< ' ! '· ' I ~·· ) } Volume 1 PROVINCE OF NEWFOUNDLAND THIRTY-SEVENTH GENERAL ASSEMBLY OF NEWFOUNDLAND 1st. Session VERBATIM REPORT MONDAY, NOVEMBER 24, 1975 SPEAKER; THE HONOURABLE GERALD RYAN OTTENHEIMER ; Number 2

November 24, 1975 The House met at 3:00P.M. Hr. Speaker in the Chair. Tape no. 27 Page 1 - rav MR. SPEAKER: 1 would like to welcome to the House the Tanzanian High Commissioner to Canada, His Excellency Frederick Rutakyamirwa and he is at present in the Speaker's gallery. I wish also to inform bon. members that two bon. gentlemen, the han. member for St. John's South and Minister of Provincial Affairs and Environment and the bon. member for St. John's North, both this morning took the Oath of Allegiance before Chief Justice Furlong. AN HON. MEMBER: St. John•s Centre. MR. SPEAKER: Sorry, St. John's Centre. HON. A.

J. MURPHY (Minister of Provincial Affairs and Environment): Thank you. MR. SPEAKER: I wish to draw the attention of han. members to certain resolutions on today's Order Paper. Regarding Resolution No. 6, I have consulted with the bon. member who gave notice for the motion, the bon. member for LaPoile. and he has concurred with certain changes which have been affected. This was a deletion of one of the

preambles which, in my opinion, was argumentative, and the shortening of the main body of the resolution. With respect to Resolution No. 9 on today's Order Paper, I have again, after consultation with the hon. member involved, the bon. member for Ferryland and with his concurrence deleted certain words among the

preambles which, in my opinion, were argumentative. Han. members will recall that on Wednesday I informed the House that I would take under advisement the motion referred to in the Notice of Motion given by the hon. member for terra Nova. I rule that the motion is in order and it is consequently on the Order Paper of today in the same form in which notice of it was given. I wish to point out that the first part of the Resolution does not necessarily involve the expenditure of public money. The second part of the Resolution is the expression of an abstract opinion. On this ruling I cite· as my authority, Beauchesne. the fourth edition,

section 251, subhead 4, which will be found on page 217, which reads: "Private members may introduce Resolutions that do not directly 70

November 24, 1975 Tape no. 27 Page 2 - mw involve the expenditure of public money and have no operative effect but simply express an abstract opinion on a matter which may necessitate a future grant.'' HON. R. WELLS (Minister Without Portfolio): Mr. Speaker. with the consent of the bon. members of the House, I would move that the normal procedures of the House be deferred on this day for presentation of the budget. MR. SPEAKER: Is the House agreeable to the deferral of the regular proceedings for today? SOME RON. MEMBERS: It is agreed. MR. SPEAKER: It is agreed. The bon. Minister of Finance. HON. W.

DOODY (Minister of Finance): Mr. Speaker. I move that the House resolve itself into a Committee of Ways and Means and that Your Honour do leave the Chair. 71

l'l71 FALL BUDGET IN I RODUCTION MR, SPEAKER, On Octubc! 10, 1075, in ,Jdditlon to being President of Trea~ury Board, I tuok on the ,Jthh:d portfolio of Minister of Finance. Having already held the ! !t.J~ury l3oMd pmtfuliu for mure than a year I was completely aware of the firMnd,tl situ,>tion I,King the Province and the need to put together a revised Jin,lnLi.ll pLtn ;md itht '>i.\ weeks after assuming my new duties lt comes as no grt'<!l surpri'>e to !w presenting ,m interim 1975 Fall BudgcL I he lllditl ohjeL!ivcs uJ t11is Budget arc to outline this Government's action pl,m wi1h respeLl to

(1) LorrcL!illg present budgetary trends, (ii} proceeding with a n'viscd appro;Kh to the Gutt Island Project, and {iii) pJJiicipating in the Fcderdl (,o\-l'rnmcllt's "i\tLttk on !n!Lltion" partku!arly as it rel<~tcs to income and price lontrnls, It i~ ,111 dlhlnc Bud~et with a focus on rcstr;dnt and realism. It is the lwpc of (;overnrnent tlul we L,lll a!! ris.L' to the challenges it presents. The first eight rnon1hs of the 197S-76 fiscal year hav<' been a most unusual period in the history uf Newfoundland.

The Province has experienced frequent Mld lengthy strikes in some of the mafor industrial sectors; a high rate of inHation Ius continued to erode our ecunomic base and threatens our standard of living ,md way of life and Government spending !las grown rapidly both on capital expenditures and wrrcnt expenditure programs.

It is also significant that the revenues from the Federal Government have fallen behind earlier projections, reflecting the recession that Ius gripped Cmada for the past eighteen months, When the 197S Pruvinci;ll Budget was delivered to the House of Assembly it w,Js stated 1!1.11 while !974-75 had been a difficult year to assess from a budgetary ~I.11H1point, the year 1975-76 would be till even more difficult year. At th.ll time there were uncertain and confused worlthvide wnditions clouding our budgetary picture.

However, n1.1ny of the uncertainties have unfolded and their ,\dVtr'>l' cun~cqucn~.-c~ netessit•lte the first Supplementary Fall Budget since Confcdcra!ion. It um1e<; at a time when many nations, our Federal Government .1nd .111 of the other ProvincL1! Governments arc wrestling witll the conflicting frnces of .1 1ccession ,md rapid inflatitm.

Unfavourable bud~clMY trends that have developed in this Province in recent months must be re>crsed quicldy and forcefully, if our economic future is to be ri(Jperly fulntkd. !he short term repercussions of reversing these trends will be more th.111 orf~et by the long r,mge benefits.

