber which I have noted, copper recorded an increase in price of 9 percent, following several years of low prices, and newsprint rose by 10 percent.

Mr. Speaker, the brightest spot in our exports during 1985 was the demand for electricity. British Columbia Hydro earned $283 million from these exports to the United States last year. That compares with $123 million in 1984.

[3:30]

Several indicators demonstrate the growing confidence among consumers in British Columbia. Retail sales increased 8.8 percent in 1985 and personal income approximately 6 percent. Housing starts rose by 11.1 percent to almost 18,000 units. Employment is also on a steady uptrend. Last year there was an average increase of 26,000 jobs in the province, equal to growth of 2.2 percent in employment. Although moderate by comparison with the 1960s and 1970s, this was the largest increase in employment since 1981 in this province. Job creation has continued into 1986, and in February there were 50,000 more people at work in this province than one year earlier — an increase of more than 4 percent. The unemployment rate in February was down a full 2 percent from last year.

Despite this good news, we are still not satisfied. Creating more jobs remains our number one priority, but there are no shortcuts, either through handouts or make-work programs. The only permanent way to increase employment is through investment: investment in people, by offering them the opportunity to acquire the training and skills needed in a complex and dynamic society, and investment in productive plant and equipment.

The financial position of our natural resource industries remains weaker than it was five years ago, and current commodity prices are too low to justify significant expansions. Nevertheless, investment is now more diverse, and the outlook has been improving, reflecting the success of our multi-year program to strengthen British Columbia's economy through cost-containment, tax reductions, incentives and key public investments in resources and infrastructure. As these benefits of past initiatives gather momentum, and as the initiatives I shall propose today take effect, 1986 will see further increases in both business investment and housing construction.

In recent months there has been renewed optimism about the economic prospects for Canada. Most forecasters now predict that despite federal budgetary measures, economic growth will remain relatively strong for the next few years and inflation will remain low.

British Columbia's economic growth is expected to increase again in 1986 to the highest level in five years. There are many reasons to expect this performance. The economies of the U.S. and western Europe are forecast to improve, and growth in Japan should decline only slightly. So increased activity among these major trading partners will raise demand for our products. The decline of the Canadian dollar against the currencies of those countries will aid our competitive position. Indicators for retail sales, housing starts and manufacturing shipments show well-established uptrends. Measures taken by this government over the past three years to strengthen the long-term competitiveness of our producers are having a significant and positive effect. Inflation in British Columbia is expected to remain at a low level.

Mr. Speaker, Expo 86 and the millions of visitors it will bring to British Columbia will provide a major stimulus in 1986 and firmly establish our province as a desirable location for tourism and investment in the years ahead.

We expect the rate of growth in provincial gross domestic product to be 4 percent in 1986. Employment is expected to increase by 3.4 percent, or an average of 42,000 new jobs, significantly more than in 1985. This should result in a further decline in our average unemployment rate to 12.9 percent from 14.2 percent in 1985, despite an expected increase in the province's labour force as people respond to employment opportunities connected with Expo and a generally expanding economy.

Although there was a small net outflow of people to other provinces in 1985, British Columbia's population continued to grow. Between 1983 and 1985 our population increased by more than the overall increase in the other three western provinces combined. This growth will be compounded by renewed inward movement in 1986 and future years, adding more people to the labour force and making growth and job creation all the more essential.

With respect to the fiscal plan, the cornerstone of the government's fiscal policy over the past four years has been the effort to provide affordable government and avoid imposing major tax increases on the people of this province. The major structural shift in commodities markets which accompanied the 1981-82 recession caused a sharp downturn in provincial government revenue, creating a threatening deficit and requiring urgent corrective action.

We had two choices: cut spending or raise taxes. The wiser course — restraining spending — was the one that we chose. After rising above $1 billion in 1983-84, the deficit has been reduced in each of the following two years, and the trend downward will continue in 1986-87.

Our actions have been designed to ease the transition from the inflationary boom conditions of the late 1970s to the stable, perhaps even deflationary, conditions of today. Let me review the record briefly. Members will recall that we did act swiftly and decisively with the introduction of a comprehensive restraint-in-government program in February 1982. With the clear support of the people of British Columbia, we carried this process of reducing the size and the scope of government through 1983 and 1984.

Our plan was straightforward: stringent control of spending to reduce waste and increase efficiency; modest increases in a few taxes and fees; limits on program expansion; elimination or scaling-down of many inessential programs; reduction in staffing levels; and control of public sector wages and salaries. This stabilization program was opposed by some, especially those special-interest groups who refused to recognize that the public sector could not expand indefinitely while others were bearing the brunt of the world recession. Fortunately, most British Columbians recognized the need to build this foundation for recovery.

Cost control was balanced by investment in key public projects such as Expo, SkyTrain, the Annacis crossing, the Coquihalla highway and smaller highway and social service projects throughout the province. These investments provided jobs to carry us through the most difficult part of the economic cycle and created valuable public facilities which will serve individuals and businesses in this province for many years to come.

Last year the benefits of that fiscal discipline were translated into a major tax reform that will reduce business costs by almost $1 billion in three years. In this, the second year of the program, taxes on business in the province will decline by more than $350 million from the level that would have prevailed without tax reform. These efforts also permitted us to introduce a broad range of other business incentives, as well as new investments in our basic resources and our public facilities.

Our economic renewal initiatives provide stimulus now and will pay handsome dividends for years to come. As a result, the jobs of British Columbians now working are more secure, and the employment prospects of those not yet working are substantially brighter in the province.

For the future, we remain committed to the goal of reducing and eliminating the deficit. This year's expenditure initiatives, as well as the continuing highway construction and expansion program and a second year of tax reductions, can be accommodated within the framework of continuing deficit-reduction. At a time — and this is the essence of my remarks today — when other governments in Canada are forced to retrench by cutting programs and increasing taxes,

our vital programs are secure and our taxes are being reduced. This would not have been possible without the solid fiscal foundation we began building four years ago.

We've also helped both individuals and industry by stabilizing or reducing the cost of services provided by government agencies, and any increases in charges over the next few years will be generally below the rate of inflation. For example, as we know, the Insurance Corporation of British Columbia this year reduced automobile insurance rates for most British Columbia residents and businesses by an average of 6 percent. I say that not to distress those who have come from other parts of Canada, but automobile insurance rates have been reduced in this province. Electricity rates charged by British Columbia Hydro will be stabilized this year, and increases over the next few years should be below the general rate of inflation.

