June 13, 2005
Archived - Notes for Remarks by the Honourable Ralph Goodale, PC, MP, Minister of Finance, to the Halifax Chamber of Commerce
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Halifax, Nova Scotia
This Web version of the speech was re-posted June 16th with small adjustments to reflect the Minister's delivery.
Good morning everyone. Greetings and good wishes from the Government of Canada.
I just returned last night from a meeting of G-7 Finance Ministers in London, England, where we were working on the elimination of Third World debt. And I'm happy to say we were successful. But, it's great to be back home on Canadian soil.
Let me say, however, how interesting it is to contrast what I heard about Canada during my overseas trip with what I have been hearing over the past several weeks in Ottawa. It's like night and day!
You all know the refrain-the Government of Canada is allegedly spending taxpayers' money like so-called drunken sailors. Our recent commitments to invest in post-secondary education, affordable housing and protecting the environment will cost the staggering sum-they say-of $26 billion, wiping out any potential surplus for years to come. Taxes will go up. Interest rates will skyrocket. People will lose their jobs and their homes. And the sky will fall.
That is the exact story you will hear if you listen to the daily Question Period in the House of Commons. And with the greatest of respect-to use a prairie expression-it's a crock of unmitigated horsefeathers!
That mythical $26 billion in allegedly wanton spending is actually closer to $9 billion spread over some 5 years or more, and specifically targeted toward vital social and economic priorities-particularly those identified by the provinces and municipalities-and most is connected to productivity growth.
Furthermore, both the Prime Minister and I have made it crystal clear-this country is not going back into deficit. Canadians have simply worked too hard and come too far (since 1993) to allow our economic and fiscal success to be frittered away. So we will continue to live within our means. We will balance the books. We will deliver surplus budgets and we will continue to drive down the federal debt. Period. Full stop!
And I really must observe about those in the Official Opposition who are now the voices of economic gloom and fear in the House of Commons-when their predecessors were in office they delivered deficits of $40 billion per year and spending as a share of GDP as high as 18.5 per cent and never less than 15 per cent. By contrast, we have eliminated annual federal deficits, and government spending hovers consistently around just 12 per cent of GDP.
What I heard about Canada in London could not have been more different from the bad math and all the sniping in the House of Commons. Among my G-7 colleagues, Canada is seen as one of the most successful economies in the world, a country whose fiscal record is second to none, whose current performance and long-term prospects are envied. We are rightly seen as a nation with a forward-looking and focused plan to continue improving the quality of life of our citizens. And it's working!
There are a number of good reasons why our G-7 counterparts are so positive about Canada:
- We've booked eight consecutive budget surpluses, and we are the only G-7 nation to produce surpluses over the last three years.
- We've reduced the federal debt by more than $60 billion and we remain exactly on track to cut our debt-to-GDP ratio to 25 per cent within the next decade.
- We've created 2.7 million net new jobs since 1997, the strongest record of labour force participation and employment growth in the G-7.
- And we've recorded the best growth in living standards in the G-7, with per capita incomes increasing more in the last 7 years than in the previous 17.
That being said, can our government do better? Yes it can and it will. Does our country face challenges going forward? Absolutely. And we need to face them, squarely!
Global Challenges, Canadian Solutions
Every industrialized nation in the world is confronted by its share of risks and potential trouble. For the Americans, it is dealing with their growing budget and trade deficits, which could threaten their (and our) long-term financial health. The annual federal deficit in the United States is larger than Canada's entire federal debt! Europe and Japan struggle with structural inflexibilities, sluggish growth and poor job performance. In China, the problem is a fixed exchange rate. Here in Canada, we face an aging population and intensifying international competition.
And that is what I want to focus on today. If we are to successfully meet these twin Canadian challenges, we must bring to bear the same discipline and commitment that was used to eliminate the federal deficit-to become a world leader in productivity growth.
Now I want to be clear here at the outset, improving the productivity level of Canadian workers is not "code" for lower pay, longer hours or job cuts. Forcing people to work harder for less money will not, ultimately, lead to higher productivity. We are not interested in some race to the bottom!
What it does mean is giving our economy the "smarts"-the wherewithal to grow and create satisfying, well-paying jobs for Canadians from one end of the country to the other. It also means governments, business, labour and academics working intelligently together in a national effort to give this country the most innovative, efficient and competitive economy in the world, bar none.