Newfoundlanders have endured and triu111phcd over the cfrct.:ts of tough decisions and harsh circumstances in the past, ,md ! am sure the decbions outlined in this Budget will be accepted by the people of Newfotmdl;md .1nd L1brador as the necessary solution to putting this Province firmly on the long r.mge course to permanent prosperity through realistic financial mJnaw.:mcnt. 72

ECONOMIC OUTLOOK lnfL!!ion .md ITLl''>'>ion h.1vC threatened the stability of provincial, national .tnd lntelnation,d economic~ over the past several years. Recoveries from the pn·~cnt economic recession wil! be slow in most countries with the exception of the United St,Jtc:., which appears to be achieving a stronger recovery than other industri,l!i.rcd economics. The United States recovery has milinly heen achieved by a strong Uh)perJtivc effort on a nation"wide scale between Government, the business community and the L1bour unions.

Their outlook towards taking joint .1llion to wmbat inflation <md recession appears much more rational than in Cm.~d.l and henu', their more rapid economic recovery. Recent reports point out th.!t m.tny cowllrie'> h,1vc rcvi'>cd their 1976 economic forecasts downwards and this reflects ,1 k'>'> optirnbtic view of the level of world trade next year and, of course, gencr,JI wncern with inflation. Although most major countries arc starting to reduce their r,nes of inflation, associated deflationary policies generally reduce economic expansion and seem likely to prevent full recovery in 1976.

Canadian Economy E.1rlier forecasts were that the Canadian economy would continue to grow Jnd would add over 2 per cent to real output in 1975, Revised forecasts point to no real growth this year and there is now no doubt that Cmada has not been able to avoid the economic problems which h;1ve beset most of the other developed Lotmtries of the world.

With an anticipated record bafam:e of payments deficit, with inflation approximating 10 per cent and with more than 7 per cent of the !.1bour force unemployed, Canada is experiencing its deepest recession since World War IL Assuming that the- Can;ldi,\11 .mti"inflation guidelines will be successful, and that recovery continues, then a real growth of about 5 per cent will be realized in 1976.

Nevertheless, inflation will continue to present the major economic problem ;md although the Jim of the present guidelines is to reduce inflation rates to about 8 per cent next year, the already pronounced opposition from organized lilbour and many other grnups increases the uncertainties related to the success of the Federal program.

Newfoundland Economy Previous estimates of real g1owth in Gross Provincial Product of 2 per cent in I 975 have now been revised to less than 1 per cent These figures reflect the nnp,tL! of the national recession and the fact that unemployment for the year will he .lflJt111d the 18 per cent level .tnd price inflation will be about 12.5 per ccnL Gencr,lf economic conditions have had a depressing effect upon the rn.umLn:turing and servke industries, and have not been aided by the record of man d,Jys lost through strikes and work slopp.Jges.

For the first eleven months of !975, the number of man days lost totalled 293,000 as compared to 89,000 for the full year in !97•L Our economy cannot continue to sustain these kinds of 73

~ '~-\. •• 'l.·s.4 w(Hh ~\(lppagc~ <1nd buth m,w,\~uncnt ,ult! L1hour rntbl rcsnlvc these irrcsrwnsiblc .1nd \llldlCCpLtble kvds ol IWn-piodtH1ivc nun hour'> if Wt' ,Jrc to survive nononliLilly <~nd industri;J!ly, Ncwfuundlandt·r~ must no! ,11low themselves to lose the \\·Ill"- ethic wllit.:h h,lS d1dr,1Licritcd our life style fnr so long. Nor can we dHow otll'>dvc.;, to llcvmJC overly Jercndcnt on Government to the point where our iihil'Clivcs J~ di1 cconomiL,JI!y vi<~hil' Province arc harmed.

Provided the expcctl'd 1\:covcry in the natiorMI economy is re<Jliled, the IHJIItHlh for 197(J i-. more t:t1Lnttraging with a projected increase in re<ll output in the n1dcr o! ~LS rcr t:enL Mu~t sectors of the Province will share In this growth which will rL'Sult ill innc,\scd employment. Subject, or course, to the success of tile tl.t!ional <~llli-inll<~tion policy, it !s estimated that the inflation rate in the Province will dtop by :1\mut 2 percentage points. SimiLu!y, person,tl income should inue,rsc in 1 e.1l terms hy over 3 per r..em.

FINANCIAL OVERVIEW 1975-76 fhe .rpprovcd Budget of 1975 estimated net expenditures of $542,307,000 on current acwun! and revenues of $543,786,000 for a contribution to capita! ,\Ltount of S l ,47(),000. ·1 he capital expenditures and debt retirement toTalled $20(),316,200 resulting in net ush requirements of $204,837,200. In the last l'ight month<; we h,rvt• experienced continued tost inne,rses in providing public services and jtl~tifi,rhk but extremely costly wage settlements.

As a result, we arc Ltced with ,m unL!vour,th!e and developing trend on cuncnt account which must be reversed i! (;o\'t't'!llllCnt i~ !u retain ils fin;mci.lfly responsible policy of h,!ldncfng turrcn! dCUJtml, In other wo1ds, Ncwfoundl.md, like all other Provinces and indeed the Government of Can;1d,l, hilS been hit sevcrcfy by increased inflation. Wage earners ,Jtross the nation have been bargaining to make up for lost purchasing power during the last two year~ and negotiations have led to unprecedented increases. lncrc,\ses tlut even .1 yc,tr ,Jgo could not h;wc been imagined.

Demands of the Newfoundland workc1 were even more pronounced and understandably so, because ;lt every turn he was faced with the need to tatch-up, yet found continuous decline in the purchasing power of his dollar. The !975 Budget provided ;1pproxirnately $45,000,000 to allow average ,\tlnu,d increases uf approximately 18 per cent in Public Service sal.uies.