The Workers' Compensation Board has lowered the assessment rates charged to most employers. At the same time, benefits for injured workers have increased as a result of automatic indexing, not matched in most other provinces. Most strikingly, this has been achieved during a period in which the board has almost eliminated its unfunded liability. Only two years ago, this shortfall exceeded $500 million and threatened the financial stability of the board. Over the next few years, we expect that the WCB will be able to further reduce employer assessments while continuing to index benefits to inflation and raise the maximum benefit level.

The British Columbia Ferry Corporation was able to hold its major fares unchanged for this year, and will provide at the same time more frequent service on main routes to accommodate visitors to Expo. The British Columbia Railway Company is also operating successfully, and reported record profits of $42 million in 1985, following excellent results in 1984. The volume of freight carried by the railway in 1985 was the highest in its history. The new Tumbler Ridge line to the northeast coalfields is now a major contributor to the railway's results, generating revenue sufficient to meet all direct costs incurred on the line as well as to make a contribution to the railway's operating profit.

Last year we concluded that the railway could operate profitably on a commercial basis, and we removed its historic exemption from sales tax, increasing government revenues by an estimated $12 million annually. The board of directors is confident that the railway can continue to operate profitably over the medium term and has therefore decided to pay an annual dividend to the shareholders, the people of the province. We expect the first dividend, amounting to approximately $10 million, to be paid to the government within the next one or two months.

[3:45]

Let me turn now to the fiscal outlook for the year just ending and the new year beginning next month. The deficit for the current year, 1985-86, is now forecast at $948 million, $58 million more than originally budgeted, but $46 million below the level of the previous year. The increase from the original budget was caused mainly by higher spending for forest fire suppression and additional authorized spending on highway capital construction, as we accelerated projects originally planned for next year in order to create additional employment. These pressures, however, were partially offset by significant savings in interest costs achieved by borrowing later in the year than was originally expected. In addition, expenditures under the economic and regional development agreement were lower because subsidiary agreements with the federal government were concluded a little later than expected.

Mr. Speaker, in setting budgetary policy for next year I had five goals: firstly, continuation of the economic renewal program started last year in order to strengthen our economic base and to make British Columbia more competitive in attracting investments and jobs; secondly, maintenance of essential social programs; thirdly, provision for new programs to meet education and training needs as our economy evolves and to enhance health care services; fourthly, further reduction in the deficit to limit the annual debt service charges whose growth threatens to take taxpayers' money away from public services; and fifthly, maintenance of our low tax burden and further reductions where possible.

Designing a budget to meet all of those goals was challenging. Although economic growth will provide a boost, three major factors will curtail growth in the government's revenue next year. Firstly, we must accommodate the second year impact of last year's tax reform. This will reduce revenue by a further $104 million in fiscal 1986-87. These tax cuts also require a provincial government expenditure of $85 million in 1986-87 to compensate school districts for forgone property tax revenues. These impacts, Mr. Speaker, are of course on top of the $165 million in tax cuts which are carried forward from the fiscal year just ending.

Secondly, as I said a moment ago, the decline in oil prices will have a severe impact on government revenue. Oil and natural gas royalties, bonus bids for Crown exploration rights and motor fuel taxes will drop by almost $50 million from this year's level. I'm confident that in time lower oil prices will stimulate economic growth, increase world trade and raise demand for our other commodity exports. Although this will eventually generate additional government revenue, this immediate revenue shortfall must be accommodated in our budget plan.

Thirdly, as I mentioned earlier the federal government has amended the established programs financing formula under which contributions are made to the provinces for health and post-secondary education. A reduction in the annual escalation factor by 2 percentage points will cost British Columbia $36 million in fiscal 1986-87 and an estimated $650 million over the next five years. Since we intend to maintain and enhance our health and post-secondary education programs, we shall have to find offsetting funds within our budget.

The provincial government's revenue for 1986-87 is estimated at $8.768 billion, an increase of 7.3 percent over the revised forecast for 1985-86. The expenditure budget maintains the basic funding levels for most government programs and provides major new allocations for education and for health care. Highway spending will continue at a high level, and forestry funding will be increased to provide jobs now as well as in the future. Total expenditure for fiscal 1986-87 is budgeted at $9.643 billion, an increase of 5.7 percent over the revised forecast for the fiscal year just ending.

The deficit, Mr. Speaker, is forecast to decline again in 1986-87 to $875 million. I indicated that this will be the third consecutive reduction in the deficit, marking yet another step toward our goal of a balanced budget. I reiterate that a lower deficit has been achieved despite the impact of tax reductions and new expenditure initiatives amounting to approximately $500 million in 1986-87.

One measure of our success is the reduction in the deficit from 2.2 percent of gross domestic product in 1982-83 to an estimated 1.5 percent in the coming year, a dramatic decline in the deficit burden on our economy. Let me assure this House, however, that our satisfaction with this achievement does not mean that we are complacent. Although the deficit is declining, we shall have to borrow $800 million for government purposes next year, increasing the debt to over $4 billion. Interest payments on this debt are estimated at $448 million, equal to 4.6 percent of our expenditure. As the economy continues to strengthen, we must work diligently to eliminate this burden on our taxpayers.

The rate of growth of indirect debt has also been reduced. We expect the outstanding debt of Crown corporations and agencies to show an increase of just over I percent at the end of the current fiscal year, compared to one year ago. By the end of next year this debt is forecast to decline from current levels. Our total outstanding debt, both direct and guaranteed, is also forecast to decline as a percentage of provincial gross domestic product in both this fiscal year and next.

As part of the effort to control and reduce debt servicing costs, I shall certainly continue to look for innovative but prudent financing methods. In the past these have included arrangements for sale and leaseback of Crown corporation assets. We enter into these negotiations, however, only if they provide lower financing costs than the alternatives available. Our goal has been, and continues to be, lower costs for the taxpayer.

Mr. Speaker, the compensation stabilization program, now entering its fifth year, has been a major element in controlling expenditure. Almost 3,000 collective agreements have been negotiated under the guidelines. Not once has there been a need to resort to the compulsory regulations. Wage and benefit increases in the public sector have been brought down to reasonable levels, closely following those in the private sector. In 1985 there was a difference of only one tenth of I percent between public and private sector settlements in this province. I think that demonstrates the equity that we have been able to achieve.

Last week the executive council approved amendments to the program that will broaden the settlement criteria and increase the flexibility for parties negotiating collective agreements in the public sector. A new job security guideline has been added to give employers and employees the option of accepting fixed rates of increase in compensation and having the commissioner approve an employment plan to provide job security for the employees. In addition, the existing guideline, now called the labour market guideline, has been broadened. To the existing criteria of productivity increases and public sector settlement patterns, we've added three new factors which may be taken into account in determining whether a compensation plan complies with the guideline. These are private sector settlement patterns, competition in recruiting employees with critical skills, and a correction over time of disparities in compensation levels.