And let me state quite frankly that this is not simply some optional abstract goal that would be "nice" to achieve at some point in the future. We must improve the productive capacity of our economy if we are to continue to enjoy the benefits of one of the most compassionate and equitable societies in the world and build an even better economy for the next generation of Canadians and beyond.
We've made some progress in this area. Since 1997, when we first balanced the nation's books, Canadian productivity levels have climbed by 1.7 per cent, which is the second-best rate of growth in all the G-7. But, ladies and gentlemen, second best is simply not good enough. Why? Because our competition in the global economy is not standing still.
Major new players like China and India are emerging with the national will and the tools, the technology and the people to compete with the best in the world. Between them, these two countries represent more than one-third of the world's population and, thanks to the growth of a massive new middle class, they are evolving into huge consumer markets, the likes of which the world has never seen.
Furthermore, there are forces at work within our own borders-such as the aging of our population and decreasing growth in our labour force-that make it not only desirable but imperative for us now to plan ahead, to focus on what we need to do to secure a successful future.
The fact of the matter is our country is facing a demographic time bomb. As members of the baby boom generation begin to retire in large numbers over the next 5 to 10 years, the remaining members of the workforce will be supporting an expanding population of seniors. There will be more and more reliance upon health care, pensions and other social programs, with fewer people coming along to finance them.
So to improve, or even maintain, our position as one of the most successful economies in the world, we must meet the challenge of growth in the 21st century. And, when all is said and done, that boils down to one thing-productivity.
How do we accomplish this?
We must invest in the areas that drive productivity growth in our economy-our physical capital, human capital and innovation. I'll touch on each of these in greater detail in just a moment.
But first, we as a government must create the economic and fiscal climate that allows enterprise to flourish and make the necessary investments to improve the productive capacity of their employees.
Fair and Competitive Taxes
One of the keys to improving our productivity is ensuring that we have a fair, efficient and competitive tax system. Since balancing the books in 1997, our government has cut taxes in each and every budget, to the point in fact that we have given our country a modest but important corporate tax rate advantage over the United States.
In 2000, we introduced a $100-billion five-year tax cut that is now fully implemented-the biggest tax cut in Canadian history, and it keeps on delivering real benefits each year to millions of individual Canadians and to large and small businesses.
Budget 2005 built on these efforts by proposing an additional $13 billion in new tax measures for both businesses and individuals over the next five years. These included better aligning capital cost allowances with the real "useful life" of assets; raising RRSP contribution limits to a maximum of $22,000 annually, while also eliminating foreign content restrictions; and increasing the basic personal income tax exemption to $10,000. This last move will take close to 860,000 lower-income people off the tax rolls altogether, including a quarter of a million seniors.
And I want to make this point as clearly as I can-our government is also moving ahead with the business tax reductions we announced in Budget 2005, albeit in separate legislation. We propose to eliminate the deficit surtax in 2008 and reduce the general corporate income tax rate to 19 per cent from 21 per cent by 2010. This will offset the impact of new tax cuts in the United States and maintain our tax rate advantage over the Americans-an advantage that is helping to attract new investment and new jobs to this country.
And that's what this is all about. It's not about tax breaks for the wealthy. It's about generating economic growth and well-paying Canadian jobs-jobs on our side of the border-jobs of the future-jobs with a future.
Strengthening the Economic Union
Some would stop there, assuming that tax measures alone will secure a more productive Canada. But taxation is only one part of the story. We must also encourage investment by building a stronger Canadian economic union, reducing red tape and promoting competition.
For example, we continue to firmly support the establishment of a national securities regulator. Note that I said "national" and not "federal" only. I believe strongly that our current structure, with its fragmented and costly system of multiple provincial and territorial regulators, is outmoded. In an era of global capital, provincial capital markets simply won't do.
Although provincial and territorial governments have made some efforts to better coordinate their situations, their initiatives fall far short of what is truly required to give Canada a world-class system of securities regulation. My officials have begun a dialogue with their provincial counterparts to find some reasonable way of making better progress on this important issue, at least among those jurisdictions that are prepared to get moving.
