1985 Legislative Session: 3rd Session, 33rd Parliament

HANSARD

The following electronic version is for informational purposes only.

The printed version remains the official version.

Official Report of

DEBATES OF THE LEGISLATIVE ASSEMBLY

(Hansard)

THURSDAY, MAY 16, 1985

Morning Sitting

[ Page

6153 ]

CONTENTS

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

Mr. Hewitt.

Introduction and first reading –– 6153

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

Third reading –– 6153

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

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

Third reading

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

Hon. Mr. Curtis –– 6155

Mr. Howard –– 6156

Mr. Davis –– 6156

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

Mr. Howard, Mr. Cocke

Third reading

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

Hon. Mr. Curtis –– 6157

Mr. Howard –– 6158

Mr. Cocke –– 6158

Hon. Mr. Curtis –– 6158

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

Mr. Cocke, Mr. Howard

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

Hon. Mr. Curtis –– 6159

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

Third reading

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

(Hon. Mr. McClelland)

On vote 44: minister's office –– 6159

Mr. Williams, Mr. Cocke

Appendix –– 6165

THURSDAY, MAY 16, 1985

The House met at 10:05 a.m.

Prayers.

Introduction of Bills

CONSUMER AND CORPORATE AFFAIRS

STATUTES AMENDMENT ACT, 1985

Hon. Mr. Hewitt presented a message from His Honour the Administrator: a bill

intituled Consumer and Corporate Affairs Statutes Amendment Act, 1985.

Bill 40 introduced, read a first time and ordered to be placed on

orders of the day for second reading at the next sitting of the House

after today.

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

Leave granted.

HON. MR. GARDOM: Mr. Speaker, there are a number of people in

our gallery today who have not been introduced, and I see a number of

students in our gallery also. I'd like to bid them a very warm welcome

on behalf of both sides of the House.

Orders of the Day

HON. MR. GARDOM: Report on Bill 39.

BRITISH COLUMBIA RAILWAY

DISPUTE SETTLEMENT ACT

Bill 39 read a third time and passed.

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

BRITISH COLUMBIA TRANSIT

AMENDMENT ACT, 1985

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

section 1.

MR. WILLIAMS:

Section 1 is the borrowing of $600 million. You

know, it's worthy of some reflection again. The amount of borrowing

that we're going into in this province is very significant. We really

have a debt bomb ticking away. We've gone into countless projects that

are zero or minus rates of return. You can't keep spending money on

projects that have a minus rate of return without getting into

financial trouble. That's what we're doing by this legislation; that's

what we've done by other legislation before this House.

We are continuing to borrow for projects that cannot, will not, will never

pay for themselves. That's the way to spend yourself into the poorhouse,

and that's what British Columbia is doing today. This is a project the extensions

of which are costing — that is, for the ALRT line extensions — $50,000 a passenger,

capital cost. Just imagine: for every rider on our new trolley in the greater

Vancouver area, the capital cost alone of building the thing is $50,000. No

other utility in North America, none of the richest cities in America, spends

this kind of money on that kind of system. It's 10 times the cost of the

new system in San Diego.

We are indeed spending our way to the poorhouse with the kinds of

solutions that this government is coming up with, all of which — almost

universally — have a negative rate of return. No business can accept a

negative rate of return; at the very least they have to get a return

equal to the cost of interest. It's a fundamental business principle. A

so-called businessman's government over there doesn't understand the

fundamental principles of business. You cannot borrow and have projects

that will not pay back without getting into deep financial trouble.

An earlier premier in this province would be rotating in his grave

at the prospect of the kind of spending that's gone on here. I think

the phrase he used to use was dead-weight debt. What this number two

administration is doing is getting us deeper and deeper into

dead-weight debt, and this $600 million is just another anchor, another

lead lifebelt in the Social Credit scheme of things.

[10:15]

MR. DAVIS: Mr. Chairman, first a comment on the interjection

by the second member for Vancouver East. He mentions a figure of an

investment of $50,000 per rider in the system. One could reduce that by

a factor of five or ten depending on his optimism or otherwise with

regard to ridership. The member and the critics generally choose to use

very pessimistic figures as to future ridership. If you use more

optimistic ones, the investment per rider is much less. When he uses an

example such as the San Diego-Tijuana system, that's an entirely

different animal. It runs on trackage normally used by freight trains;

it doesn't run very often; it has many level crossings; it's simply not

a rapid transit system. So those comparisons or analogies are

irrelevant.

What does concern me is some aspects of the financial package, which

I have not seen and to which some allusion has been made. I'm concerned

about capitalization of interest. The figure mentioned in this clause

is $1.5 billion. When you finance on the never-never plan, any number

you choose is too small; $1.5 billion, therefore, if it is a meaningful

number, has to assume that the capitalization of interest stops at some

point in time. It has to stop within the next few years if $1.5 billion

is enough to buy $100 million worth of new buses to pay for phase one

of light rail rapid transit and to pay for extensions to Surrey and

Coquitlam. If one ignores interest from now on, it's a close fit

anyway, but capitalization of interest raises the figure, and it raises

the figure in the order of 10 percent every year. As I understand it,

the debt of B.C. Transit in this formula, as of the first of next year,

will be of the order of $600 million, perhaps a little more, not likely

less. Of course the year afterwards it will be of the order of $660

million; the year after that, of the order of $726 million; and up it

goes. In ten years the number will have doubled; it will have reached

$1.2 billion. Clearly, capitalization of interest is going to eat

rapidly into the figure we're looking at — the $1.5 billion figure.

I suppose my first question to the minister is: is he serious when

he says that these moneys will be sufficient to buy new buses and to

extend light rail rapid transit into Surrey and Coquitlam?

[ Page 6154 ]

There are several other aspects to this. The municipalities are

partners in this venture. They are partners in the proportion of 60

provincial, 40 municipal. The municipalities, therefore, are also tied

into this never-never plan. They are tied into the capitalization of

interest. They are tied in immediately to a debt of the order of 40

percent of $600 million, or $240 million. North Vancouver, for example,

has to be concerned. It's tied in to the extent of $25 million right

off, and the $25 million rises 10 percent a year; it'll be $50 million

in seven years, and so on. Do the municipalities really understand that

that's what they're in for? Do they know that we've started again into

the kind of financing that we had for literally decades in B.C. Rail,

when B.C. Rail was unable, for economic reasons, to pay its own way,

certainly to pay anything on the capital? The device was therefore to

borrow an additional sum every year and use it to pay interest. This is

to be the process, apparently — for some time, anyway; I hope for a

limited length of time — for financing the ALRT

I personally would have preferred the province to be more realistic.

I don't agree with the hon. member opposite on the system — I agree

it's the right system — but more realistic in the sense that if it's

going to capitalize interest, it do it through the debt of the

province, and simplify things. Don't try to hide this in the financing

of yet another Crown corporation and, I think, undermine the

credit-worthiness of the province by so doing. I think that if you're

going to invest in a sizeable public project, it should be seen to be a

decision of the province and an investment of the province.

