Budget Speech 1996 - 3
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Archived - Investing in Our Future

One of the greatest challenges facing Canadians and their governments is the changing nature of work. Around the world, on every continent, we are facing a revolution whose scope and depth rivals that of the industrial revolution itself.

The contours of that revolution are clear. Distance is losing its meaning, as barriers to trade and investment collapse and communications become instantaneous.

The pace of change is accelerating, as technology makes possible daily what once was only the substance of dreams.

Some see this as a revolution about new opportunity. Others fear it is a revolution about opportunity lost. What we must ensure is that Canada is on the vanguard of this revolution, not one of its victims. We must work together to make sure that the new economy is also an economy with new jobs.

Canadians understand that the jobs of today and tomorrow will come from the thousands of Canadian businesses that are created each and every year.

We agree. So what is the role of government? It is to provide the private sector and all Canadians with a framework for growth, the kind of growth on which job creation depends.

Clearly, despite our problems, the economic climate in this country is getting better.

The nation's balance sheets are improving.

As a result: interest rates have come down 3 percentage points in the last year; inflation is the lowest it has been in 30 years. And Canada's economy is more competitive than ever.

The point is that in this world of globalization, of competition, of rapid change, focusing on getting the fundamentals right is absolutely necessary. But by itself it is not sufficient.

It is in this context that one must view the numbers on job creation, the most important statistic of them all. In the last 13 months, 263,000 private sector jobs have been created. Since November alone, 123,000 such jobs were created, the majority of which were full-time. These are good numbers, but they are not nearly good enough.

The proof lies not simply in the numbers of unemployed, but in the increasing length of time it takes the unemployed to find new work.

The effect of change is felt by every segment of society, in every part of the country, from our biggest cities to our very smallest communities.

For instance, it is clear that rural Canada faces a particularly acute challenge of adaptation. Indeed, while major metropolitan areas are often the focus of attention, it is absolutely essential that we continue to pursue policies to address rural anxiety as well, that we develop policies designed to meet the diverse needs of both urban and rural Canada -- needs which remain essential to our economic well-being, our way of life and our future.

In other words, if our future is to be brighter, we must invest in it.

And so, in addition to consolidating our fiscal gains and securing the future of our social programs, we are strengthening three areas of government emphasis that will help Canadians manage towards the future.

Following on the recommendations of the Cabinet Committee on Jobs and Growth, headed by the Minister of Agriculture, we are making strategic investments in our youth, in technology, and in trade.

Let me emphasize, that while we are announcing new initiatives, none of the funding required represents new money. All of it is sourced from a reallocation of existing resources.

The economy of the future will belong to our young people. The success of our economy will depend on them -- just as their success will depend on their ability to participate fully in all that the economy has to offer.

There is a clear role for government in helping our young people to prepare for a rapidly changing economy -- through the acquisition of the right skills, and the provision of opportunities to gain work experience.

And so, in this budget, we are providing an additional $165 million over three years, to be funded through reallocation within the tax system, so that students and their families will be better able to deal with the increased costs of education.

First, to recognize the non-tuition costs of schooling, we are increasing the education credits from $80 to $100 per month.

Second, in order to support parents or spouses who help underwrite the education costs for students, we are raising the limit on the transfer of tuition and education credits from $680 to $850 per year.

Third, to encourage parents to save for their children's education over the long-term, we are proposing to increase the annual limits on contributions to Registered Education Saving Plans (RESPs) from $1,500 to $2,000 and the lifetime limit from $31,500 to $42,000.

Fourth, as we have said, we are broadening eligibility for the child care expense deduction. This measure will assist parents to undertake education or retraining. Single parents will be allowed the same deductions that today are only available to couples. And for the first time, the child care expense deduction will apply to those completing high school, not only post secondary education.

For our youth, learning is the first step. But increasingly, education alone is not enough. What is required is the opportunity to gain experience on the job.

Therefore, the government is reallocating $315 million over the next three years from other spending in order to help create youth employment opportunities. This is in addition to our existing funding provided through such programs as Youth Internship Canada and Youth Service Canada.