This exceeded, by fM, increases that had been gr,mtcd in the past but was considered ;t the tirnc uf the Budget to he reasonable and realistic However, Government }'orkcr,, in general, rcu!iving !ower w<~ges than their counterparts in other Jrovinu.'~, Wl'fc determined to recover losses due to inflation and to provide a !usllion ,Jg,Jins1 infi,Jtion.~ry tendencies in the future. The salary denunds ol the public service unions were unprecedented in 1975 ilnd the bargaining process was a long and difficult om•. The final results were ~1egotiatcd sctt!cnwrHs averaging over 2S per cent, The additional cost to the 74

Province over and above the amounts provided in the original Budget was in excess of $20,000,000 including the sel!lcments for Hospital Workers, Teachers ,md Government Agencies. In total, therefore, saluy increases in 1975~76 cost approximately $65,000,000 rJising the total salary hi!! of the Provincial Government to $345,000,000. Government has responded to the need for increases in other areas of service and these have also added to the Province's tough budgetary position, There ~eems to be no end to the dem<~r1d for education dollars.

Teachers' salaries alone arc expected to be $8,500,000 higher than provided for in the original Budget and will total $105,500,000 in 1975·76. In July of this year operational grants to School Bo.nds were increased by $2,200,000 to $20,000,000 as an interim nw;1sure to help dHeviate deficits of School Boards but even this, the School Boards tell u:,, is far short of meeting their requirements. School bus transportation which cosl only $3,100,000 five years ago and for which $9,300,000 was ;1pproved by the House for this year, is now expected to cost an ,ldditiona! $1 ,000,000 for a total of $10,300,000.

Hospital care is expected to require an additional $H,200,000 this year over the Jmount provided in the original Budget and this is merely to maintain the '>Jnw level of :.ervkcs as l,tst year. The cost of hospital services in 1975-76 is now estimated at over $110,000,000. In addition we have had to increase our grants to Homes for Spcd,1l Ca1e by $600,000 because of the increased operating costs a!.sodated with fond, fuel, sal.uies and overal! operations.

We h,we had to ,!lrnost double our grant to the Medical Care Commission from the $5,8.50,000 originally provided to $9,800,000, an increase of close to $4,000,000.

This was due to an increase in the number of doctors, to patients visiting doctors mote often, to the negotiated increase in fees, to a deficit incurred by the Commission last year that has to be paid in 1975 and to the reduction of n,Jtion,ll per capitJ medicare costs by the action of another Provincial Government in withdrawing from a portion of the Medicare Program. l should point out here that health costs are becoming more of a direct provincial burden in view of the Federal Government's plan to reduce its share of Medicare costs and its share of hospital operating costs under the Hospital Insurance program.

In order to meet these higher provincial costs a redirection of health c.tre priorities will be necessary ln order that health costs do not become an unsu~tainable proportion of our total budget. Mr. Speaker, these unexpected budgetary events in the past eight months not only adversely affected expenditures, but also our revenues, With a genera! '>lowdown of the nation.JI economy and with taxation changes in Quebec, Ontario ,md Alberta, we have been Jdviscd by the Government of Canada that our equ,!lization entitlements wilt be $194,200,000 or $15,800,000 less than we had originally budgeted.

It Wds very difficult, if not impossible, to predict a!! of these developments when the orlginJI Budgl'! was prepared. These developments have placed the 75

l'l<l'-1!\le in <~11 tllll,tVtJIH,tbk budgd<~ry po:-.i!ion whit..ll Jcm,mds dLiiun now, We c.umot ,unl will tHd i.t;ll!Jrl' the pn-.ition we find our:-.dvc:, in_ A<> ,1 Government t!Jgni.t,illl !Ji 11'> liiLllllt.tl !esponsihiliticc,, we pnl!Hhc ,\lling Jinnly to correct hudgct.Jr'y trcmh ,!nd to cn~ure th,tl Government spending docc, not exceed the ll'VL'JHH.' l,!p.Kity or !hi~ ProvinLC M1.

Sp(',tf..ct, I \\nJuid lih.L' to tcvkw the po'>ition the Government would he LH ed with if the mcJSHIT'> I propose wday Jlld those announced by the Premier, were not introduced We would he facing a completely un,Jcccptab!e current .!cLullnt de-fidL o!

S30,000,000 and increased borrowing requirements of over \39,000,000 COMPARISON OF 1975-76 APPROVED BUDGET WITU 1975--76 PROJECTED POSITION Approved Budget Projected Position* Variances $ I Current Atcuunt: (,ro\'> I xp.:nditUI\' 685,072,800 720,800,000 35,727,200 Rrl.ued Revenue 142,765,800 154,800,000 12,034,200 Net f:xpenditurc 542,307,000 566,000,000 23,693,000 Provincial and Fcdcr.ll Revenues 543,786,000 536,000,000 (7,786,000) Contribution to C.Jpitdl ;\,;count 1,479,000 (30,000,000) (31 ,479,000) tJpit.ll Account: Gto~> Lxpcndi1ute 244,324,200 240,000,000 (4,324,200) Rd.l!ed Revenue 80,813,400 70,000,000 (10,813,400) Net Lxpenditurr 163,5 !0,800 170,000,000 6,.189,200 Total Budgetary Rcqrlircmenh 162,031,800 200,000,000 37,968,200 Debt Retirement 42,805,400 43,908,400 1,103,000 Tut.il Borrowing Requirements $20·1,837,200 $243,908,400 $39,071,200 rhc Lomplt•tc dct.Ji!c; ol a!! c.\pendi!ure and revenue items arc contained in ;1 Supplement to thi~ Budge! document .md show the variances bc!wecn the .1pproved Budget ,md the revi~cd Fall Budget figures.