Legislative amendments were also introduced last week, Mr. Speaker. I will not speak of them at length, because the bill is before the House. They empower the commissioner to do certain things.

It must be clear that the paramount consideration in the guidelines remains the employer's — the taxpayers' — ability to pay. Let me also emphasize that the government intends to use any additional funding available to improve public services and create jobs, not to increase compensation for those already employed.

Last week's amendments will increase the flexibility of a program which is already highly flexible and the most successful of its type ever developed in this nation. Through this innovative program, B.C. has found a way to maintain much broader collective bargaining rights in the public sector than in many other provinces, while ensuring the fiscal discipline necessary to protect our public services and the taxpayer.

I want to speak about economic initiatives, Mr. Speaker. The world knows B.C. Is a great storehouse of natural resources. Our forests, mines, farmlands and marine resources have always been the main sources of wealth for our citizens. In recent years we've taken steps to diversify our economy and reduce our reliance on these resources. Some have argued that we should go even further, even suggesting that forestry and mining are sunset industries, unlikely to contribute to our long-term prosperity.

Let me make our view very clear. As British Columbia's population grows, and as we approach the limits of the resource base, we shall have to find new sources of wealth. But I emphasize that our basic resource industries will be the backbone of the provincial economy for many years to come and will always be particularly important in the non-metropolitan areas of our province.

Speaking of resource industries, the decade of the eighties has been difficult for all regions of the world dependent on resource industries. The impacts in British Columbia were all too evident: jobs were lost, plants closed, incomes fell, and communities and families were shaken. This period of adjustment has meant very real difficulty for many British Columbians. But fortunately we have turned the corner. While some resource-dependent regions still have adjustments ahead of them, markets for most of our resource products appear to have stabilized, and indeed, there are signs of an upswing.

Last year we moved to assist the resource industries by making major tax reductions, freezing water rental rates, introducing special electricity discounts and appointing the commissioner of critical industries. These actions have helped already, and will help even more in years to come. Most resource companies stopped losing money in 1985 and, indeed, moved into modest profit positions. Nonetheless, to ensure that the resource industries continue to provide jobs in the future, we need to invest more now in the resource base itself.

Last May this government signed with Ottawa a $300 million, five-year forest resources development agreement, which will provide for major investment in the forest base. A prime goal will be to restore large areas of logged land that have not been adequately replanted. We have made a clear commitment to replant those lands for the benefit of future generations of British Columbians; and this year we shall do even more. The base budget for the Ministry of Forests for fiscal 1986-87 will be increased by $57.8 million, or 21.5 percent, to accommodate the forest agreement, and also to provide full funding for the ministry's five-year forest and range resource program. We are aiming to plant 200 million seedlings by 1987-88. That's enough seedlings each year to cover 162,000 hectares with productive forest. And it is 2.7 times the rate of planting in 1975-76 — a huge increase, Mr. Speaker, that clearly demonstrates the commitment we are making to our most important natural resource.

To protect our reforestation investment, my colleague the Minister of Forests (Hon. Mr. Heinrich) will shortly present legislation to establish a special forest stand management fund. Now that we're on the road to our goal of 200 million seedlings a year, we must increase emphasis on managing the young forests, to ensure that they grow rapidly into marketable timber. Weeding and thinning of replanted areas, and other silviculture treatments, are essential to getting the maximum return on our investment in reforestation. The government will commit $20 million to the forest stand management fund for this purpose, and my colleague will seek matching contributions of $20 million each from the federal government and the industry, and $5 million each from municipalities and the forest sector trade unions. All of these parties have indicated a strong interest in making this investment, to help ensure the future of the forest industry and the livelihood of the communities that depend on the forests. The minister, my colleague, will propose to the industry that its contribution to the fund will be provided through a special silviculture levy.

Minerals are currently selling at low price levels, but they will be in greater demand in the future. To ensure that mining remains a vital part of our industrial structure, the government will provide $5 million to encourage mineral exploration and development. The design of specific programs will be the subject of consultation between the Minister of Energy, Mines and Petroleum Resources (Hon. Mr. Brummet) and mining industry representatives. These funds, I point out, are in addition to the $2.35 million allocated in 1986-87 for the Canada-British Columbia mineral development subsidiary agreement.

[4:00]

[Mr. Strachan in the chair.]

As I mentioned earlier, last year B.C. Hydro earned $283 million through electricity exports to the United States. Potential sales, especially in California, are even greater. A major boost could come with the proposed pre-building of the Site C development on the Peace River. By advancing construction and selling the resulting power under contract to California utilities, we can accelerate creation of 2,000 jobs and pay for the project. We will need it soon, in any case, to meet our own needs. I stress, though, that before starting any construction, we shall require firm, long-term export contracts. The sale price must provide an adequate return to the people of B.C. We are eager to proceed with the project in order to provide jobs, especially for those who have a lifetime of experience in designing and building dams in this province. Nonetheless, we will not be rushed into an agreement. The general interests of all British Columbians must remain paramount.

With a broad range of measures in place to strengthen our basic resource industries, we can now turn more attention to economic diversification. New industries are needed to create jobs for our growing workforce. But if we wish to broaden our economy, we must be alert to our own natural advantages and to opportunities presented by the world economy, and we must have policies and programs ready to prepare our people and businesses for those new challenges.

We have identified several key areas in which B.C. can expand and be competitive internationally. Tourism is already our number two industry, and it will blossom with Expo 86. Our province offers scenic beauty, great recreational opportunities, exciting communities and vibrant cultural resources. It's a combination rarely matched. This year we have a once-in-a- lifetime chance to welcome visitors from around the world so that they will return in the future and will encourage others to come. Many of them will also come back as investors.

The government has recently undertaken new initiatives which are directed toward enhancing tourism potential during and after Expo. These include the Partners in Tourism program, under which the government shares equally in regional marketing projects with nine private sector associations.

This government is also taking steps to promote the growth and development of the film industry. The province is already viewed, as we know, as a choice location due to reasonable costs, qualified and experienced crews, and a diverse range of climate, natural scenery and urban settings. We're now working toward establishment of a major studio to move ourselves toward the next level of that development.

Financial and business services represent a major opportunity for British Columbia. Our commercial and cultural links to the Asia-Pacific region, and our position as a gateway for North America, make Vancouver a natural location for an international commercial and financial centre. During the past year I've consulted, as have others, with leaders of the financial community in Vancouver, and we have found a great deal of interest in this concept. More recently — and I was very pleased to note it — the federal government has announced that it will assist us to establish an international banking centre in Vancouver. We will be working closely with Ottawa to bring this proposal to fruition as a key element in the much broader concept of Vancouver as an international financial centre.

