Budget Speech 1996 - 2
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A Focused, More Affordable Government

We have always made it clear that while fiscal progress is crucial, equally important is the redesign of government itself.

What we need is a government that not only spends -- but spends more wisely.

If there is one area where we must never let up, it is the effort to root out waste and inefficiency.

Government should be focused on the needs of citizens not the needs of bureaucracy. Canadians want their governments to co-operate, not compete. And they want better service delivered at lower cost.

One of the best ways to reduce cost is to reduce overlap and duplication. This was one of the goals inherent in our Program Review exercise led by the current President of the Treasury Board.

Surely we can all agree that it is simply silly for a food processing plant to have a federal meat inspector, a federal health inspector, a federal fish inspector, not to mention a provincial health inspector and a provincial food inspector tripping over themselves on the same day, in the same plant, doing essentially the same thing.

And what small business has not had the experience of a federal income tax auditor, followed by a federal sales tax auditor, followed by a provincial corporate tax auditor, followed by a provincial retail sales tax auditor -- all asking for the same material organized in a slightly different way?

This sort of duplication wastes businesses time and government resources. We want to put an end to such waste.

Therefore, legislation will be introduced that will allow for the creation of fewer, more effective government agencies.

One of these, for instance, will be a Single Food Inspection Agency that will consolidate the activities currently spread around several federal departments. This in turn will allow us to offer a new partnership with the provinces, which would lead to a more efficient, joint food inspection system.

We will also create a national revenue agency to be called the Canada Revenue Commission. The creation of the commission will facilitate the development of a closer partnership with the provinces in revenue administration.

Canadians know full well that there is only one taxpayer. A number of provinces have asked us why shouldn't there be, as well, only one tax collector?

In the same vein, we are working very hard to replace the federal sales tax.

We believe this is crucial to increase fairness for consumers and respond to the concerns of small business, while saving taxpayers money through more efficient administration.

We are working with a number of provinces to achieve this end. If successful in getting provincial agreement, the government will take such steps as are necessary to implement harmonization.

In addition, a significant package of measures is being readied to streamline and simplify the federal sales tax.

Securing our Social Programs for the Next Century

Restoring Growth to Transfers to the Provinces

Fiscal health is not an end. It is a means to an end. It gives us the strength to move forward on everything else.

As we continue to address the anxiety of Canadians over the fiscal health of their country, we must also look ahead to address other problems before they arise.

Clearly, one of these priorities must be to preserve and strengthen our social programs for the next century.

These programs -- support for health care, for post-secondary education, for assistance to the poor speak to the spirit of our country.

In last year's budget, the Canada Health and Social Transfer was created. It was designed to put federal transfers for these important areas on a sound footing and to allow the provinces more flexibility to better deliver these programs.

In 1997-98, the CHST will be a $25-billion transfer composed, roughly equally, of tax points and cash.

Since transfers to the provinces and territories represent an important part of our total spending, we could not put federal finances on a sustainable basis without addressing them. That is why, in last year's budget, we announced funding arrangements for the new Canada Health and Social Transfer covering the fiscal years 1996-97 and 1997-98. Those arrangements will remain unchanged.

With the framework of the CHST in place, our challenge and commitment -- is clear.

To provide, as the Prime Minister promised, a long-term funding arrangement for the CHST transfer that is stable, predictable and sustainable.

To this end, we are announcing today a firm funding commitment for the CHST to cover the five-year period from fiscal year 1998-99 through to 2002-03.

For the first two years of that period, we will maintain the overall CHST entitlement -- that is, the value of tax points and cash combined -- constant at its 1997-98 level of $25.1 billion.

For the remaining three years of the framework, total transfer entitlements will grow each and every year -- at an increasing pace.

In addition, we will provide a legislated guarantee that the cash component of the transfer will never be lower than $11 billion at any time during this period.

This will put an end to the decline of cash that occurs automatically as the value of the tax component grows. The provinces will benefit, not only from the growing value of the tax component, but from the cash guarantee as well.

Based on an evolving formula tied to economic growth, overall CHST entitlements will increase over this period from $25.1 billion in 1999-2000 to approximately $27.4 billion in 2002-03.

As a result of these assurances, Canadians can have confidence that as we enter the next century, the commitment of their national government in support of health care, post-secondary education and assistance to the poor will be intact, and strong.