Current Account !>osition lht· Premier Jl11l1H!Iltcd on October 15th a frce;e on new positions, H'Str.lints on filling VdCJncic~; Llll!ing lw.:k on travel, overtime, and temporary cmpfuynwnr; dlld J reductiiHl in the usc or consult.1nt'i< Current account expenditures would h;1vc !oLdlcd $720,800,000 or $35,727,200 more than we !ud origin,llly esti!lLt!d h,n/ tiovernment not taken decisive ilt!ion in October. 76

The largest single contributor to this increase is the increase in wages and fringe benefits which account for $20,000,000 and I have already mentioned some of the major variances in the area of Health and Education, Other items making up the more than $35,000,000 in variances include increased costs of operating Memorial University, increased maintenance expenditures for provincial highways and briUge:., ;md of course, increased requirements related to forest fire protection this past summer" In addition to expenditure increases we are anticipating an overall decrease in Provincial and Federal revenues for the current fiscal year from $543,786,000 to $536,000,000 a decrease of $7,786,000.

There are two significant offsetting vuiances that mainly account for this decrease; one being a downward revision of $15,800,000 in equalization granLs from the Federal Government for the reasons stated earlier, and the other being a projected increase of $1 1 ,400,000 in respect of Retail Sales Tax over and above the $107,600,000 estimated originally. A!rhough at the time of the Budget the Retail Sales Tax figure was considered an optimistic projection, this is one area where inflation has been of considerable assistance to our budgetary position.

In addition, Personal Income Tax revenue is expected to be higher by $2,782,000 because of a revenue guarantee adjustment received in April. Corporate Income Tax is expected to be lower by $1,700,000 because of the economic slowdown. Revenue from the Newfoundland Liquor Corporation is expected to he $1,000,000 higher despite the strike of last summer as the Corpor;Ition h.1s recently increased its prices. Mr. Speaker, in

summary the rresentation of a new Budget for the House at this time has been dictated mainly by two major developments that were difficult to predict eight months ago: first the unprecedented negotiated wage increases which were not anticipated and second, the decrease ln equalization payments from our original estimate. These two alone account for an unfavourable swing of almost $36,000,000 on current account and had they not occurred, budgetary action would not be required at this time as the original budget would have been adequate and our budgetary position today would be much more favourable.

Capital Account Position The gross expenditures on capital account were approved at $244,324,200 and 1he revised estimate is $4,324,200 lower at $240,000,000. This decrease is !he result of a combination of factors, some of which are offsetting. The more ~ignificanl increases arc: higher capital requirements of Labrador Uncrboard Limited which was budgeted <it $23,000,000 but is now estimated at $28,000,000 and <l ncl increase of $2,000,000 in the improvement and reconstruction of highways and bridges.

Offsetting these iwo amounts are savings of $2,900,000 due to delay!> in the construction of the Health Sciences Complex and slow progress on various DREE programs resulting in over $12,000,000 in expenditure savings. These expenditure qvings on DREE programs resulted from the late signing of 77

many of the agreements and from the unfJvourablc construction contlltions which existed !as\ spring Related Revenue on capital account which was budgeted ,lt $80,8\3,400 is expected to total $70,000,000 or $10,813,400 less than the original estimate, The prime reason for this decrease !s the lower expenditures on cosk;harcd programs which, in turn, resulted in lower revenue. BUDGETARY ACTION PLAN 1975"76 Government must now take firm action to reverse the budgetary position in which we find ourselves.

In order lo act responsibly we must reduce our borrowing program and we must prove tonclusive!y that our projected current Jccount deficit will be reduced to a manageable size in 1975·76 and be eliminated entirely by 1976-77. We are proud of the financial reputation that Newfoundland hJs achieved under the Moores Administration and we are determined tint it be maintained.

It is our policy to show a balanced current account and although we will end this fiscal year with a relatively small and manageable deficit, it is imperative that in 1976,77 we demonstrate that current account is firmly in a surplus pos11ion. 1t is absolutely imperative that there be a contribution from current Jccount to offset e<1pit,1l expenditures and this will continue to be a financial policy of this Government.

Premier Moores introduted our restraint program in his television address in which he indicated the initial steps that Government would be taking to curb expenditures within the Public Service for the remainder of 1975-76, However, a more comprehcnsivt· budgetary and financial plan of action has now been developed and approved by Government and I am, today, seeking the support of the people of this Province and the House of Assembly.

The simple fatt is that Government spending has been growing at a rate in excess of our revenue sources and we would therefore be living beyond our means - not beyond our deserved or justifiable means as Canadian citizens but beyond the financial means of one of the smaller less wealthy Provinces in the Canadian Federation ·~ unless ,tction were taken at this time.

The rapid growth in Federal transfer payments along with the large increases in provincial revenues in a time of double digit inflation has fueled the rising expectations of all of us, Our need for improved services in health, education and social assistance along with our need to develop our natural resources has placed heavy financial demands upon the Provincial Treasury, demands which were more easily met in times of high economic growth both in this Province and in this Nation.

Ou1 anempt at meeting these demands was brought about by a strong desire to meet the expectations of the Newfoundland people, But we now must have a period of retrenchment in which we can re-adjust our expectations and in which we c::m rc"estab!ish a sound budgetary position. The priority emphasis during this period wil! be to maintain our budgetary position so that our natural resources can be developed, 78

Government therefore will institute the following additional measures of Tcstr.llnt and taxation: Retail Sales Tax There will be an immediate increase in the retail sales tax from its present 8 per cent to 10 per cent on some items and the complete removal of the tax on certain cs<,ential items.

There will also be a significant shift in the philosophy of the sales tax as all clothing will be made exerilpL This decision is in keeping with the philosophy of this Government to make' essential day-to-day commodities such as food, heating fuel, gasoline, prescription medicines and school textbooks exempt from the retail sales tax. We arc also giving a tax exemption for coal. With respect to the minimum purchase subject to the tax, we are raising it from the present 8 cents to 20 cents.

In view of the need for significant amounts of revenue it was felt that retail sales tax was our major revenue source from which a reasonable current account position could be achieved. The new exemptions will ease the burden on those low middle and fixed income families less able to pay and reduce the repercussions of the tax Imposed. The increase in tax on other commoditites will bring in an additional $7,000,000 this fiscal year. I want to emphasize that the exemption policies which this Administration has adopted since taking office have continued to lessen the effects of the retail sales tax.