A complementary initiative, the British Columbia Equity Investment Plan, will provide an incentive for individuals to put their savings to work through the capital markets to finance investment and job creation.

Our new network of trade and convention centres will play a major role in promoting British Columbia as a centre for international business. To focus this effort we have given British Columbia Place full responsibility for managing the Pier B-C convention centre and the Whistler conference centre. A new organization, Conventions B.C., will be responsible for promoting convention centres throughout the province. Just last month the province signed an agreement with the federal government for the joint funding of a new convention centre here in the capital city of Victoria. It's a project in which I have special pride. Under this agreement the two governments will each contribute $7.275 million toward the $25.8 million facility which will be owned and operated by the city of Victoria.

We shall be working also in the coming year with the federal government to improve the management of our basic transportation infrastructure, particularly the Vancouver International Airport and the Port of Vancouver. We shall also be designing programs to encourage the development of exports by the service sector, and we've allocated $2.5 million for this purpose. The government will seek the advice of service industry representatives on the best way to provide this assistance.

Light manufacturing industries, particularly those based on advanced technology, are a rapidly growing part of our

economy. For example, the electronics industry is now number five, and specialized industrial products are growing rapidly. New businesses are started every week, and many have the potential to become major employers.

The province's discovery enterprise program assists in this growth. To date the program has helped launch more than 25 high-technology businesses by providing them with startup equity and loan financing. The Discovery Foundation will be provided with an additional $8 million to continue this program in 1986-87.

The small business venture capital program has also been successful in establishing 17 new venture capital corporations, which will make significant investments in the province's manufacturing and processing, tourism, aquaculture, and research and development sectors.

Mr. Speaker, I want to touch on that for a moment. One particularly exciting new industry in B.C. Is aquaculture, which is expected to grow rapidly in the coming years. In the next decade, aquaculture revenues are predicted to increase from $3 million to $150 million, and direct and indirect employment is predicted to expand from 500 to 3,500 permanent jobs. Recognizing the growth potential of this sector, the provincial government will provide an additional $700,000 for productivity enhancement projects and market development, over and above the $3.9 million in annual financial assistance now provided.

Mr. Speaker, the list I have touched on in these few minutes is. not exhaustive, but it does indicate the range of potential new opportunities in our province. We cannot, however, assume that we shall easily succeed in all of these areas. We must work together to maintain the spirit and drive necessary to succeed in an ever-tougher world marketplace. A word of caution again. There are many others seeking the same business as we, and they're willing to fight hard to get it. In order to win we must want it more, and we must work harder. I know that British Columbians are equal to that challenge.

I'd like to speak now about education. One of our greatest strengths in this competition which I have touched on in these few minutes will be our people and their knowledge and skills. In this, our educational institutions will play a key role. We announced last month the creation of a new fund to finance improvements in our schools, colleges, universities and institutes over a three-year period. This long-term framework will assist these institutions in planning to meet the challenges ahead.

The Fund for Excellence in Education will provide a total of $110 million in 1986-87 and a minimum of $600 million over three years. If economic circumstances improve sufficiently, more will be provided in the second and third years. This money will be used to place computers in classrooms, to upgrade teaching skills, to support college programming related to economic development. We expect to see universities, government and private business cooperating in setting up centres of excellence. Many other measures will be funded, and we today invite the institutions to be bold and creative.

My colleagues the Ministers of Education and of Post-Secondary Education have already consulted broadly and are inviting proposals. Initial draws on the fund totalling $35 million for next fiscal year have been announced by the ministers to meet cost pressures and certain other commitments. The remainder will be available for allocation on the basis of merit. I am advised by my colleagues, in this context, that submissions are already coming in and that there will be very strong competition,

Mr. Speaker, I believe all members will agree that our investments in development represent an impressive program of renewal. In the past year we have introduced a tremendous array of measures to support and to strengthen our traditional resource industry base, as well as to attract and support new industries. That program will accelerate in the coming year through the initiatives I have already announced today, and the tax measures I shall outline in just a few minutes.

We also bring together this year the elements of an integrated plan for developing and promoting British Columbia. Expo 86 has served as a catalyst for completion of SkyTrain, Canada Place, the Coquihalla Highway and Annacis crossing and will lead to future opportunities in trade, tourism and investments. Developments will quickly follow on the Expo site and other key lands assigned to British Columbia Place in greater Vancouver and here in greater Victoria. With Expo 86 as the centrepiece, both to celebrate our achievements and to open the door to rich business prospects, this year will stand as a turning point in British Columbia's history.

I want to take a few minutes now to review the expenditure budget for 1986-87. The estimates presented to the Chair today provide for total expenditure of $9.643 billion, an increase of 5.7 percent from the most recent forecast of spending for '85-86. This represents a somewhat larger increase than in the past few years, to accommodate the economic initiatives that I have just described. Nevertheless, we shall continue to hold a tight rein on government operating expenditure in order to maintain fiscal discipline and to build upon the efficiency gains of the past few years.

No provision has been made in this budget for salary increases for employees of the government or agencies funded by the government, except for increases already granted. To the extent that additional funds are available, they are being used to promote job creation and to provide services for British Columbians, not to increase the salaries of those now working,

I discussed a little while ago the crucial role to be played by education in the economic renewal strategy. With the addition of the 1986-87 allocation of $110 million from the fund for excellence in education, the total budgets for the Ministries of Education and Post-Secondary Education are up $151.7 million, or 8.6 percent, a clear demonstration of our commitment to making schools and post-secondary institutions major contributors to the province's economic and social well-being.

One of the aims of this government is to enable all students who would profit from a higher education to pursue that goal if they so choose and to encourage the best students to make that choice. Reflecting that commitment, my colleague the Minister of Post-Secondary Education has announced that $10.9 million will be budgeted for student aid in 1986-87; that's up from a projected expenditure of $6.8 million in this fiscal year.

Students may receive loans on generous terms to finance their education and are eligible for partial remission of the loans upon graduation. In addition, the top 30 percent of students can win scholarships to assist them with their education. The increased funding will also permit the government to include trade schools in the expanded student aid program,

as well as to increase scholarship amounts to keep pace with tuition fee increases.

The Ministry of Labour also has a major responsibility in developing human potential through coordination of job training and employment programs provided by provincial ministries and by the federal government. Discussions are now underway in the context of the Canadian job strategy to develop new federal-provincial initiatives aimed at providing long-term employment for British Columbians. We'll also be seeking through these discussions to ensure adequate federal funding for apprenticeship and other training programs through British Columbia's colleges and institutes.