This is an important project. I think it should be seen to stand

substantially on its own feet. I think it should be seen in the general

context in which it was adopted. It's an intermunicipal project, not an

intramunicipal project. The formula that's been chosen is an

intramunicipal formula. The highway formula for assistance within

municipalities is 50 percent. That's the one that's been chosen. We

should have chosen the formula for highways crossing municipal

boundaries. In this case it'll cross several boundaries — eventually a

significant number of municipal boundaries — and therefore it should be

seen for what it is, an interurban project. It should have been

financed 100 percent — at least as far as the highway aspect of the

development is concerned — by the province. I would have argued that

the $275 million grant had been double that amount, and then the entire

project could have been funded from the outset, or the residue funded

from the outset, on the customary B.C. transit financing formula. It

would have been fully understandable. It would not have involved the

never-never plan. It would not have involved capitalizing interest. It

would have added to the direct debt of the province, admittedly, but

what we're getting here is a similar addition initially to the indirect

debt of the province and, I think, in the longer run a greater addition

to the total debt of the province — certainly something that could hurt

the credit rating of the province.

So, Mr. Chairman, I would appreciate it very much if the minister

could let us know how long this capitalization of interest will

continue, and how he sees the municipalities meeting their share of

this rather odd formula for their assuming a very significant debt.

HON. MR. CURTIS: Mr. Chairman, when the member for North

Vancouver–Seymour raised the point the first time, he wanted assurance

that the borrowing authority which is before us was sufficient, and I

can assure him that it is. It is sufficient through into the 1990s. The

last time the borrowing authority was increased for transit was 1981, I

believe, and this will carry us into 1991 or 1992.

I can't answer the question with respect to the municipalities, Mr.

Chairman, for the very simple reason that I present this as the fiscal

agent for B.C. Transit, not the minister responsible for arrangements

that are made with other levels of government.

MR. CHAIRMAN: The last point, by the way, is well made. The

debate in committee stage of Bill 17 has strayed somewhat. I appreciate

that it's a one-section bill and has one principle, but the principle

in this case is clearly the borrowing limit, and that is what we should

limit our debate to.

MR. HOWARD: With respect, Mr. Chairman, we also have to look

at the effect of this borrowing limit: interest rates and all those

sorts of things. It can't be an isolated, barren set of figures here.

I want to tell you how much I enjoyed listening to the comments of

the member for North Vancouver-Seymour (Mr. Davis), speaking in his

capacity as parliamentary secretary to the Minister of Finance. I want

to say that there are great things slated for that member for North

Vancouver–Seymour. With his grasp of fiscal matters, he should probably

be the Minister of Finance.

MR. CHAIRMAN: To the section, please.

MR. HOWARD: Given this government's ability to do, I suppose,

what one would politely call imaginative bookkeeping; given their

history of dealing with the amount of somewhere between $1 billion and

$1.5 billion of subsidy that the taxpayers of B.C. will be pouring into

the Japanese steel industry through northeast coal, and the fact....

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

MR. HOWARD: I'm using that as a comparison activity, to show

what is possible with respect to this bill, the borrowing power sought

by it and the results therefrom, and to point out what had happened in

another set of circumstances and that the same thing can happen here. I

need to draw that comparison, Mr. Chairman.

...that the government, managed by a series of manipulative

techniques — legislative ones and gift ones — to hide completely the

amount of subsidy to the Japanese steel industry from the taxpayers of

B.C.... They did it by dealing....

MR. CHAIRMAN: Order, please. Hon. member, one moment, please.

As I indicated earlier, we are in committee stage of the bill. The

member's comments might have been most appropriate during second

reading, when one discusses the principle, but we are in committee now,

and we must adhere to the relevancy rule in committee and deal with the

section, which deals only with the British Columbia Transit Act and the

borrowing increase. We must confine our debate to that. Other analogies

or hypothetical arguments are not appropriate during committee stage.

MR. HOWARD: I can see, Mr. Chairman, B.C. Transit itself

establishing a limited liability company as a subsidiary for

debt-financing purposes, just the same as done with B.C.

[ Page 6155 ]

Rail Ltd, and then issuing through this limited

liability company preferred shares to investors on the market, which

was done with B.C. Rail Limited, and thus put onto the equity side of

some ledger an amount of what otherwise would be debt, and so befuddle

the bookkeeping that.... The questions raised by the member for North

Vancouver–Seymour and the subsidy involved and the loss involved in

this whole venture as indicated by the member for Vancouver East show

clearly that the general public will never be able to find out how much

of their tax dollars are being siphoned off into dead holes, just as we

will never be able to find out by looking at the books the fact that we

will be subsidizing the Japanese steel industry by $1 billion. That's

what is going to happen here, unless before that event takes place we

turf that crowd over there out of office. Then we'll be able to change

matters.

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

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

MR. CHAIRMAN: Hon. members, some latitude has been allowed

inasmuch as this is a one-section bill, but nevertheless we are in

committee stage now. Specifically, we are dealing with the British

Columbia Transit Act and no other act or any other authority, and we

are dealing with a borrowing increase. We are in committee stage;

debate in committee stage must be specifically relevant to this

section

before us.

[10:30]

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

Anyway, Mr. Chairman, it strikes me that, fiscal agent or not, the

Minister of Finance should be able to answer adequately the member for

North Vancouver–Seymour's questions. If in fact he needs the assistance

of the minister responsible for transit, then she should be here to

provide that information.

As one of the contributing municipalities, New Westminster — and of

course my colleagues from Burnaby and Vancouver and elsewhere — is

going to be most interested in what's happening, and particularly

interested if in fact we're living a legacy of capitalized interest for

years and years to come. I've sat in the legislature for 16 years, and

I've watched other Crown corporations and their antics vis-a-vis

increasing their debt just by the interest that is necessary to service

the debt that they now had.

AN HON. MEMBER: The Argentina syndrome.

MR. COCKE: That's right. Mr. Chairman, we continually do this

and hide it from the public, because it is never a direct government

debt. The only time it ever sees the light of day is when we have a

discussion, as we do every year, virtually, about Hydro and BCR and all

the rest of the Crown corporations — a very brief discussion, never

covered to the extent that it should be by that illustrious press corps

that we have around here.

But in any event, the public are not able to assess what's happening

in this province. What's happening in this province today is the final

reading of a $600 million addition to bring our debt on transit up to a

$1.5 billion borrowing.

So I really think that the member for North Vancouver–Seymour, the

member for Vancouver East, etc., have the right to hear precisely

what's going to happen — and particularly to that level of government

that's not here to argue. If, for instance, New Westminster argues that

our 40 percent is larger than what we wish to contribute.... They

should have that say, but they don't have that say. We make all the

decisions in this hallowed hall, and we don't even do it in the light

of day. Secondly, we're not getting the answers.

Section 1 approved.

Title approved.

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

Motion approved.

The House resumed; Mr. Speaker in the chair.

Bill 17, British Columbia Transit Amendment Act, 1985, reported

complete without amendment, read a third time and passed on division.

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

GASOLINE TAX AMENDMENT ACT, 1985

HON. MR. CURTIS: Bill 8 accomplishes five measures which were

announced in the budget address on March 14. It reduces the tax rate on

aviation fuel; it clarifies that aviation fuel purchased outside the

province but delivered into British Columbia to fuel aircraft is

taxable; it clarifies the authority to make assessments against

purchasers; it limits the maximum period subject to audit to six years

— and I say that bearing in mind the comments made by the member for

Nanaimo (Mr. Stupich) yesterday; and finally, it provides for increased

penalties and fines on July 1, 1985, at the end of the consumer

taxation amnesty program.