One of our first actions in March of 1972 was to exempt children's clothing and then in January of 1974 we eliminated the tax as it applied to domestic fuel and heating oil and now in this Budget a further measure of exempting all clothing whether it be for children or adults. These exemptions are aimed at helping the less wealthy groups in our Province in their day.to-day purchases of csscnlial commodities.

In t.'ssc!KC thi:. dl<lnge in rct,til sales tax policy will mean substamial additional revenue for the Province but equally as important means that the lower, middle and fixed income people will pay appreciably less retail sales tax and that the commercial and higher income people will be asked to share more of the tax burden.

Tax Collection Commissions The commission paid to businesses and corporations for the collection of ret,1i! sales, tobacco and gasoline tax will be eliminated, thereby creating additional revenue of $800,000 in 1975-76, At present, these commissions vary bet ween Y'1% to 2S-'o of the tax collected and its abolition is consistent with recent moves by other provincial governments. Personal Income Tax There will be an Increase in personal income tax effective July 1st, 1976, from the present :f() "'r cent of the basic federal tax to 42 per cent, This 79

increase, however, will only have a minimal effect on the income tax to be paid by the average taxpayer but is important to the Province as it will bring in an additional $4,000,000 in 1976~77. The effect on the individual in the 1976 tax year will only mean an extra $20 or so per year in income tax depending on their income brackcL For instance, a married taxpayer with a dependent wife and two children will pay between $0 and $47 extra depending on his income bracket.

TAX EXAMPLES Income Lcvd Single, No Dependents Married, one child Married, two children Married, four children $4000 2 Motor Vehicle and Driver Licences 1976 Increase Additional Tax $8000 $12000 $16000 9 19 29 6 14 23 5 14 23 3 11 21 $20000 $24000 42 55 35 48 34 47 31 43 There will be an immediate increase in the fees charged for motor vehicle licences and driver\ licences. In general, a three-year driver's licence will increase on average by $2 per year and the annual registration fees for motor vehicles will increase by bet ween $7 and $15 per year.

These changes arc estimated to bring in additional revenue of $ 1,400,000 in 1975~ 76 and will raise our provincial rates to levels comparable to and in many instances still lower than those in the Atlantic Regitm: MOTOR VEHICLE AND DRIVER LICENCE 1975-76 INCREASES Regimation Item Present Rate Drivers' Licences 3,00 labrador Cars Up to 3000 pounds 5,00 3001 to4000pounds 6,00 4001 pounds and over 7.00 Island Cars Up to 2000 pounds 19.00 2001 to 3000 pounds 21.00 3001 to 4000 pounds 23.00 4001 pound~ and over 25.00 80 New Rate 8,00 8,00 11.00 30.00 30.00 30.00 40.00

We estimate that next year's capital account will contain over $200,000,000 in cap 1 ta I ex pend it ure related to on"going hospital construction, school construction, highway construction, Memorial University, forest access roads, fishery capital works, industrial and residential servicing, tourism, rural development program!> dnd all other resource and social areas.

Our program of restraint is not designt:d to stop conslructlon and development but to prevent Government programs from tolaH1ng amounts not acceptable for good financial management. 1 he creation of job opportunities is the most important need in the Province at this time. Government will be presenting, during the coming months, new programs for resource development in the fishery, in forestry, in housing and in hydro development activities, and in all other areas of natura! resource development.

This will require a concentrated effort on the development of provincially funded resource programs and on the complete review and re-assessment of non-resource programs, Funds from the reduction or elimination of low priority programs must then be channelled into the implementation of job·creating projects, As Minister of Fin.mce and President of Treasury Board it will be my priority objective to ensure thal this 18~month period is a successful one and it will be the responsibility of the people of this Province to create the environment which wi!l allow todt1y's measures to be of a temporary nature.

This will only be possible if Government's restraint program is successful, if overall expectations arc self -disdplincd downw.lrds and if our revenues produce sufficient contribution to capital account. We must properly plan and phase any new programs and set as an objective the evcntu,ll lowering of taxes. INCOME AND PRICE GUIDELINES In the Publk: Servin: the Government must set the example, Therefore, the ;Jflnounccd program of staff frcctes and overall restraint will continue in effect for at least the next 18 months:.

In addition we will be introducing legislation in the new year seeking approval of the House of Assembly to sign an agreement with the Federal Government wfth respect to income and price controls, Also, as announced in the Sp(:cch From The Throne, it is Government's intention to introduce legislation placing the prices of petroleum products under Government control and placing restriction on rent increases.

Any other measures as may be necessary to keep price:. under control will also be implemented. 1 he most significant areas for income restraint relates to the re-negotiation of our 27 public service contracts which will arise between March 31st, 1976 and December 31, 1976. We are prepared to be fair and reasonable and we arc prepared to explore all areas of common ground where employee benefits and working conditions can be improved. But we arc limited in our flexibility to negotiate generous wage settlements.

The income guidelines allow basic increases of up to 10%, with the exception of groups who have, in recent settlements, 83

Ltlkn behind the gcnn.ll in-.rc.tsc in the wst of llvlng. As our employees have n•u:ivnl gcnernu-, c.1lch-up settlements in 1975, we one looking at an increase in [lltJvlmi.d puhlil \l'l\'ltl' \<!Lttiec, corisisten! with the guidelines.