My colleague the Minister of Labour will be expanding programs to assist young people in obtaining permanent employment. The province will provide $10 million for Challenge '86, a continuing federal-provincial program that has provided valuable work experience during the spring and summer months to students and to our youth. This program will also provide assistance to employers to train students and youth for work at Expo 86, and funding will again be provided for the successful student venture loan program to enable young people in our province to develop entrepreneurial skills while earning incomes to support their education.

The Ministry of Labour has been allocated $600,000 for the operation of the Youth Advisory Council and the youth grants program to promote the independence of young British Columbians and their involvement in the economic and social development of our communities. The government is also providing a new allocation of $10 million to fund new programs developed for the specific purpose of assisting unemployed British Columbians to enter the labour market and to meet the changing needs of employers.

[4:15]

A further $5 million will fund programs targeted to students, recent graduates and youth whose lack of work experience is a barrier to permanent employment. So these two programs complement existing provincial and federal initiatives and further demonstrate the government's commitment to provide training and employment opportunities for employable GAIN recipients and other unemployed persons.

Thousands of jobs will also be created across the province through the highway construction program and the new forest stand management fund. The Ministry of Human Resources will receive a budget in the coming fiscal year of $877 million for the GAIN income assistance program. That's down $11 million from the revised estimate for 1985-86. This reduction reflects the success of our economic renewal plan in creating jobs, as well as the expected impact of the employment programs for GAIN recipients which I just mentioned. My colleague the Minister of Human Resources (Hon. Mr. Nielsen) will shortly announce details of an enhanced earnings exemption policy to assist GAIN recipients and ease the transition to employment.

British Columbia's Pharmacare program, which has been allocated an additional $20 million in 1986-87, remains one of the most generous in this country. One hundred percent coverage of prescription drug costs is provided for our senior citizens, and universal Pharmacare coverage is available to all British Columbians who are faced with excessive annual prescription costs.

The Ministry of Human Resources very recently announced the appointment of a full-time superintendent of family and child services to address the problems and needs of abused children and their families. An additional $2.3 million is being provided in 1986-87 to address the growing need for special care and services for these children.

The Ministry of Health continues to have the largest allocation of any ministry, with a total of $2.755 billion or 28.6 percent of the total provincial budget. The health care system still faces difficult pressures in adapting to population shifts, changing expectations, and new medical technology. To provide a framework for addressing these pressures, I will present legislation to establish a three-year health improvement fund. The fund will provide a total of $120 million for 1986-87, and at least $720 million over three years. Again, the fund may be increased in the second or third year if and as economic circumstances permit.

My colleague the Minister of Health will consult with the health care community to solicit proposals and establish priorities for the use of this fund. Obviously we shall not be able to fulfill every single wish in the health care system, so we will have to make choices. The views of the health care professions and of the public we all serve will be crucial in this exercise. We hope to be able, however, to support such priorities as organ transplants, new drugs, advanced cancer treatment and AIDS therapy, as well as new hospital beds. Ideas that will reduce pressure on the hospital system through preventive measures and outpatient services will be especially encouraged. To emphasize, our preference is to increase service levels rather than the incomes of those who are providing the services.

Hospitals and related facilities remain vitally important to our health care system. Over the past few months we have announced new capital commitments of more than $140 million to meet the needs of our people. We are providing extended-care beds in communities all over the province, as well as expansion of acute-care services. This building program reflects a continuing commitment to meet the needs of an aging population.

The Ministry of Attorney-General will receive an increase of $20 million in the fiscal year about to start, largely to accommodate the increasing costs imposed by the federal government for RCMP services here, the cost of implementing the Young Offenders Act, and costs for recently completed court and corrections facilities. The ministry is also proceeding with the construction of new correctional facilities in Kamloops, Prince George and Logan Lake to meet program requirements and to replace existing facilities. Projects announced recently by my colleague the Attorney-General provide for almost $40 million to be spent over the next three years.

The Ministry of Agriculture and Food will receive $115.3 million in 1986-87. That's an increase of 2.1 percent. A drought assistance program is provided for grain farmers in the Peace River area, and a new loan guarantee program will be introduced for tree-fruit growers in the Okanagan.

Mr. Speaker, early in the new fiscal year my good friend the Minister of Transportation and Highways will participate in the opening of phase I of the new Coquihalla Highway. This historic event — and it is a historic event — will mark the completion of the first new route between the lower mainland and the interior in 37 years. Work will continue on phase 2 of the highway from Merritt to Kamloops, and will commence on the Okanagan connector. With traffic flowing

on phase 1, the government will begin collecting tolls amounting to an estimated $16 million in 1986-87.

The coming year will also mark the opening of the initial stage of the Annacis crossing system. Time also moves along. That's the first major structure to span the Fraser River, in the lower mainland at least, since the completion of the Port Mann Bridge in 1964. A total highway construction and capital maintenance budget of $581.4 million for 1986-87 will provide for continuation of these two major projects as well as a large number of smaller projects throughout all the province. The Ministry of Transportation and Highways will also provide $14.5 million to the British Columbia Railway for the operating and capital requirements of the passenger system and the Fort Nelson extension. We're making this contribution in particular because these services are essential to many communities, as you would well know, Mr. Speaker, even though they are not presently commercially viable.

The operating subsidy for the British Columbia Ferry Corporation will be increased by $17 million to $57 million. This increase reflects two developments, essentially. First, in October 1985 the corporation assumed responsibility for operating the saltwater ferry fleet of the Ministry of Transportation and Highways, purchasing those assets from the government for $55 million. Funding of $10 million is provided to assist the corporation in meeting the costs of operating 14 additional vessels on 10 routes. Secondly, the corporation, as many of us already know — and I'm very pleased that it is occurring — will run an extended schedule on its main routes during Expo 86 to encourage Expo tourists to extend their visits to greater Victoria and to all of Vancouver Island. Service will also be enhanced....

Interjection.

HON. MR. CURTIS: Wait for it, my friend. Service will also be enhanced on the Gulf Islands, Sunshine Coast and Comox-Powell River routes. An additional $7 million is provided for these services.

Payments to British Columbia Transit for the operation of public transportation services throughout the province will increase to $162.1 million in '86-'87 from $74.3 million in the current year, this reflecting the funding arrangements for SkyTrain. And under the formula for sharing transit costs among the provincial government, municipalities and riders, the provincial government will contribute $121 million for SkyTrain and for SeaBus, as well as for conventional and custom bus services around the province. In addition, the provincial government will directly fund $275 million of the capital cost of SkyTrain, equivalent to 50 percent of the cost of building the guideway. Debt servicing costs for this, incidentally, will require an estimated $41.1 million in '86-'87.

