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Finance minister vigorously defends tough economic stand.

Finance minister vigorously defends tough economic stand

Anyone listening to Finance Minister Michael Wilson's recent speech in Sudbury for signs of changing federal economic policies would have been disappointed.

Wilson strongly defended the coming goods and service tax (GST), high interest rates and government spending restraints before the Sudbury and District Chamber of Commerce.

"I want to repeat that the government is committed to sales tax reform and to bringing the GST in on schedule on Jan. 1," he said. "There is no alternative available that will provide a fair playing field for Canadian firms and workers to compete in the world economy, while also providing government with the revenues that we need to support the programs Canadians value, and to do this without retreating in our battle to reduce the national deficit."

Wilson acknowledged that the costs of fighting inflation with a firm monetary policy are not always fair in their impact, and never pleasant or popular.

"But let's be clear," he said. "The consequences of abandoning this policy, of permitting prices and costs to surge out of control, is ultimately more painful and more punitive."

Canada's "harsh experience" with inflation in the late 1970s and early 1980s demonstrated clearly that the inflation caused by unchecked economic overdrive hurts everyone, he said.

"We must not forget those lessons."

On hand to back up Wilson's Aug. 22 message were about 30 Conservative MPs and cabinet ministers, including Minister of Employment and Immigration Barbara McDougall and chairman of the House of Commons finance committee Don Blenkarn.

The Tories were in Sudbury for a two-day meeting of the Ontario federal caucus.


Wilson described the GST as a modern, efficient tax that has been adopted by 48 other countries.

Calling the existing manufacturers' tax a "job killer and growth destroyer," he said studies over the past 50 years have called for its end because it favors imported goods over Canadian-made products and it adds to the cost of exports.

"It should be no surprise that there is not a single industrialized country in the world today that still maintains a tax like ours that applies at the manufacturing level," he added.

Wilson said that because of the refundable GST credit it will be fairer for low- and modest-income earners, noting that three-quarters of families headed by seniors or single parents will have more after-tax income than at present.


Wilson said there has been progress in reducing the federal deficit.

"About 70 per cent of this progress has resulted not from higher federal revenues, but from our commitment to disciplined government spending," he said, noting, for example, that the government has reduced the number of public servants it employs by 12,000.

The minister also pointed out that between 1984/85 and 1989/90 federal program spending had increased at an average of 3.6 per cent annually, well below the rate of inflation.


Wilson warned that deficit reduction will not lead to sustained progress if there is no control of inflation.

"This is the dangerous downside of an extended cycle of growth," he commented. "An over-heated domestic economy leads to more imports, a weaker balance of payments and greater foreign indebtedness."

In five years Canada has moved from a trade surplus of $2.7 billion to a deficit of $19.7 billion.

"An over-heated economy also leads to inflation and a loss of competitiveness," he said. "The fact is that inflationary pressures have been seriously eroding our economic prospects."

For example, by the first quarter of this year total unit labor costs - the most commonly used measure of a country's competitiveness - were increasing at an annual rate of 6.4 per cent, up from 5.9 per cent at the beginning of 1989. In comparison, the U.S. unit labor costs increased 3.6 per cent in the first quarter of this year.

Wilson said labor costs take time to show up in the measured rate of inflation. "But when they do, their impact is very significant, because labor costs account for 60 per cent of business costs."

Canada's success in creating more than 1.6 million new jobs since September 1984 was no accident, he added. "Between 1984 and 1988 Canadian unit labor costs increased at an average of only 3.1 per cent, slower than the U.S."

Wilson noted that the rate of inflation has eased in recent months, and there has been some reduction in the increases contained in wage settlements in the second quarter.

The economy has also been operating at a slower pace, as reflected in declines in the Bank of Canada rate and in the prime interest rates of major banks, he continued.

"However, wage pressures still remain a considerable source of concern for our economy."

Wilson urged parties on both sides of wage and price decisions to understand the serious implications of unleashing inflation.


Wilson noted that, starting in 1987, the PC government has brought in comprehensive personal and corporate tax reforms.

He rejected the idea that Canadian businesses, particularly large corporations, are not paying their proper share of taxes.

The government has closed loopholes that allowed profitable companies to avoid paying corporate tax, he noted, adding that the 1989 budget also included the Large Corporations Tax.
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Title Annotation:Finance...; Michael Wilson
Author:Bickford, Paul
Publication:Northern Ontario Business
Date:Oct 1, 1990
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