I here .ne ,tpproxinutcly 28,550 public employee:. who will be paid about .;,-qs,OOO,OOO in 1975 --7(i for an .wcragc salary of $12,000 including overtime .tnd other fringe hcncrits: Employee Category Te.tt:hcr; ,Jnd ln5tructor'i Hospit:ll Employees Government Department~ ()ovcrnmcnt Agcndes Public SJfcty PUBLIC SERVICE SALARY BILL No. of Employees 8,500 8,880 6,855 3,750 565 Salary Costs $118,000,000 90,000,000 85,200,000 45,000,000 6,800,000 $345,000,000 Artn .!flowing lor related revenue or approximately $4.5,000,000 with 1espcct to :.h.ucd wst salaries, the net salary bill to Government for its public employees is about $300,000,000 or $3,000,000 for every one per cent increase which is negotiated at the bargaining table.

Even by living within the federal guidelines, which we must do, the cost to the Provincial Treasury of total salary increases next fistal year would be $30,000,000. I am plc.tscd to annountc tlut as part of our income and price review we h.wc del'idcd to r.lise the minimum wage from its present $L20 per hour to a rate or $2,50 per hour dlellivc januo~ry !st, 1976. This measure is designed to help low income worker~ to cope with infl,ltion and it recognizes that the $600 minimum origindlly in the Federal anti"inflation program was inadequate.

This increase in the minimum w.tgc i~ a positive step to protect the working poor, which will not only allow but will require a ·14 percent increase for those who arc working at the minimum wage, The minimum wage will contlnue to be revised and ,my further changes which arc ncccs~ary will be made at the appropriate time, NEW HOUSING PROGRAM C()vcrnmcnl rewgni/CS the extent to which housing costs have escalated over the p.ht Jew yc.!h_ Large increases h,wc t.tkcn place in the cost of construction matcri,t!:., in the t.osl of !and, in L1bour costs and in the cost of mortgage fin;mdng, The cost of a new horne has risen to such high proportions that low and middle income people in this Province are finding it almost impossible to acquire their own homv.

In order to provide assistance for families to acquire 84

adequate housing accommodation, your provincial Government is now introducing major new housing programs which could make up to an additional $4,000,000 ;wailable from January 1st, 1976 to March 31st, 1977. The first new program is a grant of $600.00 for those who acquire a new horne, whether the home is purchased or built by the owner. This program will be effective January 1st, 1976, and wiH apply to families who are acquiring a home which is their first and which is being occupied for the first time.

This grant will be of great benefit to low income families who find it especially difficult to meet present down payment requirements. Existing programs, particularly the federal Assisted Home Ownership Plan, helps !ow tncome people with monthly payments, This new provincial program will offer additional assistance by helping with the initial down payment and therefore assist ln the arranging of mortgage financing, In order to ensure that maximum benefit accrues to those families with low income and modest savings the full grant will apply for new homes whose size docs not exceed 1200 square feet.

For larger homes whose finished living space exceeds 1200 square feet the grant will be reduced by $2.00 per square foot, but the grant will not apply !o homes with more than 1450 square feet. It is estimated that this program will cost up to $2,000,000 in the next eighteen months. A second major housing program will deal with existing houses. Many homes arc ln need of repair and rebuilding and lt is Government's intention to assist in the improvement of owner~occupied homes.

An assistance program is now being developed in liaison wilh the Federal Government with the object of ensuring that a realistic measure of support is provided throughout the Province. The Federal Government is developing a home rehabilitation program which will apply to certain selected areas of Newfoundland and the Provincial Government will shortly be announcing a complementary program which will cover all areas of the Province. In addition to these new programs for owner-occupied housing the Government is studying a third program which will increase the supply of rental accommodation.

It is well known that rental rates are high and that low rental accommodation for low and middle income people is in short supply. Not only is there a short supply of rental units but the number of new units being built each year is completely inadequate to meet the demand. In order to encourage the construction of additional units for low income families the Government will introduce a subsidy for new rental units and this subsidy will be given on the c:ondltion that rents will be controlled and kept at a moderate level.

A's a result of this program it is expected that new rental starts will show a substantial rise in 1976, These new housing programs represent substantia! progress toward improving the standards of shefter and accommodation in this Province and they reflect Government's concern with housing as a basic necessity of life, and one which has become increJ.s.lnglv costly in recent years. 85

OFFSHORE PETROLEUM RESOURCES I he mn<.! impo1 L1111 n.nur,tl resource in !he !tnurc dcvcfopment of this ProvinL<' 1~ the g,t<, ,md oil putcntial off the coast of Ncwloundland and Labrador. Di~UlVl'tY <~nd dvvl'lopment or commercial finds would comph:tely change the firMtl!..:i<tl pusitio1r of this Province and result in an extensive development and diversification of our industri.1l ba~c.

The lwn succe~sful gas well., off Labrador drilled by the Eastcan group in 1974 and the further encouragement from two of the wells Eastcan drilled this summer incrc,Jscs the probability of discovery and development of commercial finds hy the early 1980's. The Snorri well on the Nain Bank was drilled to 10,500 feet and 11 possible hydrocarbon bearing porous zone was identified below 8,175 reeL This JorJC will he tested during 1976. The Karlsefni well on Seglek Bank also found indications nl hydrocarbons at 10,775 feel and drilling will be resumed next year.

Explor,Jtion expenditures in the offshore areas this year totalled ,tpproximately $40,000,000. G(lVCrnment ha~ rctcntly engaged fndependcnl petroleum experts to n:<~ppr,Jise the ofTshme resource potential and its possible monetary value to the l'rovinu• on the b,t'>b of the available exploration data. Under various dssurnptions, It i~ estimated th,Jt an average of 40 trillion cubic feet of natural gas .uH.l 3.5 billion h.nrel~ nf oil could be discovered, produced and sold on a conuncrci,JIIy prolit.1hle b,1sis.

Based on this average estimate, the economic rent av.Jil,1ble to be sh,m:d would be approximately $70 billion over a twenty to twenty"fivc year rcriolL ,!he probability of a commercial find being made within the next five yCJJ"'> is now estimated .1t greater than 70 per cenL In addition to direct revenue from economic rent, should there be rornmercial discoveries of oil and gas, Newfoundland would benefit from expenditures on cxplur,ltion and production installations and/or the purchase of goods and services. These cronomic benefits to Newfoundland could average $300,000,000 annually by the 1980's and 1990's.