To drive financial market efficiency, Budget 2005 launched several other initiatives including the reduction of overlap between federal agencies like the Office of the Superintendent of Financial Institutions and the Canada Deposit Insurance Corporation, the consultations on measures to ease foreign bank entry and improve consumer protection, the removal of the foreign property rule, and improvements in the transparency of bank corporate governance.
We must continue to reduce domestic and international barriers to capital flows because we can be confident in the strength and skill of the Canadian financial services sector and the attractiveness of Canada as an investment destination. Canada will win the competition for global capital.
And we continue to search for ways to reduce the regulatory burden on all Canadian businesses. My colleague, Reg Alcock, the President of the Treasury Board, is chairing a new regulatory renewal initiative called "Smart Regulation." This is a collaborative effort of all federal regulatory departments and agencies, the provinces and territories, Aboriginal communities, and municipalities-to achieve better regulations that safeguard the health, safety, environmental and social interests of Canadians and their economic well-being too. Wherever possible, it aims to reduce or eliminate unnecessary or outmoded regulatory restrictions that hinder economic growth.
Our goal is the creation of a stronger economic union in Canada and an end to the traditional barriers that have held up the free flow of goods and services within our country. To help achieve this objective, the Prime Minister announced last month that Mauril Bélanger, my Cabinet colleague from the riding of Ottawa-Vanier, has been appointed Minister of State for the promotion of internal trade.
Investments in Productivity
Fiscal responsibility, balanced budgets, debt reduction, a better tax system and a stronger economic union create the environment that supports investment by the private sector. The Government of Canada must also invest-in those fields in which it is best placed to make a difference.
In that spirit-with respect to Atlantic Canada and in addition to the big new federal money for health care, equalization and the offshore energy accords-I'm pleased that my budget also invested in the Coast Guard, our fight against foreign overfishing, the Oceans Action Plan, an Atlantic Salmon Endowment Fund, aquatic health and east coast diversification. All of these are aimed at productivity enhancement.
And beyond regional priorities, over the last several months, the Government of Canada has also made substantial investments in those three national drivers of productivity, which I mentioned earlier:
- First, physical capital, which includes technology as well as infrastructure.
- Second, human capital, specifically skills training and higher education.
- And third, innovation, to develop new products and services to keep Canada ahead of its global competitors.
Since the mid-1990s, the Government of Canada has invested more than $12 billion in programs to help rebuild and revitalize Canada's public infrastructure. Along with our provincial and municipal partners, we have upgraded roads and highways, improved the quality of drinking water, strengthened waste disposal systems, enhanced energy conservation and efficiency, increased the supply of decent affordable housing, and built community facilities such as arenas, libraries and cultural centres.
The total value of all of this work over the past decade-as stimulated and then leveraged by our federal infrastructure programs-is something more than $30 billion nationally. All of these investments make our communities more attractive places in which to live and work and invest, which makes them more productive and competitive as a result.
There are three federal infrastructure programs presently in place: one for regular local municipal and rural works; another for larger and more strategic projects of regional or national significance; and a third for border crossings to promote trade and security between Canada and the US.
They each have some time still remaining in their respective mandates, but we will renew them when they come due-to continue into the future.
Further, to help meet the physical capital needs of local governments, they are now receiving a full rebate of the entire GST paid on municipal purchasing. That's a gain of some $600 million per year for communities across the country.
And, in addition, Budget 2005 delivered on our commitment to share a portion of the revenues from the federal gasoline tax with Canadian municipalities. This will result in $5 billion over the next five years in new money for environmentally sustainable municipal infrastructure, and then $2 billion per year in ongoing support thereafter. To kick-start the process this year, the Government of Canada is also providing an $800-million top-up to municipal governments to address their urgent public transit needs.
Bricks and mortar are one key element in improving productivity, but the human dimension is even more vital. An ambitious, motivated, inclusive and highly educated workforce, where each participant has the opportunity to "dream big" and to achieve his or her goals, is the surest path to a strong and productive national economy.
Canada has one of the best education records of any major global economy. Among G-7 countries, we have the highest proportion of people with a post-secondary education and our high school students have, on average, the second-highest scores in math and science among G-7 nations. We must continue to build on this advantage. And we will.
Budget 2005 extended our commitment to lifelong learning by investing $5 billion for a national childcare and early learning system to help ensure that all of our children get the best possible start in life.