With respect to the first measure, the bill provides for an interim

rate of tax on aviation fuel of 2.95 cents per litre from March 15 to

March 31, 1985. That was the action taken in the budget. The interim

rate represented a reduction from 5.37 cents per litre to 2.95 cents

per litre. As of April 1 the rate became 2.81 cents per litre, and is

determined by the new quarterly ad valorem adjustment formula in

another act, the Gasoline (Coloured) Tax Act, which sets the rate at 7

percent of the pretax selling price of gasoline.

[Mr. Ree in the chair.]

The new rate of tax for aviation fuel is consistent with the general

reduction in the tax on coloured fuels used off public highways. Under

the former method of calculation, the tax rate on aviation fuel had

increased significantly since 1981. The airline industry and others had

suggested that it was unreasonably high when compared to other taxing

jurisdictions. The level of tax on aviation fuel was given very careful

consideration in the public meetings I held last fall, and I made the

decision to lower the rate. The new rate ensures that the tax level in

B.C. is in line with the rates in other provinces.

[ Page 6156 ]

A related amendment ensures that imported aviation fuel is subject

to the same tax as fuel purchased from our domestic refineries. The

existing legislation does not clearly enable the province to collect

tax in situations where aviation fuel is purchased outside the province

but delivered into the province to fuel aircraft in B.C. This

situation....

MR. COCKE: Lougheed will love you.

HON. MR. CURTIS: I think the member has perhaps misunderstood

what is happening here, Mr. Speaker. This situation results in unfair

competition for our domestic refineries. I'm confident that this

amendment, in conjunction with a lowering of the tax rate on aviation

fuel, will result in an improvement in the ability of our airline

industries to serve the public and ensure that all fuel purchases are

treated fairly.

The bill also clarifies the authority to make assessments against

purchasers when they have failed to pay tax. This lack of authority,

which I've alluded to in some other bills in this sequence, became

evident in the course of administering the Social Service Tax Act. This

provision is therefore being added to several of the consumer tax

statutes, including this one.

The fourth amendment provides that the audit period in the act be

six years. Again, I dealt with that in another statute yesterday. In a

related amendment to the establishment of the six-year audit period,

the Crown will limit the time period for taking formal collection

proceedings to seven years from the date the tax initially became due.

That parallels other action which has been approved by this chamber.

This amendment allows the one additional year beyond the six-year audit

period.

The final group of amendments provides for increased penalties and

fines on and after July 1 of this year, and will be effective at the

end of the consumer taxation amnesty program which applies to all

consumer tax statutes. I spoke about the evasion which has been

occurring over a number of years, and I will not be repetitious in that

regard when dealing with Bill 8.

In

summary, the amendments introduced in this bill provide for a

lower rate of tax on aviation fuel and ensure that aviation fuel

delivered to aircraft in British Columbia from outside the province —

and the member for New Westminster (Mr. Cocke) has left his seat — does

not escape taxation. The bill also contains the amendments to introduce

the common administrative provisions contained in a number of our

consumer tax statutes. I move second reading of Bill 8.

MR. HOWARD: There's only one concern I want to express. It

has been expressed on other occasions but needs repeating. One of the

provisions of this act.... This may well be the case in other

provinces. The minister may say that this happens elsewhere so

therefore we should do it here. But whether it happens elsewhere or not

does not make it correct — the provision that provides for a quarterly

adjustment by way of a formula which is incorporated in another act.

But a quarterly adjustment means that the price or the tax will be

adjusted depending upon what others do outside of this chamber, not

upon what this chamber does. In other words, we're leaving the level of

the tax, or the alteration in the tax, subject to the mercy of whoever

else outside might determine what the price of aviation gasoline is

going to be at any given time, because it is a percentage figure.

I think it's wrong in principle for a taxing authority like the

Legislative Assembly to abandon its responsibility for the amount of

tax to be paid to some outside forces that have no allegiance to the

province of British Columbia, no responsibility in any political sense,

which this Legislature has. I think that's a wrong principle to follow,

whether it relates to this, to tobacco, or whatever.

MR. DAVIS: Mr. Speaker, I support this bill. The hon. member

who has just spoken questions the nature of the tax. It's like the

social service tax generally. It adds 7 percent to a price; 7 percent

is the amount of the tax. I don't have any problem there. On the face

of it one might criticize this legislation in that the tax is reduced,

and the assumption might be made that revenue to the province would be

reduced. In fact, I think it will be the opposite, because aircraft —

and particularly large commercial aircraft — are now much more likely

to fuel up in British Columbia than they have been in recent years.

They've been fuelling up, if possible, in Seattle or in Calgary. They

fuel up anywhere they can as long as the cost of carrying that

additional fuel to the Vancouver airports doesn't exceed the tax they

would otherwise pay.

The province increased its tax a few years ago, and did so because

the federal government increased the federal tax. The federal

government got into its situation because it had legislated lower fuel

prices in Canada than prevailed world wide. For some years

international airlines, shipping and so on fuelled up in Canada because

the controlled prices in Canada were below world prices. Eventually

Ottawa woke up; it decided to equate the cost of fuel in Canada to what

otherwise would be the price had world prices prevailed, and it imposed

a tax. But the federal tax was at a sliding rate, and as Canadian

internal prices rose to the world price, the federal tax extinguished;

the increased provincial tax did not. So increasingly there was a

penalty to fuelling up in British Columbia, and this applied, as I've

said, particularly to the major commercial operators — those who had

the alternative of taking on aviation fuel outside our boundaries.

So while on the face of it revenue would be reduced by reducing the

tax, in fact I believe the total flow of revenue to the province will

increase, and I think all round this is beneficial.

HON. MR. CURTIS: In another bill relating to tax matters, I

complimented the member for North Vancouver–Seymour on having been

correct on a couple of tax statutes, and I thank him again. I heard his

comments with respect to this particular one.

On the question raised by the member for Skeena, there are

interesting comments with respect to ad valorem and we've had those

debates in this House before. One aspect that I think is a plus is that

with the use of ad valorem in northern B.C., the tax level is set so

that the tax is the same across the province. We examined that aspect

of the ad valorem question, recognizing that there are pros and cons.

We examined that when it was introduced a number of years ago.

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

Motion approved.

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

[ Page 6157 ]

Motion approved.

[10:45]

Bill 8, Gasoline Tax Amendment Act, 1985, read a second time and

referred to a Committee of the Whole House for consideration forthwith.

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

Interjection.

MR. NICOLSON: I know you asked for leave. I'm saying that the

Chair put a motion rather than simply asking about leave. I wouldn't

want us to start thinking that leave was something that could be

settled by a majority vote of the House.

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

GASOLINE TAX AMENDMENT ACT, 1985

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

Sections 1 to 7 inclusive approved.

section 8.

MR. HOWARD: I think I missed what the minister said in second

reading about the limitation period of seven years. Did I understand

him to say that that was a comparable or the same limitation period

with respect to a number of other statutes that relate to the same

subject, namely that of taking action to recover taxes? Is that seven

years universal?

HON. MR. CURTIS: Mr. Chairman, it is becoming universal

through the several tax acts that we're dealing with in this session.

The main thrust with respect to another bill, about which I will not

speak, is that we've reduced the audit period from ten years to six, so

we're looking for commonality in six years. Again — and I think I'm

speaking to the

section — the member for Nanaimo (Mr. Stupich)

yesterday raised the question with respect to why it wouldn't be less

than six. I've undertaken to meet with him, or at least that message

will be sent to his office, to discuss the pluses and minuses with

respect to six years.