Discussions h,we ulntinucd between the Government of Canada and the Province over the juri~dicJional question of ownership and management of the wntinen!,!l shelL It is unfortunate this situation adds uncertainty tn the devcloprnent of our ollshore uil and gas resources, and Government has placed incr<'.Jscd priority un the early resolution of this situJtion. 1 he Prnvinu~ is deJcrmined to usc the offshore or! developments as a basis of developing its industrial capabi_litics.

In this connection the development of marinc-~-re!atcd industries has already started the Province along the road to reaping the industrial benefits of offshore exploration and development. Inventions such as the new underwater electrical connector and the research and development wo1 k nf the new!y~formed crown corporation 1 NORDCO, arc promising .u.:hieveml'nl~, 86

i\ mo~t encouraging industri,l! opportunity with respect to offshore oil and g,J<; i~ the use of tonuete p1Jtfonm for the development of offshore fields, These pf;llform.;, ;He gigJntic stn1cturcs which require cxncrnely deep WJtcr for um<;trudion <1!1d must he bnilt close to the explorJtion and development region .tnd then noated out to the petroleum resource.

Newfoundland represents an ideal locttion on the Ea-.tern Sc.~board of North America where these massive snucturcs c,m be builL Also related to the oil and g.1s industry is the prospect of an underground storage development in the .tbandoned iron ore mines of Bell Island. One of Can;lda'~ Luges! corporate umglomerates, Power Corporation of Canada Limited, h.1s sucu:ssfully bid ror the right to conduct a detailed feasibility study on the stor.1ge project.

During the next two yc;us Power Corporation will spend $2,000,000 on this study_ If the study results in the recommend,\! ion to proceed, then wnstn~t.:tion on the storage project will begin in 1977. It is envisaged that the tot;1l storage capacity will be 90 million barrels and will be developed in two ph.1scs at an estinuted cost of $104,000,000. Construction would peak at 500 jobs. The project comprises the conversion of the mines and the building of three Ltrge docl<.s ,llong with related service facilities.

COME BY CHANCE OIL REFINERY During the p.ht sever,J! week'> financial difficulties Jt the Come By Ch;mce oil 1eiincry h.!H' been tiH' subject of much discussion and effort by Government in an attempt to t~scertain the extent of the problems anti to find solutions. The oil refinery b owned by Provincial Refining Company Limlted which is controlled by Mr. John M, Shaheen. During 1974 and for the first three quarters of 1975, the refinery experienced sub~tJ.ntial operating losses and the First National Bank of Chicago, om: of the comp,UJy's creditors, took action to appoint a receiver for the comp,Jny's inventory.

This event occurred while several of the major unsecured Lrcditors, along with the fir-.t rnortg;1gee, Export Credits Guarantee Department ( E.C.G.D.) of Englt~nd and the Province of Newfoundland, were holding discussions in connection with the financial difficulties of the refinery. The Province's financi.!! commitment of $41,340,000, which is $30,000,000 in principal ,md $11,140,000 in capitalized interest, is secured by a second mo11g.Jgc The firq mortgage is approximately $106,000,000.

The Government of Newroundland h,h nu further obligation in connection with the refinery since in October 197:} the original arr,mgements were re-negotiated and the Provincial Government ceased to have any commercial, financial or other responsibilities fm the debts or operations of the then Crown Corporation, Provincial Refining Company Lirnitcd. The Crown Corporation then became a privJtcly~owned corporation. ! lad lhc~r steps not been carried out the Province would now be rnuLh rnure finanu,d!y involved with the total operations of the Oil Refinery< 87

The present oil refinery wst approximately $200,000,000 to construct and wt' .nc informed that it wuultl likely cost in excess of $400,000,000 to replace. 'J he Government therefore considers that its second mortgage loan totalling $4 I, 1-10,000 is fully secured hy the assets at Come By Chance since the total v<~luc of the first and second mortgages approximates $148,000,000. ,l he current situation at the oil refinery is that additional credit has been extended to the refinery by one of the major unsecured creditors who is now in the process of negotiating final details for them to assume management responsibility.

If these negotiations arc successfully concluded, that creditor would he granted a third mortgage for the protection, not only of itself, but for all other unsecured ueditors who wish to participate in the security. The Government of Newfoundland and E.C.G.D. have agreed to such a third mortgage if certain conditions are met among which is the condition that our security is not impaired nor is the position of any of the unsecured creditors prejudicially effected. During the next several weeks the Province will be working with E. C.

G.D. and with the new management towards its objectives of maintaining the continued operation of the oil refinery. GULL ISLAND HYDRO PROjECT Government has expended much effort during the past few years in evaluJting the Province's hydro electric potential both on the Island and in Labrador. The udministration and Jcvelopment of our hydro resources over the next decade is a most important financial and economic factor for the Province of Newfoundland. The nudeus of this development strategy is the Gull Island Hydro Project on the Churchill River, 140 miles downstream from the Churchill Falls powerhouse.

The Gull Island project comprises an 1800 megawatt hydro-electric generating plant and a transmission system which includes an intertie with the Upper Churchill power developmem and with the HJppy Valley Goose Bay .~re,t; <~n eleven n~ilc long tunnel under the Strait of Belle Isle, and a high voltage dirctt ~,..urrent transmission facility lo take the power from Gull Island to connect with the Island grid system. , Since 1974 Newfoundland and Labrador Hydro has been planning and designing the Gull Island project.