Funding of $6.5 million will be provided for the official visits program, which will bring government, business and professional leaders from around the world to attend Expo 86, and expose them to the promise of British Columbia. We expect many new business arrangements to result from that activity.

The government has established a $30 million Expo legacy fund to aid communities which wish to build and develop their own Expo commemorative projects, which may include convention, community and cultural centres, recreational facilities and parks, and so on. To date, legacy fund assistance totalling $14 million has been announced for several projects across the province, with total project costs of $47 million.

The municipal revenue sharing program will shortly begin its ninth year, standing the test as an innovative and effective means of giving local governments access to the broader provincial revenue base. For '86-'87 there will be a total of $227 million available for distribution to municipalities. That's an increase of $19 million, and a further $3.9 million will be added to the stabilization account for distribution in future years.

These are just a few highlights of the government's expenditure plans for 1986-87, the year commencing in about 10 or 11 days, and my colleagues in government will have an opportunity to outline their budgets in much greater detail in this House and in Committee of Supply.

[4:30]

[Mr. Speaker in the chair.]

I turn now to the subject of taxation. In the coming fiscal year taxation measures introduced in my last budget will provide increasing economic stimulus. Members will recall, I'm sure, that many of these measures are being phased in over three years to accommodate them within our fiscal framework. Let me now reaffirm the commitment I made in this House a year ago. All of the tax measures in that program for economic renewal are proceeding as planned.

Before touching on these additional measures, I shall take a few moments to remind the House of what we achieved with the 1985 budget. Long before the budget the Ministry of Finance conducted thorough research into the impact of taxation on economic development, comparing taxes on British Columbia firms with those in other jurisdictions. After publishing the results of this research in the fall of 1984 I undertook a series of public meetings around the province at which I heard the views, the comments, the suggestions of literally hundreds of British Columbians. I'm particularly pleased with what resulted from that process: a set of tax reductions and reforms to stimulate business, to secure employment and to put British Columbia on a strong, definite path of renewal and new job creation.

A key measure was the small business employment tax credit. For two taxation years beginning after March 31, 1985, small businesses in B.C. will receive a tax credit equivalent to about $300 per employee. Those businesses not in a taxable position can receive the credit in cash, and this measure is costing about $150 million in stimulus — important stimulus, I might say — to small business over these two taxation years.

The second measure is the phase-out of property tax on machinery and equipment. In 1985 school tax rates on machinery and equipment were reduced by one-third; this year the rates will be further reduced, and beginning in 1987 that tax will be eliminated altogether. To provide a particular incentive for investment, new machinery and equipment installed since September 30, 1984, was immediately exempted from property tax. In 1986-87 this measure will reduce taxes by about $126 million.

On a related point I should mention that the government last week approved an order-in-council establishing the property tax rates for other than municipal and school purposes. At that time I announced a deferral until 1987 of any phase-out of property tax on machinery and equipment for non-

school purposes. This is a relatively small component of the total tax on machinery and equipment, very small indeed, And for a variety of technical reasons, the Union of British Columbia Municipalities has asked that I defer action to remove it for one year. I am pleased to accept that recommendation. I emphasize, however, and it must not be misunderstood: the original deadline remains. Machinery and equipment will not be assessed nor taxed for 1987 and subsequent years.

A third measure from last year's program is the reduction in industrial and commercial school property tax rates. Industrial rates have been reduced from 3.4 times the residential rate to 3 times the residential rate in 1985, and this year will be reduced to 2.45 times the residential rate, the same level as the commercial tax rate. This will reduce these taxes by about $41 million in 1986-87, and in 1987 both commercial and industrial rates will be reduced to twice the residential rate.

These school tax rate reductions, together with the elimination of property taxes on machinery and equipment, in the government's view, remove a serious impediment to new investment in British Columbia and further enhance the competitive position of existing British Columbia businesses.

A fourth measure was the reduction in fuel tax rates for off-road uses to 7 percent of the pre-tax selling price. Providing $55 million in tax relief in 1986-87, this measure brought the taxation of these fuels into line with the general social service tax rate.

A fifth measure, and one of which we are especially proud, is the phase-out of the corporation capital tax. In the fiscal year about to start, the exemption level under this tax increases from $5 million to $10 million, reducing taxes by $40 million and completely exempting a further 1,400 businesses, in addition to the 5,600 exempted as a result of the change last year.

Effective April 1, 1987, the tax will be eliminated except for large banks with offices outside of British Columbia. The corporation capital tax was an especially burdensome tax in difficult economic times, and it was a deterrent to economic renewal.

A sixth major measure was the small business venture capital tax credit. A credit against British Columbia personal income tax of 30 percent of the amount invested is now available to individuals investing in venture capital corporations which then make investments in eligible small businesses. To date, 15 private and two public venture capital corporations have been registered with approved equity totalling $13 million. About $1 million has already been channelled to eligible small businesses. These venture capital firms will certainly be an important source of equity capital for small businesses in manufacturing and processing, tourism and aquaculture industries and for those in research and development. In a moment, I will announce an important extension to that program.

Finally, looking back on 1985's budget, Mr. Speaker, we implemented a five-year freeze on water rental fees for the generation of hydroelectricity. As a result of this freeze, we shall forgo about $28 million in revenue in the 1986-87 year and approximately $300 million over five years to the benefit of industrial, commercial and residential electricity users.

Mr. Speaker, as I mentioned earlier, I am introducing further tax measures today to support economic renewal. These have been very carefully designed to extend the broad tax relief granted through the measures now in effect, to provide specific relief to industries which are put at a disadvantage by the current tax system and to encourage industries which are expected to grow and contribute to the diversification of our economy.

Firstly, the general corporation income tax rate will be reduced in two stages to 15 percent effective January 1, 1987, and to 14 percent effective January 1, 1988. Firms considering investment in our province have often cited the current corporation tax rate of 16 percent, which is equal to the highest rate in other provinces, as an impediment. It is also viewed by some as a penalty imposed on the successful. Tax relief estimated at $2 million in 1986-87, $32 million in 1987-88 and $64 million in 1988-89 will be provided to some 2,000 medium and large businesses throughout British Columbia. This measure addresses the last major anomaly in this province's tax structure. Personal income taxes are already the second-lowest in Canada, and the provincial income tax rate for small businesses is lower in only two other provinces. The major fixed taxes on businesses were reduced in the 1985 budget. So with this change British Columbia's corporation income tax rate will be lower than the rate in six other provinces. This measure, as I indicated, completes the program of major adjustments to the business tax system which started last year. Thanks to these actions, the total tax burden on businesses in British Columbia will now compare very favourably with that in all other provinces. British Columbia firms can now be more competitive, and the province is considerably more attractive for employment generating investment.

