June 21, 2005
Archived - Notes for Remarks by the Honourable Ralph Goodale, PC, MP, Minister of Finance, to the Economic Club of Toronto
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Good morning everyone. Greetings and good wishes from the Government of Canada.
Thank you for this opportunity to be here in Toronto to talk about an issue that has significant implications for the future of this great city and indeed for the whole country-and that is boosting the productivity of the Canadian economy to ensure that we maintain a prosperous and secure nation that can offer an unparalleled quality of life.
As Canada's largest city, Toronto is a driving force in the nation's economy. The facts speak for themselves. One quarter of Canada's wealth originates here. Toronto is this country's corporate capital, with more nationally and internationally top-ranked companies than any other Canadian centre.
Toronto also has one of North America's most diverse economies, led by banking and financial services and supported by strong growth in tourism, manufacturing and new technology. Indeed, Toronto's information and communications technology sector is now the third largest on the continent, behind only San Francisco and New York.
Ensuring that "Toronto works" is a crucial factor in Canada's effort to advance its productivity. That's why our government has worked with Mayor Miller and the Federation of Canadian Municipalities to craft the New Deal for Cities and Communities. As we announced last Friday, Toronto will be receiving substantial new funding to upgrade its infrastructure and its public transit.
This city will also be the primary beneficiary of our recent agreement with the Province of Ontario on more funding for education, skills training and labour market integration for newcomers to Canada.
All of these initiatives, and others that I will outline over the next few minutes, have one goal in mind-to raise the productive capacity of Canada's economy.
A Canadian Solution
Now I want to be clear from the outset: improving the productivity 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 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.
This is not some optional abstract goal that would be "nice" to achieve at some point in the future. We simply 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.
The news on this front is not all bad. In fact, since 1997, when we first balanced the nation's books, Canadian productivity growth has averaged 1.7 per cent per year, the second best growth rate in the G7 and an improvement for Canada of more than 50 per cent over our average annual productivity performance during the previous 17 years. But, it's still not good enough.
Why? Because major new players like China and India are emerging globally 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, with 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 Canadians to take a more determined interest than ever before in how to grow our productivity.
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 age-related social programs, with fewer people coming along in the following generation to finance all that.
So how do we fill the gap-to improve or even just maintain our economic standing, our social programs and our standard of living? When all is said and done, it boils down to one thing-greater productivity.
And how do we accomplish this? Among other things, we must invest in the areas that drive productivity growth-our physical capital, human capital and innovation. I'll touch on each of these in just a moment.
But first, we as a government must ensure the economic and fiscal climate that allows enterprise to flourish.
Since 1993, fiscal responsibility has been a defining characteristic of our government.
We brought an end to 27 consecutive years of federal deficits. We balanced the books by 1997 and we've recorded 7 consecutive surplus budgets. We've cut the federal debt by more than $60 billion and re-established a triple-A credit rating.
Under previous governments (before 1993), federal program spending as a share of GDP ran as high as 19.2 per cent and was never less than 15 per cent. We have trimmed it down to just about 12 per cent-and that's where it remains today, even with all the pressures of a minority government accounted for.
I won't belabour the point, but let me be crystal clear-our government and all Canadians have worked too hard and come too far over this past decade sowing and harvesting the fruits of fiscal discipline, prudence and responsibility to run any risk now of having all that success frittered away.
We have the best fiscal record in all the G7 group of world-leading economies. We have the best fiscal performance of any Canadian government since 1867. And I am determined to keep it that way.
Fair and Competitive Taxes
Secondly, Canadian businesses need a fair, efficient and competitive tax system. Since balancing the books eight years ago, we have cut taxes each and every year, giving 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 plan that is now fully implemented. It was 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.
- We have reduced the general rate of corporate income tax to 21 per cent from 28 per cent, levelling the playing field, especially for Canada's service sector.
- We launched a gradual phase-out of the federal capital tax, leading to its complete elimination by 2008.