Some of these new funds will go to substantially increasing our support for student summer employment. Summer employment not only provides young people with the opportunity to earn the money they need to complete their education, it can also supply critical job experience. Therefore, we are doubling our assistance for summer employment for 1996-97 -- from $60 million to $120 million.

Another part of the $315 million will be used to assist young Canadians who have left school to find work. Details of these youth initiatives will be provided in the near future by the Minister of Human Resources Development.

We are eager to enter into a new partnership between the public and private sectors to create entry level jobs for the young. Government and business have worked well together on trade, as Team Canada abroad. Let us now -- business, labour, educators and government work together even harder at home, for jobs for our youth.

Our ultimate challenge is to change the very economic culture of the nation -- to make Canada one of the most innovative countries in the world.

Some may think that innovation applies to only one small sector of our economy -- to those who write software or surf the Internet. Nothing could be further from the truth. This is not about part of our economy. It is about all of our economy -- from small business to large business, from coast to coast. From mining and oil and gas, to agriculture and forestry, the application of technology has become essential.

Clearly, it is the job of the private sector to innovate -- because it is their survival and growth that is at stake. But government too has an important role -- in levelling the playing field against foreign competition, in forming partnerships to invest in areas of basic research, of high risk, and where the scale of investment is simply too large for the private sector itself to carry alone.

To that end, the Minister of Industry will be announcing the creation of Technology Partnerships Canada. This program will encourage the development of environmental technologies, advanced manufacturing and materials as well as bio-technology. It will also help maintain jobs in the aerospace sector -- which is subject to very heavily subsidized foreign competition.

This marks an important departure from past practice. Both the risks and rewards will be shared with the private sector. The government's investment should not exceed a third of the total. The emphasis is on partnership -- not unilateral federal action. The reallocated resources provided in this budget, together with existing Industry Canada funding, will enable Technology Partnerships Canada to grow to about $250 million by 1998-99. This will lever substantial, additional investment by the private sector.

In addition, the government is injecting $50 million into the Business Development Bank. This equity will in turn allow the bank to provide an additional $350 million in loans to knowledge-based, exporting and growth businesses that would not otherwise have access to the commercial banks.

The Minister of Industry will also accelerate the effort to bring the benefits of information technology to the whole country.

By 1998, through SchoolNet we will have connected every school and library in the country to the Information Highway.

By that same year, 1,000 rural communities will also be connected -- through the Community Access Program.

And in order to bring to small business the advantages of access to the Information Highway, we are instituting a program in which 2,000 computer students will connect some 50,000 small businesses to the Internet -- not only installing those systems, but advising their owners on how best to use them.

Our financial institutions have a key role to play in facilitating the growth of Canadian business. Over the past year, the banks have made progress in dealing with the concerns of small business. But more needs to be done to ensure our financial institutions provide the best possible financing for growing export and knowledge- based businesses. The government will work with business and all financial institutions, including the banks and insurance companies, to ensure that progress continues.

Finally, we are currently reviewing the legislation governing financial institutions with a view to improving the framework established in 1992. We have concluded that the financial sector has yet to fully adjust to this framework. Therefore, the present restriction on banks selling insurance will be maintained. The present framework for selling insurance through agents and brokers will be preserved. The white paper covering this and all other aspects still under review will be released in the coming weeks.

Let me conclude this section on the question of trade. There is no doubt that Canada's trade performance has been extraordinarily good. The export sector has been the fastest growing sector of our economy -- expanding at an average 8 per cent per year over the past decade. Our merchandise trade balance has soared -- reaching a record surplus of $28.3 billion. And as a share of the economy, our current account deficit is at its lowest level in ten years.

Trade will continue to be a major thrust of this government's economic policy. The Team Canada approach, established by the Prime Minister, has proven to be a major success and will remain a centrepiece of our strategy. The Minister of International Trade will continue our determined drive to secure new agreements for more open markets around the world, building on the exemplary work of his predecessor, the Honourable Roy MacLaren.