Secondly, I am introducing a new structure of property taxation for private forest land to provide an incentive for better forest management. Forest stocks on Crown lands will be enhanced through the reforestation and silviculture program announced earlier. But to enhance stocks on the three million acres of private forests in the province, much of which is highly productive land, I am reducing property taxes on these lands and restructuring tax rates to encourage intensive forest management. Property taxes collected from private forest land will be reduced by an estimated $3 million a year as a result of this change, beginning in the 1988 taxation year.

Thirdly, several technical changes will be made to simplify property assessment and taxation. The assessment of utilities will be simplified, and a new, clearer definition of improvements will be introduced. Current industrial assessment methods are a frequent source of disagreement and very expensive litigation, and can lead to uncertainty in the preparation of municipal budgets. They will be reviewed by a panel of experts who will seek a simpler, more acceptable method of determining market value for industrial properties that will provide a more stable basis for municipal taxation. It's obvious to all, I think: complexity is costly to both business and government. The simplification that we seek in this context will be of mutual benefit. The changes will have little if any impact on revenue but will allow firms to devote their valuable management and professional resources to far more productive activities.

Fourth, the small business venture capital program will be broadened to include export-oriented service corporations as eligible investments of venture capital corporations. One of the difficulties often encountered by potential service exporters is a lack of sufficient working capital to enable

them to enter the world market. Often the firms, as I understand them, have no tangible property against which working capital can be borrowed, because the product that is being sold is an intangible, such as engineering expertise or another form of intellectual property. Risk capital supplied by venture capital corporations will help fill this gap. My colleague the Minister of Industry and Small Business Development will present legislation shortly to authorize this change. And the minister will also be exploring other possible changes to the program and will be developing a new employee venture capital program to take advantage of a federal credit introduced last year.

Finally, Mr. Speaker, effective January 1, 1987, the insurance premium tax will be eliminated on insurance sold by companies with head offices in British Columbia. This measure must be seen as part of our broader effort to bolster the financial sector. The insurance industry has encountered financial difficulties not only in Canada but worldwide, At this time of adjustment in the insurance industry, the government is demonstrating its commitment to those companies with headquarters here in British Columbia and its willingness to welcome new or existing companies that may choose to locate here. This change will reduce revenue by $700,000 in 1986-87, and $4 million in a full fiscal year.

In the coming months we shall be studying other initiatives which might be taken to assist the development of Vancouver as an international financial centre.

In addition to economic renewal measures, I am today announcing a package of other measures to improve the fairness of the tax system. In January of this year I responded to expressions of public concern by announcing a review to determine whether, in light of falling world oil prices, British Columbia's system of ad valorem fuel taxation remained appropriate. That review has now been completed. It shows that British Columbia's gasoline tax is among the lowest in Canada and is not a significant factor in gasoline price increases. Mr. Speaker, since October 1, 1981, when fuel tax indexing was introduced in this province, the provincial gasoline tax has increased by less than 3 cents per litre. In comparison, gasoline pump prices have increased by 18.4 cents per litre. Federal tax increases, oil price increases and industry pricing policy account for most of this change. I also point out that the federal sales tax increase announced in the February 26 federal budget and another scheduled federal fuel tax increase on January 1, 1987 will further increase the federal share of gasoline prices. Provincial fuel taxation accounts for less than one-sixth of the increase in price since 1981, and less than one-fifth of the total price of gasoline. Furthermore, as general oil price decreases work through to gasoline prices, the provincial tax will decline automatically as a result of the indexing formula.

[4:45]

Although there is no statutory connection between fuel taxes and highway expenditures, it is interesting to compare the figures. In 1985-86, the provincial government will have collected an estimated $356 million from taxation of on-road use of fuels, while spending more than $1 billion on highway construction and maintenance. Indeed, highway expenditures in British Columbia have exceeded fuel tax revenue in each of the last ten years. By contrast, the federal government collects $250 million to $300 million per year from taxation of on-road fuel users in this province, and spends virtually nothing on highways in this province. Those who feel that fuel taxes should support highway costs have absolutely no quarrel with this provincial government.

Another concern that has been suggested to me is that high gasoline prices may deter tourists from coming to our province, and thus have a negative effect on Expo. Our analysis suggests that this is not a significant problem. United States visitors to B.C. Increased 8 percent in 1985; that's the best record in Canada. And while American tourists will find gasoline prices somewhat higher than at home, the difference amounts to only $10 to $15 in U.S. currency for a 1,000 mile trip. All things considered, the total price of a vacation in British Columbia compares very favourably with one in the United States.

To summarize, provincial fuel taxes are not, as some have suggested, preventing gasoline prices from declining along with world oil prices; nor are they unreasonably high compared to highway spending. The one argument which I do find compelling is that fuel taxes should not increase under the ad valorem system when gasoline prices are declining.

Because it takes time for us to collect the price data, the tax rate is adjusted each quarter on the basis of prices some six to eight weeks earlier. It now appears that the April 1, 1986 adjustment would yield us a very small tax increase, despite the decline in gasoline prices in recent weeks. Based on current price forecasts the tax rate will decline significantly as of July 1, 1986, but to prevent the increase next month, I am making the following change to the fuel tax formula.

Effective for the full 1986-87 fiscal year, tax rates for fuel under the Motor Fuel Tax Act will not be permitted to exceed the level established January 1, 1986. Any decreases generated by the indexing formula will, of course, proceed as usual. Can't go up; can go down. This change addresses, I think, the one legitimate concern arising from our review of fuel taxes by capping the tax while world oil prices decline and work through to the gasoline pump.

I want to announce two measures being introduced to improve the fairness of taxation for the handicapped. Effective for the 1986 property taxation year, homeowners with resident handicapped relatives will be eligible to claim the additional homeowner grant now available to handicapped homeowners. Further, effective at midnight tonight, the eligibility criteria for the fuel tax rebate program for handicapped drivers will be extended to cover all handicapped individuals suffering a permanent impairment of locomotion who have a doctor's certificate stating that public transportation use would be hazardous.

In both cases, some individuals who clearly fit the spirit of the programs were being excluded. The homeowner grant is intended to defray the additional costs of equipping a home for a handicapped individual. These costs can be burdensome, as we know, whether or not the individual happens to be an owner of the home. The fuel tax rebate program is intended to help handicapped individuals who must drive their own vehicles. However, not all of those people qualify under the current regulations. This change will broaden the program without removing benefits from anyone currently eligible.