As part of that, we will remain opposed to the imposition of residency requirements on social assistance recipients who move from one province to another, and we will be steadfast in upholding the principles of Medicare.

This budget also addresses our commitment to provide a new approach to allocating the CHST among provinces -- one that addresses the funding disparities resulting from the limits on Canada Assistance Plan transfers imposed on certain provinces by the previous government.

The new allocation will be phased-in during the course of the new five-year transfer arrangement. As a result, current disparities in per capita funding levels among provinces will be reduced by half. We are willing to examine with the provinces further refinements to the allocation that may be appropriate beyond this framework.

Finally, on the issue of healthcare, this budget takes additional action.

The Minister of Health will be announcing the establishment of a Health Services Research Fund under the auspices of The Medical Research Council of Canada. The federal government will provide an unconditional $65 million over five years. The goal is to bring together governments, health institutions and the private sector to fund research identifying what works best in our medical system, what does not, and what possibilities might exist to improve the efficiency and effectiveness of healthcare.

Securing Pensions for Canadians

One of the greatest advances we have ever made as a country is to provide a decent level of retirement support for our seniors. As a result of our pension system, millions of seniors today enjoy a standard of living that is substantially higher than was the case for their parents. Our obligation today is to take the action necessary to safeguard that accomplishment for our children.

There is widespread anxiety -- particularly among the young -- that the public pension system will not be there for them when they retire.

Confidence in the pension system must be restored. The party that put pensions in place for this country must now act to preserve them.

The challenge is clear -- it is one of sustainability.

First, the CPP must be put on a sound financial footing -- and done so in a way that it is sustainable, affordable and fair.

This government does not share the view of those who believe the CPP cannot be fixed, that it should be abandoned. We believe that the right to a secure retirement should be available to all and not become the preserve only of those who are well-off.

However, the findings of the Chief Actuary make it clear that changes are needed to restore the CPP to health. Clearly, governments should have acted some time ago to address this problem. We believe the role of government that is responsible is to act to prevent problems, rather than letting them become crises. And so, together with the provinces and territories, we will act.

The second pillar of the pension system -- Old Age Security and the GIS -- is funded out of general government revenues. Here too, rising costs have led to concerns that these public pensions are at risk. Our obligation is to put those concerns to rest.

In our last budget we set out the principles of reform. Today, we are proposing a new Seniors Benefit to take effect in the year 2001. This benefit will be a central element of fulfilling our commitment to Canadians to ensure they have a secure and sustainable pension system now and into the future.

As the Prime Minister has said many times, current seniors have the right to know that their retirement is secure -- that they will always get at a minimum what they receive in pension payments today. Our proposal guarantees that. In fact, many seniors will get more.

Furthermore, younger Canadians have the right to know that, in the future, government pensions will be there for them. Our reform guarantees that as well.

This reform will make the pension system sustainable. It will do so by targeting help to those who need it most. And by slowing the rate of growth of public pensions, the danger of crowding-out other essential programs and services is being addressed.

The new Seniors Benefit will be fully tax free -- and it will be completely separated from the tax system. It will incorporate the OAS, GIS, pension income credit and age credit.

Furthermore, under the new system, the benefit and the threshold levels will be fully indexed to inflation an important improvement for all seniors who worry about eroding benefits. The partial indexing of the clawback threshold will cease to be an issue.

The Seniors Benefit will be paid monthly -- and in the case of couples, it will be divided equally between each spouse. Each will receive a separate cheque.

This will be a fairer system. It will be based on total income -- as the GIS always has been. We believe that since the incomes of low-income couples are currently combined to determine eligibility for additional help, it is also appropriate to combine the incomes of higher-income couples to determine their level of government support.

The new benefit will be designed to fully protect low and modest-income Canadians. Almost all of them will receive slightly more. In fact, all those who currently receive GIS will receive $120 more per year.

Under the new Seniors Benefit, 75 per cent of seniors will be as well or better off. In fact, most will be better off.

For instance, nearly nine out of ten single senior women will be better off under the new system.

High-income seniors will receive somewhat less. The more income they have from other sources, the less they will receive.

The very highest-income seniors will no longer receive government benefits.