What happens in this section, particularly, is a seven-year

limitation for a collection action to recover assessed overdue taxes,

except in the case of wilful fraud or default. The seven year period

comprises really two parts: six years, which is the audit period we've

been speaking of in several statutes; plus the one additional year for

collection of taxes which are due by way of a collection proceeding.

The straight and simple answer is that we started out with what had

been in place for a long time — a ten-year audit period — and that's

far too long, We've moved down to six. Cases can be made for perhaps

less, but it's six plus one for the collection proceeding.

Sections 8 and 9 approved.

section 10.

MR. COCKE: Very briefly, I conclude from the minister's

answer on

section 8 that

section 10 is excluded from that particular

situation. This is the

section dealing with fraud. There is no

limitation to that, I gather?

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

Interjection.

HON. MR. CURTIS: Well, ten years, fifteen years, twenty

years, where it's wilful evasion and the penalties are dealt with

elsewhere and they're pretty significant. They're in

section 10(c).

AN HON. MEMBER: Guillotine?

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

Sections 10 to 12 inclusive approved.

Title approved.

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

Motion approved.

The House resumed; Mr. Speaker in the chair.

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

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

GASOLINE (COLOURED) TAX

AMENDMENT ACT, 1985

HON. MR. CURTIS: Mr. Speaker, I move second reading of Bill

9. This bill accomplishes four measures, which were also announced in

the budget on March 14 of this year. It reduces the tax rate on

off-road or coloured fuels, clarifies the authority to make assessments

against purchasers, reduces the maximum period subject to audit from

ten years to six years and, as with other bills, provides for increased

penalties and fines on July 1, 1985, at the end of the consumer tax

amnesty program, which is now in effect.

The most important measure in the bill from an economic development

perspective perhaps is the provision for reducing the tax rate applied

to motor fuels used off-road to 7 percent of the pre-tax selling price

of gasoline. In the case of marine bunker fuel, where the selling price

is substantially different from that of gasoline, the tax is reduced to

7 percent of the pre-tax selling price of that fuel. As an interim

measure, the bill also established a tax rate for coloured gas and

marine bunker fuel for the period between budget day and April 1, 1985.

Then on and after April 1 of this year the tax rates were determined on

a quarterly basis by the new formulae.

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

[ Page 6158 ]

pre-budget estimates of the tax. As of April 1,

1985, the rate was determined by formula. The current rate is 2.81

cents a litre for coloured gasoline and 1.66 cents a litre for marine

bunker. The current rate represents a substantial reduction from the

pre-budget-day rates of 5.37 cents a litre for coloured gasoline and

4.19 cents a litre for marine bunker fuel.

I think that members, having tracked other gas statutes, will be

quite familiar with what is proposed by the government with regard to

Bill 9. I therefore move second reading.

MR. HOWARD: The thought I expressed about tying the tax rate

to an indexing formula or to a price outside of this legislative

chamber — in other words, letting somebody else make the determination

as to what the tax will be — is as valid here as it was with the

preceding bill. I want to express some disagreement with that process.

With respect to the formula — this is a very intriguing part, Mr.

Speaker — if we take the formula to be 0.07 times the product of 32.58

divided by the lesser of the gasoline auto and truck component of the

consumer price index or the gasoline auto and truck subcomponent of the

consumer price index of Vancouver multiplied by the lesser of the tax

payable under this act on March 31, 1985, or the day before that,

whenever the new one came into effect, plus the amount of tax per litre

levied under

section 5 of some other act, and cross that over with the

multiple of the minister's age, we'll have some understanding of what

this means.

MR. COCKE: Mr. Speaker, this is probably the first time that

I have felt that we are in a computer age beyond doubt. There is no

possible way a human being could figure it out without the assistance

of the minister's handpeople.

HON. MR. CURTIS: Mr. Speaker, one could lurch into a fairly

risque limerick, but I have no intention of doing so with respect to

Bill 9; in fact, I can't remember all of it. We can perhaps deal with

that at greater length in committee, but then again we might not.

I hear the comments of the member for New Westminster (Mr. Cocke)

regarding the formulae, and indeed there's an amendment which is

intended to clarify it all. I'll move that in committee. I believe that

those who administer the tax in terms of its sale are competent and

comfortable with the formulae and determining the formulae. We notify

them; we assist them through the consumer taxation branch of the

revenue division to the greatest extent possible, and of course much of

it is done by computer. No question about it: it is very much done by

computer. I guess we should not lose sight of the fact that what we're

really doing here is significantly reducing the tax on off-road fuel,

including marine bunker.

I move second reading.

Motion approved.

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

Leave granted.

Motion approved.

Bill 9, Gasoline (Coloured) Tax Amendment Act, 1985, read a second

time and referred to a Committee of the Whole House forthwith.

GASOLINE (COLOURED) TAX

AMENDMENT ACT, 1985

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

section 1.

HON. MR. CURTIS: I move the amendment standing in my name on the order paper with respect to

section 1, Mr. Chairman. [See appendix.]

On the amendment to

section 1.

MR. COCKE: Speaking to the amendment, Mr. Chairman, when we

suggested that the formula was confusing, we couldn't have been wrong,

because it was so confusing that they put it forward improperly in the

first place and had to bring in an amendment themselves. This is the

kind of formula that's going to govern this whole question in the

future. I hope there aren't any other mistakes that we have to come

back and amend some other time in the future.

HON. MR. CURTIS: Speaking to the amendment, it was a missed

cross reference, Mr. Chairman. One of the reasons that it's important

perhaps with some tax bills to have them on the order paper for a good

long time is so that they can be reviewed by members of this House and

also by officials who serve the public of B.C.

The House amendment to this bill, which has been on the order paper,

was required to correct an error in the explanation of the tax indexing

formula. In

section 6(2), "PT" refers to the tax payable on clear

gasoline, which is subject to tax under the Gasoline Tax Act rather

than the Gasoline (Coloured) Tax Act, as previously stated.

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

Amendment approved.

Section 1 as amended approved.

Sections 2 to 13 inclusive approved.

Title approved.

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

Motion approved.

The House resumed; Mr. Speaker in the chair.

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

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

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

[ Page

6159 ]

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

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

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

Bill 9, Gasoline (Coloured) Tax Amendment Act, 1985, reported

complete with amendment to be considered at the next sitting of the

House after today.

[11:00]

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

MOTIVE FUEL USE TAX AMENDMENT ACT, 1985

HON. MR. CURTIS: Bill 10, Motive Fuel Use Tax Amendment Act,

1985, is a companion in some respects to bills which have been dealt

with earlier today. In the budget on March 14 I announced

administrative and enforcement changes to be introduced in this and

other consumer tax statutes. The bill contains amendments which clarify

the authority to make assessments against purchasers, limit the maximum

period subject to audit to six years from ten, and provide for

increased penalties and fines on and after July 1.

The question of assessments against purchasers when they fail to pay

tax: the lack of authority to assess purchasers became evident in the

course of administering the Social Service Tax Act, and this provision

is therefore being added to several of the consumer tax statutes,

including this one.

I have spoken previously about the second amendment in what is in

effect something of an omnibus bill: this is the reduction of the audit

period to six years.

The Crown will also limit the time period for taking formal

collection proceedings to seven years; that parallels other

legislation. The final amendment provides for increased penalties and

fines on and after July 1 of this year, effective at the end of the

consumer tax amnesty program which has been introduced for all consumer

tax statutes.