I'm also introducing — and I will not take time with them now — a number of important administrative measures to improve equity in the tax system. These are summarized in the appendices to the document, and I commend them to all members of this House.

Effective for the 1987 property taxation year, a supplementary assessment of property may be made when a mobile home is relocated between September 30 and December 31 of any year. Effective for the 1987 property taxation year, newly leased Crown land will not be assessed for the property taxation year in which the lease begins.

Effective April 1, 1986, just 11 days from now, interest charged on the land tax deferment program for senior citizens will be changed from a compound interest rate to a simple interest rate applied only to the principal amount outstanding, not including accumulated interest. The interest rate at all times will remain well below market rates and will initially continue at the current rate of 8 percent per annum.

I've said before in this chamber that I firmly believe that I have a responsibility, in this portfolio, to constantly attempt to improve the fairness and the consistency of treatment afforded taxpayers under provincial legislation. These measures are just the latest in a series of administrative and legislative improvements which have been made over the last few years.

Mr. Speaker, I appreciate that my time has moved along this afternoon. I want to report briefly on the consumer taxation amnesty program which I announced in last year's budget — the first of its kind, certainly in this part of the continent. The program provided businesses and individuals with an opportunity to voluntarily disclose and pay taxes which were due, without payment of penalty. The program was introduced to strengthen the integrity of the tax system by encouraging the small number of persons who do not comply to pay and remit taxes due. The amnesty was very successful. Over the period of the program, March 14 to July 15 of last year, 120 businesses and individuals made voluntary remittances amounting to $1,583,000. I indicated earlier that the program was followed by stricter penalties, to ensure a fair and rational tax system for all British Columbians.

As I indicated earlier, today's budget marks another crucial step in this government's strategy for economic renewal. In the past four years we have taken giant strides to overcome obstacles that seemed truly insurmountable. We are firmly on a course towards a better future. These years have been hard for British Columbians. The easy growth and the prosperity which we took for granted were just swept away by events 'in the larger world. Suddenly we found ourselves in a struggle to compete just to retain what we had, let alone build for the future. I think we can now look around with pride in the fact that British Columbians have proven equal to this challenge.

With leadership from this government, we've put our fiscal house in order and we've assembled a partnership for economic renewal. Employees, businesses, municipalities and the provincial government are already working together as never before to make British Columbia what we know it can be — a dynamic and enlightened province on the forefront of economic and social development.

This year we are inviting new members to the team, to make our educational institutions an integral part of economic renewal and to get health professionals working together to improve our quality of life. Jobs are being created in British Columbia, not as fast as we would like, but at the best rate in years. Policies are in place now to provide the foundation for growth and diversification to meet the challenges and opportunities of the emerging world economy.

I know that other governments are looking with envy at what we have accomplished. We have done what they have yet to do, reducing the cost of government and preparing ourselves for the competitive race ahead.

In just a very few weeks the Premier of this province and all of us will open our doors to the world to celebrate our achievements in the century since a ribbon of steel was pushed through our rugged mountains to a shoreline far removed from the then centres of civilization. Expo 86 will show our visitors what we can do, and how we have grown as a society in one of the most beautiful and richly endowed places on this earth.

[5:00]

MR. SPEAKER: If hon. members will allow us a few minutes to distribute the appropriate documents, we will continue with events.

MR. STUPICH: Just very briefly, Mr. Speaker, may I say that with this document presented today the government has shown once again that it has completely broken trust with the people of British Columbia, and I say that more in sorrow than in anger. This minister in particular has shown that he is quite capable of serving the political needs of the Social Credit Party, and will go to any length to do that in presenting what should be an accurate estimate of what will be the revenue and expenditures in the province of British Columbia.

It reminds me of one other year, 1982, when on April 5 the same minister presented a similar budget, and the actual figures were not made known to the people of British Columbia until two months after the next provincial election. They didn't dare show those figures. That budget in April 1982 predicted a break-even position; it predicted that revenues of $7.2 billion would be matched exactly by expenditures of $7.2 billion. Speaking the next day, I said that the minister was at least half a billion dollars out and that there would be, indeed, the first deficit in the history of British Columbia for 30-odd years.

Mr. Speaker, I make that same prediction today, without fear of being wrong. In his prediction today the minister, again, is at least half a billion dollars out. His figures of revenue are completely unattainable, in light of the economic conditions of today.

Mr. Speaker, my staff and I will be up all evening. Starting tomorrow morning I'll produce the details to prove to you that everything I've said is correct, and to prove to anyone else who will listen that the deficit, instead of the $800-odd million figure predicted by the minister, will prove to be, after the next election when we see the figures, closer to a billion and a half.

Mr. Speaker, I move adjournment of this debate until the next sitting.

Motion approved.

Introduction of Bills

EDUCATION EXCELLENCE APPROPRIATION ACT

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Education Excellence Appropriation Act.

HON. MR. CURTIS: Mr. Speaker, I might make the brief observation that several message bills to be introduced in the next few moments relate directly to those thrusts contained in the budget speech this afternoon and to some which have been announced earlier. I will not take the time of the House to go into first reading comment, except in an extraordinary circumstance, and look forward to second reading debate.

Bill 4 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.

HEALTH IMPROVEMENT APPROPRIATION ACT

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Health Improvement Appropriation Act.

HON. MR. CURTIS: Mr. Speaker, this, along with the bill just previously dealt with, are extremely important thrusts in terms of the government's commitments with respect to the two areas.

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.

ASSESSMENT AMENDMENT ACT, 1986

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Assessment Amendment Act, 1986.

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.

INCOME TAX AMENDMENT ACT, 1986

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Income Tax Amendment Act, 1986.

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.

MOTOR FUEL TAX AMENDMENT ACT, 1986

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Motor Fuel Tax Amendment Act, 1986.

HON. MR. CURTIS: Mr. Speaker, I move that the bill be introduced and read a first time now. Earlier this afternoon, I indicated the capping of any possible increase in motor fuel tax on April 1. Without this, that would automatically occur. This will ensure that it does not.

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.

INSURANCE PREMIUM TAX AMENDMENT ACT, 1986

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Insurance Premium Tax Amendment Act, 1986.

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.

TAXATION STATUTES AMENDMENT ACT, 1986

Hon. Mr. Curtis presented a message from His Honour the Lieutenant-Governor: a bill intituled Taxation Statutes Amendment Act, 1986.

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.

FOREST STAND MANAGEMENT FUND ACT

Hon. Mr. Heinrich presented a message from His Honour the Lieutenant-Governor: a bill intituled Forest Stand Management Fund Act.

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.

Hon. Mr. Nielsen moved adjournment of the House.

Motion approved.

The House adjourned at 5:15 p.m.