In this House, the Prime Minister has promised Canadians that no current seniors will have their OAS and GIS payments reduced as a result of this reform. In fact, our proposal goes one step further. Not only will the pension benefits of every senior over age 65 today be protected, but so too will the pension benefits of every Canadian who reached age 60 before January 1st of this year -- and their spouses, no matter what their age.

The government will give these Canadians a choice of whichever system is more advantageous to them -- moving to the new Seniors Benefit five years from now, or maintaining their existing OAS/GIS pensions.

The purpose of this reform is to assure Canadians that the pension system will be there for them in the future, as it has been in the past.

Fairness, sustainability, security: that is what Canadians seek -- and that is the hallmark of this new public pension system.

Assistance to those in Need

Increased Support for Children

The next issue concerns children.

There are many more single-parent households today than ever before. Canadians know that too often the needs and rights of children following family breakdown are not being protected. There is too much hardship, tension and distress resulting from the current child support system. The system has added to the uncertainty and anxiety many Canadians feel.

Our view is that children should be first in line. Child support is the first obligation of parents. It is not discretionary. The government promised to improve the child support system. Today, that action is being taken. The Minister of Justice will be elaborating on these measures in the days ahead.

First, the tax treatment of child support payments is being changed. Currently, child support payments are taxable for the recipient and tax deductible for the person paying. In our view, this is wrong. We believe these payments are there to provide support for children. They are not income for parents.

Therefore, for all new child support awards -- and all existing awards that are varied on or after May 1, -- support payments will not be included in the income of the custodial parent for tax purposes nor be tax deductible for the payer. This approach will ensure that the children who need support the most get it, and eliminate the need for complex tax calculation and planning by parents.

Second, the method used for determining levels of child support is being improved. This will result in settlements that are fairer and more consistent. It will reduce conflict between parents and keep money now spent on lawyers and courts in the hands of the parents for the benefit of the child.

Third, a wide range of measures is being introduced to help ensure that child support orders are enforced -- that support is paid in full and on time. We are targeting chronic, wilful defaulters. Because enforcement is primarily a provincial/territorial responsibility, these measures are designed to complement and bolster their efforts.

We believe that more should be done to support children.

Therefore, we are increasing the Working Income Supplement under the Child Tax Benefit. This supplement assists low income parents to meet some of the expenses resulting from work -- such as child care, transportation and clothing. It also helps make up for the benefits lost by parents who leave social assistance and re-enter the workforce.

The maximum annual benefit is being doubled, in two steps. It will increase from $500 to $750 in July of next year and to $1,000 in July of 1998.

When fully phased-in, this will result in an additional $250 million support annually to approximately 700,000 low-income working families -- one-third of whom are headed by single parents.

Finally, we believe that the current age limit of 14 on the child care expense deduction should be raised to 16 to provide more support to parents -- in particular single parents whose jobs require them to be away from home at night.

Next, increasingly large numbers of Canadians are providing in-home care for adult children and other relatives with disabilities. This work is both invaluable and difficult. Therefore, this budget proposes to increase the value of the infirm dependent credit from $270 to $400 and to raise the income threshold for the reduction of this benefit from $2,690 to $4,103.

A number of groups, including the Standing Committee on Human Rights and the Status of Disabled Persons, have asked that we examine measures, including those in the tax system, that have an impact on people with disabilities. We will examine these issues, because we believe it is important to constantly assess the mechanisms through which we provide assistance to persons with disabilities.

Every day in every community, Canadians give freely of their time and money to support the work of non-profit, voluntary and charitable organizations. These countless acts of individual commitment are a powerful collective response to meeting pressing human needs, especially in this time of fiscal restraint.

Governments must support Canadians in their effort.

Therefore, we are adopting the recommendation of the Standing Committee on Finance and the Canada Council that the annual limit on charitable donations be raised from 20 per cent to 50 per cent of net income. That limit will be increased to 100 per cent for gifts willed to charities -- in order to encourage charitable bequests. In addition, to encourage donations in forms other than cash, the limit will be raised to 100 per cent on the portion of a donation of appreciated property that must be included in the donor's taxable income.

Clearly, a case has been made that more can be done.

Therefore, over the next year and in consultation with the charitable sector, we will examine ways of further encouraging charitable giving and charitable activities. We will focus on ways to ensure that increased government support leads to activities of direct benefit to Canadian society.

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