Mr. Speaker, that essentially is what is occurring in Bill 10, which

is companion to several others moving through the Legislature during

this session.

I move second reading of Bill 10.

Motion approved.

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

Leave granted.

Bill 10, Motive Fuel Use Tax Amendment Act, 1985, read a second time and referred

to a Committee of the Whole House for consideration forthwith.

MOTIVE FUEL USE TAX AMENDMENT ACT, 1985

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

Sections 1 to 9 inclusive approved.

Title approved.

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

Motion approved.

The House resumed; Mr. Speaker in the chair.

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

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

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

ESTIMATES: MINISTRY OF INDUSTRY

AND SMALL BUSINESS DEVELOPMENT

(continued)

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

MR. WILLIAMS: I think it might be interesting to reflect on

the pattern that has existed in the province with respect to this

ministry and similar economic ministries relative to the main industry

of the province.

It seems to me there's been an inherent assumption on the part of

ministers of industry in this province that the forest sector — that

is, the industrial sector — was being accommodated and looked after

elsewhere. While they have dealt with some of the questions with

respect to our prime industry in a marginal way, they haven't ever

addressed themselves to the whole broad and important question of

industrial strategy with respect to forests, and the whole question of

the industrial structure that we have in British Columbia. That's

probably an inherent weakness in the breaking up of departments. This

is a new minister. It's something that he might address, because we've

historically mixed these things up in British Columbia. We've tended to

think that the forest industry thing is okay, and that's going to be

dealt with by somebody over there. We tend to mix it up with the land

question; that is, the management of forest lands. We make an omelette.

What I'd like to talk about is the industrial side, because we tend

to deal with the omelette all the time, instead of the pieces. That's a

fundamental error, in my view. Historically we have had this department

of industry that traditionally ignores the basic industry of the

province. We are all the losers there.

The industrial question. We have a serious problem in this industry

of ours because we're now about two generations behind the

Scandinavians in technology, marketing and genuine entrepreneurship.

This is maybe the greatest weakness in the provincial economy, beyond

living with this administration. The greatest single weakness, in my

own view, is the whole business of the strength of entrepreneurship

within our basic forest industry.

There have been studies of late, one by Prof. Sten Nilsson from

Stockholm, an expert in forest industry questions. He has concluded

that the lack of entrepreneurship within the forest industry is one of

the serious problems we face in

[ Page 6160 ]

British Columbia. I think our strategies have

enforced that over the years. We've tended to accept the idea that

supply of material to our forest industry should be a non-competitive

supply, unlike most of the rest of the western world. In Scandinavia

they face a competitive supply situation. In America they face a

competitive supply situation. In British Columbia there is not a

competitive supply situation. It allows our industry, therefore, to get

lazier in terms of dealing in an efficient way with what they're

supplied. It's ironic that from this so-called free enterprise

government we have anything but free enterprise in our basic industry,

at least in the supply end.

We tend to think that another ministry is looking after these

problems, because we have another ministry called Forests. But the

training, the direction and orientation of that other ministry is all

toward the forest end and land management, rather than the industrial

end. One tends to think that maybe this ministry has all the expertise

in the industrial end. I'm satisfied they don't either. So we in

British Columbia, in terms of significant economic planning at the

public level, are falling between stools. There is the assumption that

those tree guys over there are looking after the industrial side; and

they've scrambled a little bit, but they're not. At the same time this

ministry, which has the broader responsibility for the industrial

sector of the province, hasn't really developed competence in this area

either. So in a way we've got the worst of all worlds. We've got this

ministry that works over on this margin, and another ministry that

works over on that margin, and in the meantime, in the significant core

area, America is moving ahead of us, Scandinavia is moving ahead of us,

and competitively we're slipping further and further back. What we need

is a kind of new grand strategy to rebuild, retool and remarket our

basic products in British Columbia.

Let's look at the industrial structure we've got, and let's look at

why we've been falling behind. A lot of experts have been looking at

this field over the last few years. It's worth looking at some of the

work. As I said, work has just been completed on this industrial side

by Sten Nilsson under Dr. Peter Pearse at UBC. Work has been done by

Woodbridge, Reed and several others as well. What's interesting is that

they're all starting to tell us the same thing, that we are desperately

slipping behind our competition, that government hasn't taken the

problem seriously, and that unfortunately industry has created

conditions for itself that almost prevent it from grappling with the

problem, because industry is overloaded with debt at the moment in

British Columbia and can't move on to what it has to do to build a new

competitive situation.

Our broad problem in this industry in British Columbia is that we're

turning out bottom-of-the-line lumber products in the form of 2-by-4s

and studs, and bottom-of-the-line products in terms of market pulp, not

fine finished papers, and bottom-of-the-line products in terms of

newsprint, rather than finished papers and white papers — value-added

materials. It's a fundamental problem. The irony is that within this

area of our strength in the forest products industry the growth has

been in the value-added products. British Columbia isn't into the

value-added products at this time on any significant scale. So it's a

fundamental weakness that we have.

[11:15]

We've got growing problems in terms of wood costs, especially on the

coast, which make the industry less competitive on the coast. We

haven't really moved to the new kind of product mix that is necessary

in terms of value-added. There have been a few that have. MacMillan

Bloedel has moved, in terms of one machine at Powell River, into the

white, glossy newsprint stuff that you get in your advertising

supplements. That's the first new step in that area. The Hammond mill

of B.C. Forest Products has moved into value-added material in red

cedar. They've worked in terms of value production, not volume

production. So we're getting significant beginnings. But the real

improvements in terms of value-added have come, in fact, from the small

forest products companies in British Columbia, not the big ones. A

couple of the big ones are starting to change, but they've got

financial problems. The small ones, by and large, have been doing the

job.

We've slipped back in technology. We could be doing much more. The

approach of government in this last while, as things have been tumbling

down, has been to say: "What can we do to prop up our problem

industries?" There's another bill before the House — the commissioner

of critical industries. One can't argue about that in the short term,

and we've indicated that we will support that in the short term, but

it's a focus that's dangerous. We're not taking a medium- or

longer-term view of our basic industry here. Much of the attention and

talent available will be used in this process of propping up existing

industries that are already in a vulnerable position, even in the

broadest sense. They're vulnerable in terms of price. Lumber, in real

value, has gone down in price over the last several years. The other

commodities are very vulnerable in terms of exchange rates and

generally in terms of the product line. So if we spend most of our

effort in propping up what is basically a weak product, which is what

we have in British Columbia, we're doing the wrong thing.

I should be the last to suggest it, but it is a potential

lemon-socialism program, in the classic British model. I think this

government should be the last to consider the lemon-socialism option.

The commissioner-of-critical-industries approach and propping up old

low-value industries is potentially that, unless you take the bulk of

your talent and energy and move toward new technology and new product

and new marketing.

Now if we're going to move into that realm of new product, one of

the things a lot of the new products will take is energy. We're

fortunate in that regard. We have a publicly owned utility in this

province that has excess electricity, and we have cheap electricity as

well. Our electricity is available at about half of what it is among

our competitors in the United States and might in fact be less. So if

we're going to move into state-of-the-art pulping and that sort of

thing in British Columbia and value-added in terms of hard papers and

coated papers and a range of things like that, then part of what's

needed is low-cost electricity. Low-cost electricity is what we do have

in abundance. So there is the makings of a new industrial strategy for

our forests. It's not beyond us.