The engineering work is we!! advanced and prcliminMy work on the preparation of the hydro site, the shafts for the tunnel Jnd dearing for the tr;msmission lines has commenced. Due primarily to the need to make much greater provision for escalation and interest during construction, the wst estimates for the complete hydro project have increased substantially during the past eighteen months and the latest revised estimates indicate the construction, a!low.liKC for escalation, and interest charges during construction will total approxima1ely $23 billion. 88

After many months of study and exhaustive di:.cussions with the fiscal .1dvi~ors to the Province and to Hydro, Government has decided to alter its prnposed approach to the Jcvclopnlcnt of Gull lsL:lnd. The project will now be developed in a phased manner and over a longer period of time. This will enable the large capital requirements to be spread over 5evera! more years, thereby enh<.mcing the prmpccts of being able to successfully finance the project.

The t.:nnstruction of the hydro site will be postponed for at least one year ,md the t.:onstruction of the tr;msrnission system including the tunnel and interties will continue. ll is expected that over the next year $55,000,000 will be spent on construction costs. The engineering and design work on the hydro site along with !he required environment.l! studies will continue. This alteration of approach has the adv;mtage uf ~preading out the capital requirements of the project to a manageable !eve! given the !urge amount of funds required by the Province and by Hydro.

It will also spread out the construction program and allow more Newfoundlanders the opportunity to work on the Gull Island project. The phasing of the project will necessitate the purchase of power during the initial years after the completion of the transmission system. Newfoundland and Labrador Hydro will .tpproach Hydro Quebec to negotiate the purchase of sufficient power from Churchill ralls (Labrador) Corporation, the subsidiary of Newfoundl.md and L1brador Hydro, which owns a 5225 megawatt power plant on the Upper Churchill River.

Hydro Quebec has a 34 per cent holding in CFLCO and has a long--tenn contract to purchase all of the output of the plant for 40 years, with the exception of a 300 megawatt block whic.h the Province is entitled to recall for usc in the Province, In addition, discussions will continue with the Government of Canada in connection with the request of the Province to obtain increased aid for the complete Gull lsLtnd project. In 1974 the Federal Government agreed to provide finJncial assistJncc for the transmission system of $343,000,000 plus deferring interest during constluction and for five years thereafter.

No financial assistance on the hydru pLHll h,h yet Peen offered, The need tu ph.!~e the Gul!

Island projcu is a disappointnlent to the Governnu·nt as ,Ill of the studies undertaken by our consultants, the Federal (,overnnwnt ,md Hydro indlc,!tc th,ll Gull lsiJ.nd is the preferred source of new energy for the Province in the 1980's, and that the lowest energy costs would rc'.ull from ;m early start However, the 11nancial resources of the Province do not peHrHI !he release of the complete projet:t while m;tjor questions such as further Federal Government financial assistance; sale of surplus power during the first five years; and the :1bilily to finance the project in the world capital markets remain unresolved.

The Province pl,ms to proceed in a careful manner while lhe major queslions remain tm~('!tlcd. A relatlvcfy 11t'W development which could accelerate the construction of Gull Island is the > i;~t!y on the Eastern Canadian electrical grid which was 89

\<Hntt\i\WJ!Kd 1.~~1 llliJnlh by !he Premiers of the fvbritime Provinces, the Premier rd (_)ttl'hn_ ,111J Ptentll't !\1(HJil''>. The study which will be Lornpleted by March of !1J7fJ m,ty well n::.u!t in pressure from the Eastern Provinces to p10Cccd with the e.uly devc!oprncnl nf the hydro potential of Gull Island, and hopefully other hydro si1cs both in L1brJdor and Quebec. CONCLUSION' In tonclusion Mr, Speaker, this first Supplementary FJ!I Budget of the Province of Newfoundland and Labrador is delivered during a period of high economic unccruinty.

The Federal and Provincial Governments of Canada and most of the natlon's municipalities are experiencing the effects of high inflation comblncd with cithtccn months of economic recession. The next three years will be ,1 very serious <~nd important time in the history of our nation. If Ctn,HlJ i'> to break the grip of inflation then co·operation of all of the nl.Jjm interest groups in the Canadian community will be essentiaL More irnponuntly ho\vever will be the ability of the Government of CanadJ to control its spending and to reverse the rising expectations of our Canadian nation.

The Government of Newfoundland and Labrador is fully prepared to participate in a program of natiurul action and this requires realistic decision making at the provimi,d leveL !'hi<> Budget dnumwnt reprcscn!S not only <1 r.:orrection of J difficult hudgct;ny situ,ltion but more importantly represents ;t very essential message to <111 of the pt'oplc uf this Province, to l.tbour and to m.1nagemcnt, to municipalities .md to ~chool boards, to hospital boards, to Government Agencies and In all politiddn~ regardlcs'i ol party Jffiliation.

The message is this: -- we must retrench, we must readjust, and all of us, must realize that we cannot continue the recent rapid p.1cc of social and economic improvement which we have come to take for gr;mtcd. We, in tf1is province, have been trying to accomplish in twenty-five years, what other, more wealthy parts of our nation have taken 100 and more years to ,Jttain.

The economy ul our n.ttion, much less of this province, cannot continue to kl'ep p.ile with· the .Jculeratcd demands and the exaggerated expectations that h,1ve developed. 1 his Government will act with fortitude in combating our problems ;md we will lead the way in our Province in showing restraint and in rc.digning our economk ,md social expectations. Ou1 aLtion~ now must have, a lasting and ion!; term effect if we arc to !espnnsib!y <111d r.Jtionally plan our future.

We arc determined to be successful and we ufl upon .Ill Newfoundlanders to crcJIC an environment which will allow the succe~s lo he a red! .md permanent one. We in Government, indeed I hope all of us in thi~ Honour,lble House, will do all we can. The real test will be the desire of our pcorle to nuke !his progr,nn work. 90

j deb,1te on t!d ~. !notice that t ~into a Commit! l ~ting to the : ~at I will on Pmittee of the fhe imposition le remaining 0 ~ adjourn unt: Puse do nov at burned until :afternoon.