- We've reduced the tax rate on resource income. The rate will decline to 21 per cent by 2007, and we've improved the tax structure applying to this sector.
- And we are better aligning capital cost allowances with the real "useful life" of assets such as computers, broadband and Internet equipment.
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 include further improvements to capital cost allowances, raising annual RRSP limits to $22,000 by 2010, and increasing the basic personal tax exemption to $10,000. This last move will take about 860,000 people off the tax rolls altogether, including a quarter of a million seniors.
And-let me also emphasize-our government is moving ahead with the business tax reductions announced in Budget 2005, albeit in a different legislative format and on a different parliamentary track. We will eliminate the corporate surtax in 2008 and reduce the general income tax rate to 19 per cent from 21 per cent by 2010. This will maintain our tax rate advantage over the Americans-an advantage that is helping to attract investment and 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.
I will continue to look for ongoing opportunities to make sensible, affordable tax cuts. In particular, I'll be looking for those that enhance fairness and contribute to greater Canadian productivity.
Strengthening the Economic Union
Promoting a stronger and more efficient economic union is another way we can support investment, entrepreneurship and the free flow of goods, services and capital.
For example, the Government of Canada continues to firmly support the establishment of a national securities regulator. Note that I said "national" not "federal." We believe the current structure, with a costly network of multiple provincial and territorial regulators, is outmoded. In an era of global capital, small and fragmented provincial capital markets simply won't do.
Although provincial governments have made some effort to better coordinate their regimes, 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 now.
I want to say that I am pleased with the leadership Ontario has shown in this area, particularly the work of David Brown at the Ontario Securities Commission and Gerry Phillips, the provincial minister responsible for securities regulation.
On another front-as many of you have noticed-my budget removed the foreign property rule, thereby increasing international investment opportunities for Canadians, while simultaneously reducing barriers to investment in our domestic venture capital sector.
We will continue reducing 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 can and will win the competition for global capital.
To drive financial market efficiency in other ways, 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. We have also launched consultations on easing foreign bank entry, and we've taken steps to improve consumer protection, along with the transparency of bank corporate governance.
We are also continuing efforts to reduce the regulatory burden on all Canadian businesses.
All of these initiatives support one overarching goal-the creation of a stronger economic union in Canada and an end to useless impediments to productivity.
Investments in Productivity
Fiscal responsibility, balanced budgets, debt reduction, a better tax system and a stronger economic union contribute to an environment that encourages investment by the private sector. But the Government of Canada must also invest-in those fields in which it is best placed to make a difference.
Over the last several years we have, in fact, made substantial investments in the three national drivers of productivity, which I mentioned at the outset:
- physical capital, which includes the deployment of technology as well as public infrastructure;
- human capital, specifically skills training and higher education; and
- innovation to develop and commercialize new products and services to keep Canada ahead of its global competitors.
Let me elaborate on each of these points.
Physical capital is probably the most visible aspect of our commitment to productivity.
Since the mid-1990s, the Government of Canada has invested more than $12 billion to help rebuild and revitalize Canada's public infrastructure. Our funding-for streets and roads, bridges and highways, water, sewer and waste disposal systems, environmental upgrades, energy efficiency improvements and community facilities from coast to coast-is leveraging a total investment from all partners, including provinces and municipalities, of more than $30 billion nationally. All to make our cities and communities more attractive places in which to live and work and invest-which makes them more productive and competitive as a result.
Our existing federal infrastructure programs all have some time remaining in their respective mandates, but we will renew them when they come due-because they have proven track records for efficiency and effectiveness, and because there is clearly more work for us to do with our provincial and municipal partners.
To this same end, Budget 2005 added $300 million to the revolving Green Municipal Fund, bringing its total endowment to $550 million for innovative environmental projects. And local governments across Canada are now receiving a full rebate of the entire GST paid on all municipal purchasing-a gain for them of some $600 million per year.