But we have this other irony over here in the private sector. Our

forest companies in British Columbia have borrowed too much. They are

now over-leveraged entities: they borrowed too much, they face

interest-rate problems, and too much of their funds is now geared to

paying back the bank loans. So we have an industry highly leveraged in

a position where, if they're going to keep up with the rest of the

world, they are going to have to retool, spending money on new

technology and new plants, but they're locked in with old debt. That's

a pretty serious problem. So this whole question of upgrading our basic

industry in the province is before us

[ Page

6161 ]

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

While we're looking at such modest stuff in terms of decision-making

over there, they've been grappling with a modest little agreement with

the feds — the ERDA of $575 million shared fifty-fifty over five years.

Sten Nilsson, the man from Stockholm, when he did his overview, said

that in reforestation and industrial rebuilding to catch up with the

Scans will take $35 billion, if we're going to try to get close to them

by the year 2000. We're talking about $575 million over five years in a

federal-provincial agreement. What does that amount to in percentages?

It's just minuscule. It means we're going to keep sliding back relative

to our competition, in this basic industry — two generations behind our

main competition in this industry. We've slipped behind eastern Canada

too. We tend to think of British Columbia as being ahead of the east,

but in this sector we've slipped behind them as well.

If you look at the value of paper-converting in Canada, it's down

2.6 percent in B.C. and up 7 percent in Canada, an indication of the

increased production and retooling that is taking place in eastern

Canada.

We've got a problem in this province too in terms of research and

development. There just isn't an R and D capacity in terms of our basic

industry. The Scans again devote significant funds to research and

development, and that's why they've moved ahead of the rest of the

world. They now have new products that nobody else in the world is

producing, particularly in terms of fine papers, packaging papers and a

whole range of things like that, and new products such as the one they

call Tetra-Pak.

We now have only one forest industry in British Columbia that has an

R and D capacity, and even that has been cut down by about 25 percent.

Ironically, through these rougher times our basic industry has cut back

on their marketing staff and marketing skills. What we desperately need

as we evolve new products is the linkage in terms of marketing, in

terms of back and forth, in terms of understanding the products that

are really needed out there, and starting to produce them.

If we look at the overall value of our forest product in B.C., in

1973 we produced 51 percent of the value within the country in terms of

forest products. In 1983 we produced only 42 percent of the value of

forest products in the country. We still have half the trees, but what

it tells us is that eastern Canada, like the Scandinavians, are moving

ahead of us in terms of increasing value and value-added. That, Mr.

Chairman, is what wealth creation is all about; that is, using

technology, capital, labour and our raw resources in a more creative,

productive way is the wealth-generating game. We've been slipping

behind in terms of wealth-generation. So I think that's the main point:

we have to move into these value-added products, we have to start

changing the industrial structure, and we have to start changing some

of the other systems.

We have a problem in B.C. for our sawmills in terms of them catching

up as well. Our sawmills on the coast have been desperately slipping

behind, and some of the others have as well. Part of that is related to

what they pay for the product in terms of pulp mills. We could upgrade

all of our sawmills in British Columbia quickly with internal cash flow

within those sawmills if they got a decent price for the chips or the

residuals that they produce.

At the moment, sawmillers in British Columbia get only 50 percent of the value

for the chips that the companies would otherwise have to pay for roundwood.

So we have a sawmilling economy in British Columbia that is distorted because

it doesn't get a fair price for all of its product. As a result, there are

those real distortions.

So the main point is that our industry is terribly vulnerable at

this time, Mr. Chairman. Lumber is already a mature or no-growth

product. It's likely to decline because of changes in the market and

other products that will replace it. It's highly sensitive to both

exchange rates, and it's highly vulnerable currently, as we all know,

to tariff pressures as well. That's pretty serious.

The question of value added.... It's worth looking at some of the

numbers. In Canada, value added in terms of wood products didn't

increase very much in the last decade. But if we look at Sweden in the

last decade, value added increased by 80 percent. The overall figure

for Canada was 16 percent in terms of value added in the last decade,

British Columbia being less than the Canadian average because of what's

happened in eastern Canada, as I said. But the Swedes have increased

value added onto their forest by some 80 percent in the last decade.

That's from a higher base, so they started out in terms of a value per

cubic metre of wood of something like around $80 Canadian and have

moved up significantly since then,

whereas B.C. is down in the $30

range somewhere.

So we're talking about a fourfold difference in value added, in

terms of a chunk of wood. Just think about that: in terms of the

application of capital and technology, the Swedes are now putting value

onto a piece of wood that's about four times what we do. That is,

they're getting four times the wealth out of an acre of forest land

that British Columbia is. You might multiply that because of forest

management problems as well.

It tells you very quickly where the opportunity is in British

Columbia to create wealth. The opportunity for wealth creation here is

in this basic industry, because we're so far behind. We can very well

have the Minister of Science (Hon. Mr. McGeer) saying that technology

is it, and that all the growth is going to be there. The significant

opportunity is here in an area that historically we've been strong in

but which we're currently getting very weak in. We can move into new

products just in terms of lumber. Do you know that the truss industry

in the United States now accounts for 25 percent of their wood product

in terms of that sector? We're not doing anything there to speak of.

Treated woods. Something like 25 percent of the southern forests in the

U.S. are treated woods — that is, treated with chemicals and various

products like that.

Secondary manufacturing in terms of specific commodities is where we

have to go as well to tailor ourselves to specific markets, like the

Japanese and others. That means avoiding log export and moving into

specific product. Even something like plywood. The Japanese have

officially removed tariffs now on plywoods, and the dimensions they

work with are 3-by-6. We don't have one plywood operation in British

Columbia that produces other than 4-by-8. Something as basic as that is

something to reflect on. We're not tailoring ourselves to the new

growth markets that are available elsewhere in the world.

In pulp and paper, again we've been working at the basement level

rather than moving up the ladder. We're not turning out printing paper,

we're not turning out paperboard, and so on. In terms of pulp mills,

we're still operating basically with a 1950 technology. H.R. MacMillan

is the guy

[ Page 6162 ]

who brought the new pulping technology to British

Columbia in 1950, and he brought it for the Harmac plant. That was when

we had entrepreneurs in the forest industry, and H.R. MacMillan was one

of them.

AN HON. MEMBER: You told us that before.

MR. WILLIAMS: Yes, and it's something to be told to you

people again. It's a learning process for the people over there. It is

a slow process, but if it's repeated and repeated, it'll finally be

impregnated in even the most impossible circumstances, so I think it's

worth repeating.

It's worth reflecting that we now have one new mill, CTMP mill in

Cariboo, that involves the Japanese and it's interesting. That takes

half the amount of wood for the same amount of pulp, and it's a kind of

pulp that there is more demand for now.

[11:30]

So that gives you the kind of idea. We're operating with 1950-style

pulp mills in British Columbia, and the 1985 state-of-the-art mill will

take half the amount of wood to create the same amount of product. So

what does that tell us about this industry? Again, think of the

wealth-creation potential if we retool our pulp mills and develop a

program there. Again we're talking about large amounts of capital, but

that's clearly the way we have to go if we're to meet the competition.

The experts tell us that this is the only way to go; that we have to

upgrade our product if we're going to survive in the international

world. That requires a tremendous amount of linkage and coordination

between the government, the public sector, labour and the private

sector. There is the need for a grand alliance, in terms of rebuilding

and retooling our basic industry. It's a tremendous challenge, but

there's no indication yet of the capacity, in terms of tooling up even

the staff of government, to deal with this challenge that's before us.