High quality, universally accessible, affordable and developmental childcare contributes to productivity in two ways. It gives young parents the peace of mind that they can pursue their career goals without compromising their kids; and those kids will get the early learning that will make them engaged and capable and productive people. This is not just my personal view; it is the considered opinion of leading economic experts, including the Governor of the Bank of Canada.
We have also committed additional federal funds to further support better access for students to higher education, workplace skills training, labour market development services and literacy.
In a knowledge-based, technology-driven, skills-intensive and highly competitive world, we will succeed by the quality of our brainpower. It is probably the single most important determinant of our productivity and it will require ongoing investment.
Inclusion is another key concern.
As I mentioned earlier, the rate of growth in our workforce is slowing down due to natural retirements. That means we have to make the most of those demographic segments where faster growth is possible. Thus, Canada will rely increasingly on new immigrants to our country and on young Aboriginal Canadians to help meet our future labour market needs.
But these two groups in particular have not had the kind of support needed to take full advantage of opportunities in our economy. That has to change. Economists have estimated that if Canada's Aboriginals and new immigrants had the same employment rates as the rest of the national workforce, the gap between living standards in Canada and the US would close by approximately 10 per cent.
This spring we have started to upgrade our Government of Canada programs and services for immigrant processing, settlement and integration, as well as foreign credentials recognition. We are also advancing our support for Aboriginal education and training (among other issues), and there will be a formal First Ministers Meeting this fall engaging the Prime Minister, all the Premiers and all national Aboriginal organizations in this crucial work.
And finally-innovation. It's crucial to our objective of a highly productive economy. The successful transition from bright new ideas into new products and technologies demands first-class facilities, plus a lot of talent, time and, above all, money to move from the drawing board to the marketplace.
The Government of Canada is committed to Canadian leadership in publicly funded primary research. And it's not just rhetorical. We have devoted $11 billion in publicly funded research and development since Canada posted its first balanced budget in 1997. In fact, these efforts have moved us from 6th overall to 1st place among G-7 nations in publicly funded R&D. We will not lose this hard-fought advantage.
So we further strengthened our efforts in Budget 2005, which committed an additional $1 billion in funding to support our three federal granting councils and to help further offset the indirect costs of federally funded research at Canada's universities and teaching hospitals.
We have also earmarked $300 million to renew the Atlantic Innovation Fund to advance university research, commercialization and innovative companies in this region, plus $110 million for the second phase of the National Research Council's Atlantic Technology Clusters.
But publicly funded research is not enough if we want to make real progress over the next few years. The private sector has a crucial role to play in this area as well. Despite having access to one of the most generous tax regimes for research and development, many sectors of our economy clearly are still not investing aggressively in innovation. This needs to change!
Government-sponsored research and development alone will not achieve the degree of scientific and technological sophistication, and the innovative commercialization, that our economy truly requires-if we are going to be world-class in competitiveness and productivity.
This is one of the major gaps between Canada and the US. We're ahead on public sector innovation. They are well ahead on private sector innovation. The time has arrived for Canadian businesses to invest substantially more to boost their own R&D capabilities. Most of the tools are already at their disposal and the time for action is now.Ladies and gentlemen, we Canadians rather pride ourselves on being a very civil, polite and modest people. We're not too inclined to blow our own horns too loudly. But our real ambitions are far from modest.
What we've made of this country to date is the envy of much of humankind: the world's most successful model of diversity, tolerance and cohesion. We stick together as a country and as a people, not because we "have" to, but because we "want" to.
And we know that nation building, the Canadian way, is a never-ending process. Canada is today-and it always will be-a precious "work-in-progress." And we want to build it well.
An inclusive and caring society in which fairness and equality of opportunity are the measures of our progress. Strong, effective social programs. A clean and green country that prizes its rich natural heritage and preserves it with the greatest care. A confident and respected country with a clear sense of its global role-peacemaking and peacekeeping; advancing freedom, democracy and human rights; alleviating the debts and lifting up the poorest of the poor.
And underpinning it all-enabling it, making our ambitions possible-a robust, innovative, competitive economy, propelled by our brainpower and excellent by every measure-an economy in which our Canadian growth in productivity sets the pace for the rest to admire! That is our 21st century challenge!