In Budget 2005, we are also implementing the promised sharing of federal gas tax revenues with municipalities. As I mentioned earlier, the agreements announced last week with the City of Toronto and the Association of Ontario Municipalities will see cities and towns across this province gaining more than $1.8 billion in additional federal funding over the next five years. When the program is fully ramped up, Ontario's municipalities will receive almost $750 million per year to invest in vital infrastructure projects that produce significant environmental benefits.
Plus-as a kick-start for public transit-we will provide up to $310 million to Ontario. Part of this funding will support the expansion and renewal of the TTC and GO Transit.
Let me move on to human capital. While bricks and mortar are critical to improving productivity, the human dimension is even more vital. We must ensure that all Canadians have the chance to obtain the skills and education they need to succeed, from childhood throughout their lifetimes.
In fact, Canada has one of the best education records of any major economy. Among G7 countries, we have the highest proportion of people with a post-secondary education and our high school students have, on average, the best scores in reading and the second highest scores in math and science. 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 child care 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-most importantly-developmental child care 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 children will get the care and early learning that will equip them to become engaged and capable and productive citizens.
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 to higher education, workplace skills training, labour market development services and literacy. These are social investments. But make no mistake, they are also investments in our economic future.
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 long-term productivity.
Inclusion is another human capital issue.
As I mentioned earlier, the rate of growth in our workforce is slowing down due to the retirement of baby boomers and the smaller number of younger workers coming along behind. 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.
This is why, in Budget 2005, we invested $345 million in Aboriginal education, child care and skills training. We also added almost $300 million over the next five years to help newcomers to Canada become integrated into our economic mainstream. Our recent agreement with Ontario will provide additional money to support these efforts.
And finally-innovation. It is 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 university and hospital-based research. This is not just a rhetorical commitment. We've devoted $11 billion in new funding for research and development on campuses and in hospitals since Canada posted its first balanced budget in 1997. In fact, these efforts have moved us from 6th overall to 1st place among G7 nations in publicly funded R&D. We will not lose this hard-fought advantage.
In Budget 2005, there is an additional $1 billion for innovation, including further support for our three federal granting councils and to further offset the indirect costs of federally funded research at Canada's universities and teaching hospitals.
But publicly funded research-all by itself-will not be enough if we want to make adequate progress over the next few years. The achievement of world-scale sophistication in scientific and technological advancement will demand as well the indispensable drive of more private sector R&D investments.
Some Canadian industries are well out front in this regard. Pharmaceuticals, for example. Telecommunications and computer equipment are others.
But despite Canada having one of the world's most favourable tax regimes for research and development-and despite a strong economy, strong corporate profits, strong domestic demand and a robust trade surplus-some Canadian sectors are still not seizing the opportunity to invest more aggressively in research and the development of new products and technologies (in effect, to invest in themselves).
This is one of the productivity gaps between Canada and the US. We are ahead on public sector R&D. They are well ahead on private sector R&D. We need to understand why! And fix it!
The business community and governments need to work closely together to determine exactly what we each need to do to close the gaps and to make sure that in both the public and the private sectors, Canadians are as innovative and creative as we can possibly be. Our future will depend upon it!
And our ambitions for that future are far from modest!
Canadians want a country that remains the world's most successful example of tolerance and cohesion amidst great diversity.
They want an inclusive and caring society in which fairness and equality of opportunity are the measures of progress.
They want a clean and green country, with a rich natural environment, preserved for our grandchildren with the greatest care.
They want a confident and respected country with a clear sense of its global responsibilities-for making and keeping the peace, advancing freedom, democracy and human rights, alleviating the debts and lifting up the poorest of the poor.
And Canadians know that to do all this-underpinning it, enabling it-there must be a truly excellent Canadian economy, characterized by world-calibre productivity growth which sets the pace for others to admire.
That is our challenge for the 21st century.