We haven't begun, even in the private sector, to rebuild the human

capital, let alone the plant capital, to deal with the modern world.

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

[Mr. Ree in the chair.]

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

We're talking about the fundamental industry of the province and how

far we've slipped behind in your decade. You people have had a decade

here: ten years to rebuild and redirect this provincial economy.

Everything has been short-term. It's always been to get away from this

basic industry. "We're going to do it with northeast coal; we're going

to redo it that way." Look at how we've fallen on our face there,

instead of looking at our fundamental industry in a serious, long-term

way.

The Scandinavians saw this problem at the beginning of the '70s, and they saw

it again.... They saw their high wood costs as a problem, just as they are

for us now. Government got together with industry and labour, and worked out

a long-term program. That's why now.... You check our markets in Asia;

the Scandinavians are beating us there. You check now in parts of America, and

the Scandinavians are to starting to beat us there.

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

MR. WILLIAMS: One would tend to think that we on the Pacific

Rim would have the edge. In fact, we don't, because the Scandinavians

have retooled; they have long-term plans. They don't have this kind of

situation, where you've got a Forests ministry that doesn't really know

anything about the industrial structure, and where you have an Industry

ministry that ignores the forest sector. That's what we've got in

British Columbia — the worst of all worlds. The Scandinavians put it

together a long time ago, but we haven't put it together. That's why

this industry is sinking behind to the extent that it is.

The lack of entrepreneurship in the core of our basic industries is

one of the most serious problems we have. It is complicated by the way

we supply them with wood. The Americans are right to be concerned about

the way we manage this industry. There are fundamental questions that

have to be addressed. We should be doing this — as a people —

internally, without pressures from outside. Those pressures from

outside are mounting. They are serious. It isn't quite good enough for

Mr. Apsey to go — for the Council of Forest Industries — and use his

pop-gun in Washington, D.C., and say: "You want a trade war?" We're one

and they're ten; we don't win in that kind of trade war. Let's not kid

ourselves. The job we have is to rebuild at home, retool at home and

make ourselves competitive at home. Then we will avoid that spectre on

the horizon that is getting closer all the time in terms of American

protectionists wanting to deal with us.

I have more to say in terms of what Mr. Nilsson himself specifically

said in his report, but I'd appreciate some initial response from the

minister.

HON. MR. McCLELLAND: Mr. Chairman, I appreciate the member's

attempt to do the forest minister's estimates under my estimates, but

nevertheless the responsibilities given to us by cabinet do detail that

the Forest minister is responsible for debating the general nature of

the forest industry, so I don't have very many comments to make about

what the member said, except perhaps to say that in some instances the

member is talking about the exact things that are the whole thrust of

this budget and the economic programs which will be put before this

House, in terms of value added. All of our programs are targeted to

processing, manufacturing and upgrading, and those are the only targets

that we have. The forest industry is, as the member said, our basic

industry, and it's going to be a prime target for many of those

programs, whether they be retooling, whether they be expanding for

export markets or whether they be in fact to help bring new kinds of

industry related to our basic industry to British Columbia. So I have

to agree with the member that that's where our thrust should be, and

that's where our thrust will be over the next many, many years. The

private sector itself has a responsibility to carry its share of the

load as well. Perhaps in the past — in some parts of British Columbia

at least — the private sector didn't clearly see the need for upgrading

and retooling, but I don't believe that's the case at the present time.

I think the industry is well aware of where its shortcomings have been

and where it needs to go in order to overcome them.

I won't comment on the critical industries commission aspect. I

don't want to invade the territory of legislative debate on a bill

that's before the House. The idea is not to prop up industries which

are non-viable. The idea, instead, is

[ Page

6163 ]

to bring all parties together, whether it be

government, labour, management or anyone else who may become involved

to ensure that a viable industry can be made to operate with a little

help. The help is not necessarily from the government, as in the case

of the Victoria Plywood situation, for instance; the help came from all

parties. That's what the critical industries commissioner's role will

have to be: bringing those parties together.

I find it hard to understand the member's comments about the

strength of our entrepreneurship in the forest industry. There has

probably been some weakness, but at the same time the member points out

that the growth and the exciting things that may be happening in the

forest industry are coming from the small companies, and that's the

truth. But that's always been the case, and I believe it always will be

the case that the small entrepreneur, the person who has his sights on

growth, is the person who — not only in the forest industry, but in

every industry in this province — drives that engine. Perhaps there's

some kind of an inherent weakness in getting big: that you lose your

entrepreneurial drive once you get to a certain size. I guess we in

British Columbia will always prosper on the backs of the small business

that wants to grow and wants to provide new jobs.

As far as the Ministry of Industry's interest in the forest industry

and our involvement in planning for the forest industry, I think we do

that at a committee level. I just happen to be chairman of the cabinet

committee on economic development as well. All planning comes before

that committee, and that includes planning for all industrial activity

in the province.

As far as many of the other very thoughtful comments by the member

are concerned, Mr. Chairman, I will certainly ensure that a copy of the

member's remarks are laid in front of the Forests minister for his

perusal as well.

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

If this is where the thrust will be, then there's a lot of work to

be done. I don't think you've got the staff. I don't think you've got

the tools to do the job. We're now two generations behind. The big

increases in your budget this year are for propaganda, for advertising.

That's where the big increases are in your budget this year, just as in

every other budget of this administration, as we go into an election

year. That's the growth industry at the moment: advertising

flash-in-the-pan exercises like Expo — again, short-term projects and

advertising.

But I'm more than pleased that the minister, as chairman of the

Cabinet Committee on Economic Development, agrees that this will be the

area of significant thrust. I happen to believe that small is

beautiful, and I am pleased that the minister has some recognition of

what small processors and manufacturers achieve.

But I wonder if the minister is aware that everything that this

administration and government does in British Columbia has a bias

towards the large, the big and the integrated. We have a forest

industry that is totally biased towards the big producers. We could

totally retool all of our sawmilling industry in British Columbia if

that bias was not there — and that's with the sawmillers' internal cash

flow. We have a system in which they don't get paid the true value for

their products. Sten Nilsson tells us, after private consultations with

the pulp companies and the sawmillers, that the sawmillers only get

half of the real value of their chips. In Scandinavia the sawmillers

get the equivalent of round log costs. That provides them with money to

retool the industry. Mr. Nilsson tells us there is no hope of

rebuilding the sawmill sector of British Columbia — on the coast it has

to be rebuilt, and some of it has to be rebuilt in the interior —

unless we have something closer to a market system for chips. So the

internal potential for the good small company, the unintegrated

company, to rebuild itself with its own cash flow and profits that are

the result of its own skills and genius is not there, because we've

accepted a rigged economic game that the big companies control. That's

what has happened.

The minister can say: "Yes, we do ride on the skills of the small

companies." It's true we do, but we also push them under because we

have a system that doesn't give them access. We don't let any new

people into this industry. You have to buy out the old and the

incompetent. That's how you get into the forest sector in British

Columbia. You have to buy out the old, the fat and the incompetent to

become a new producer, because there's nothing new available for people

in this sector.