Export financing is critical to ensure that Canadian companies can fully realize the opportunities before it. And so, in this budget we are providing $50 million of new equity to the Export Development Corporation in order to support new export sales financing vehicles and new partnerships with exporters in the commercial banks. In addition, we are reallocating resources from subsidized loans for foreign borrowers to non-subsidized loans under an improved system to manage risk. This measure will increase the amount of financing available for Canadian exporters by as much as $500 million per year.

These investments -- in youth, in technology, in trade -- build on the framework we have been constructing from the outset -- a framework for a more productive economy and society -- based on fiscal health, successful social programs and a government that is focused on key national priorities. They are a step forward in our plan to ensure that the Canadian economy adapts and grows, creating jobs.

Revenues -- Improving Tax Effectiveness and Fairness

Let me now come to the question of revenues.

No one is ever happy with the tax system. For this reason, we must do everything we can to ensure that it is fair -- and that the system as a whole is as effective as possible. Taxes are clearly higher than any of us would like. But the issue is not simply one of rates. We must ensure that the system is supportive of the nation's goals.

To this end, the budget announces the following additional revenue measures. The revenue we realize from many of these measures is being reallocated to provide tax incentives that will assist students, help the infirm and support charities.

Let me begin with the provision of tax assistance to encourage Canadians to save for their own retirement, through RRSPs and RPPs.

We are proposing a number of changes that will better target this assistance to modest- and middle-income Canadians, while limiting the cost to taxpayers.

First, we know that many younger Canadians have a difficult time finding the money to make full RRSP contributions. This is often due to other pressing obligations, including education or raising a family. We want to give them the maximum opportunity later in life to help make up for that lost time.

Therefore, we will allow Canadians unlimited time to make up for any years when they were unable to make their full contribution by eliminating the current seven year limit on carrying forward any unused contribution room.

Second, the contribution limit for RRSPs is being frozen at its current level -- $13,500 -- until the year 2003. The limit will then increase to $15,500 by 2005.

Third, we are reducing the age limit for contributing to RPPs and RRSPs from age 71 to 69.

In order to improve the effectiveness and fairness of the tax system, a number of additional measures are being announced.

In order to see them established, the government put in place incentives for investment in labour-sponsored venture capital corporations (LSVCCs). These incentives have worked. These funds are now very well established. Therefore, we are proposing several measures to reduce the unique incentives in place for these funds.

Next, this budget proposes a variety of measures related to the resource sector. In relation to the oil, gas and mining industries, we are clarifying and tightening rules related to the resource allowance, following the review announced in our last budget. While revenue neutral, this will result in a more consistent and stable tax structure.

We are announcing changes to the accelerated cost allowance rules for new mines, including oil sands, so that all types of oil sands recovery projects are treated more consistently.

For mining flow-through shares, the current 60 day rule is being extended to one year, while the eligibility rules for these shares are being tightened for the mining and oil and gas sectors.

We believe that environmental health and economic development should be complimentary, not contradictory, concepts.

To that end, this budget announces income tax changes that will provide an essentially level playing field between certain renewable and non-renewable energy investments. This is part of the baseline study of possible barriers and disincentives to sound environmental practices, initiated in the 1994 budget.

One measure is to create a new Canadian Renewable Energy and Conservation Expenses category in the tax system. A second measure is to extend the use of flow-through share financing, currently available for non-renewable energy and mining -- to similar costs for certain renewable energy and energy conservation projects.

A temporary tax on large deposit taking institutions, including the banks, was introduced in last year's budget. It will be extended for a further year.

Finally, an effective business tax system should not only raise revenue. It should be designed to help create jobs. We believe it is time for a comprehensive look at this issue. In order to identify any obstacles to job creation currently contained in the tax act and to suggest reform, we are announcing today the establishment of a technical committee of outside experts that will report to me later this year, to be followed by public consultations. If the creation of secure jobs is our objective, then every effort of government must be directed towards that end.

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