So it's a concern. Again, as I've mentioned before in terms of

newsprint production in British Columbia, we're now at the point where

50 percent of our machinery in newsprint is pre-1950, and 58 percent of

it is almost 40 years old. No wonder we're slipping behind. The Swedes

have newsprint machinery only 7 percent of which is pre-1950. No wonder

they're getting ahead of us. No wonder they're able to sell at a lower

price than us. No wonder they're able to invade our traditional strong

market areas.

You know, the captains of industry on occasion get up and give

speeches. Adam Zimmerman, who is the boss of most of our forest

companies in British Columbia, said that we've got to increase

productivity, and Adam Zimmerman's way of increasing productivity in

British Columbia is to get all the workers to take a 25 percent cut.

Well, that isn't the way to increase productivity. The way to increase

productivity is to retool and bring in the new technology so there is

more output per man.

AN HON. MEMBER: Lay them off.

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

If we look at what the new-technology sawmills on the coast — and we

don't have many of them — turn out in terms of man-hours and cubic

metres.... It's 2.46 cubic metres per man-hour with existing

technology. With the new technology it's significantly different,

almost a doubling. The pattern is there. If the money is applied in

terms of capital and technology, then you can pretty well double the

production per man. That's the opportunity we have in British Columbia

in terms of retooling. We can create a great deal more wealth, greater

productivity per man, but it's going to take money and technology, and

we're behind in all of that.

[11:45]

If we look at what Professor Nilsson said in the conclusions of his

significant study of our forest industry, he said: "The only way to

improve the lumber industry situation is through investing in modern

technology and producing higher-value-added products. Full compensation

for chips" — that is, the byproduct of the sawmills — "is necessary in

order for these steps to be taken." He is telling us that unless these

people get a decent price for what they produce, rather

[ Page 6164 ]

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

He says with respect to the state of the plywood industry that most

of the plywood plants will be closed by the year 2000. He says we must

improve recovery in terms of production out of these mills; and we can

do that. Again, the Swedes and the American south are significantly

ahead of us as well. Then he says: "Manipulating the sector's economic

conditions by having the price of chips supplied to the mills at less

than full delivered wood cost results in a decrease in the total

economic results for the sector." What he tells us then, this

economist, is that we're not going to get full value out of our forest

sector until we tell the big companies: "Quit manipulating price when

you're dealing with the small players in the game." That's what he's

telling us. And he's telling us that all British Columbia loses when we

let the big pulp mills and the big integrated companies manipulate

price with respect to the small companies. That's significant. You over

there built in a system that is preventing us from achieving our

potential.

Professor Nilsson also says this about our major industry. He

predicts a high degree of obsolete pulp capacity on the coast by the

year 2000. Does that surprise us? Has anybody ever visited Woodfibre?

Has anybody ever visited Port Alice? Does anybody think those mills

will be operating by the year 2000? They're antique mills. They are

antique mills owned by companies that borrowed the money to buy them.

When Rayonier left this province they sold a bunch of junk in terms of

machinery. What they were really buying, in terms of Western Forest

Products, were our forests. The $400 million-plus that was paid to

Rayonier — who now of course are in New York — went to them for our

forests. The new company is stuck with their antique machinery and

their antique pulp mill. But this man from Sweden looked at that and

some of our other producers and said that there's going to be a high

degree of obsolete pulp capacity on this coast.

What we're talking about to retool here is hundreds and hundreds of

millions of dollars. We have to address that. But what we've got here

is a minister who's been arguing over his $500-odd million deal with

the feds for five years; $100 million a year he's talking about. And we

have classic, fundamental, structural problems in our major industry

that he doesn't seem to have the capacity to address, the manpower to

address or the funds to address — and another ministry that fools

around more in forest management and hasn't got the beginning of an

idea about restructuring the basic industry itself.

Mr. Nilsson carries on. Regarding newsprint, when we've got all

these — again — antique newsprint plants on the coast, he says: "Even

under optimistic economic conditions, obsolete capacity will be between

130,000 and 370,000 tonnes by the year 2000." Again, in newsprint we're

moving totally toward obsolescence in terms of competing in the world.

So here we are, this province that's blessed with a fantastic forest

landscape, with an industrial structure that is now two generations

behind.

In terms of product out of logs, again we're way behind. In terms of yields

we're way behind. In terms of productivity per man-hour, in British Columbia

we're now 20 percent behind the Swedes. They can use one-fifth less manpower

now as a result of what's happened. What's happening elsewhere in terms

of productivity? Right now, productivity in the American south — our competitors

on this continent — is going up about 3 percent a year. We're really slipping

behind.

Again, if we look specifically at the numbers in terms of the

debt-equity ratio within this industry, in 1979 it was .58 to 1; in

1983 it was up at 1.06 to 1. The common normal value in industry, in

terms of living with a debt load, is .65 — half. A major industry in

British Columbia has double the debt load that it should have to do its

job. That means they don't have the capacity in terms of capital to

carry on and do the job in terms of catching up with the American

south, catching up with the Swedes.

So what's going to be done? Clearly, you've got a job figuring out

how to provide new capital in terms of our basic industry. We now have

an industry that is not capable of doing it itself. They cannot find

the new capital themselves to do the job that's got to be done to

create the wealth, the jobs that we need in British Columbia. That

means some major coordination and activity on the part of government to

make this whole thing work again for us to renew this basic industry.

I'll just sum up what Nilsson said in concluding: "Industry has to

take some of the blame." That's Nilsson from Stockholm. He says the

industry invested too little during the seventies, when it was making

good profits compared to all the other regions of the world, so what

he's saying is that they dissipated their profits elsewhere in

inadequate ways. We all know that M&B and others invested in

projects that failed outside of British Columbia. They didn't put the

money back in British Columbia, and they and the rest of us are losers.

He says the industry failed to attract foreign capital internally as

well. He says the industry has not been sufficiently market-oriented in

keeping up with the new markets.

Nilsson says the industry has not devoted enough energy to solving

problems with unions — fair enough; and he says the industry displays

little entrepreneurial spirit. This is the Swede talking. He says there

is a low degree of entrepreneurship in this sector, and that's it. That

really sums it up. Our basic industry isn't real hustling entrepreneurs

any more.

Since 1950 and the end of MacMillan himself in MacMillan Bloedel,

it's all changed. Old HR predicted it himself. An old forester told me

that he went hunting with HR when they were moving into the paper end

of things, and the old man was actually crying in the woods with his

hunter friend and said: "I can see it all changing, because the

bureaucrats are taking over and the entrepreneurs aren't going to be

around much longer." That's precisely what happened. The old man had

reason to cry. The bureaucrats have taken over, and they have to become

entrepreneurs again.

MR. COCKE: Mr. Chairman, I have a few words to say about the

New Westminster waterfront, but I gather that it would be probably in

our best interests at this moment to move the committee rise, report

progress and ask leave to sit again.

Motion approved.

The House resumed; Mr. Strachan in the chair.

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

Hon. Mr. McClelland moved adjournment of the House.

Motion approved.

The House adjourned at 11:56 a.m.

[ Page

6165 ]

Appendix

AMENDMENTS TO BILLS

9 The Hon. H. A. Curtis to move, in Committee of the Whole on Bill (No. 9)

intituled Gasoline (Coloured) Tax Amendment Act, 1985 to amend as follows:

SECTION 1 , in the proposed

section 6 (2) by deleting "PT = the tax payable under this Act" and

substituting "PT = the tax payable under

section 4 (2) of the Gasoline Tax Act ".

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