May 24, 2006

Archived - Address by the Honourable James M. Flaherty, P.C., MP, Minister of Finance, to the Canadian Association of New York 

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New York City

It is great to be here and talk about the approach of our new government, an approach that rewards hard work and respects taxpayers' dollars and encourages investment. And, you know, among other things, I've had a chance the last several days to be in Calgary and Vancouver and now here, and in Toronto yesterday.

The spirit in Canada is fabulous. I've got to tell you it's an upbeat place where people are really happy that the opportunity to achieve is there. They like the direction of the new government. It is like a breath of fresh air in Canada. Certainly in Calgary and Vancouver-in Vancouver they're looking forward to the Winter Olympics, the Pacific Gateway. Calgary obviously with the oil sands. I almost said tar sands-not allowed to say that. Oil sands-Ralph Klein will get mad at me. That would be undesirable. And in Toronto yesterday, you know, we celebrated at Harbourfront, and provided Harbourfront in Toronto a beautiful 10 acres of land right on the waterfront in Toronto. We provided them with funding for the next five years, which they'd never had before, where they could plan ahead and raise money.

We just changed in the budget the capital gains exemption. We created a 100 per cent capital gains exemption for donations of publicly traded securities to public foundations and charities including Harbourfront, and that will work well for them too. That's more advantageous now than it is in the United States.

Canada is in a very optimistic mood and it is a great place to invest. So if you're Canadian-I know many of you are-you should think about coming home. I in fact heard about that this morning from some of the folks on Wall Street about the reverse brain drain in the financial sector, which is a great encouragement to a finance minister from Canada. I can tell you there's been a dramatic shift in the way business is carried out in Canada. Our economy is strong and diversified and we have, I think, re-established government as being focused and disciplined, capable of listening and consulting and then making decisions and moving on, which is a remarkable change in the last while in Canada.

At the same time, we had a challenge taking over from the previous government that looked to the south with disdain and eroding one of our most important relationships, and that is with the people and with the government of the United States. And you saw, I'm sure, the images of President Fox and President Bush and Prime Minister Harper in Cancun not that long ago, and then the images of Prime Minister Harper with our troops and CIDA workers and others in Afghanistan. This is a new day. This is symbolic of our new relationship with the United States and with the world, in which we assert ourselves as Canadians espousing Canadian values.

On January 23rd Canadians voted for change. They didn't vote for quite enough change since we're a minority but they'll get there, we hope, as time comes. They replaced the culture of entitlement with a government that is open and accountable. They replaced years of excessive spending with a government that is focused, deliberate and fiscally responsible, and they replaced a record of friction and antagonism with a government that is cooperative and collaborative.

Now we've only been in office-the Prime Minister has only been in office with his cabinet for about 100 days but the difference is profound and you can sense it in Canada. Our focus is on results, on achieving action, not just rhetoric. We're lowering taxes, balancing our books, reducing debt, controlling spending, giving families new choices, rebuilding infrastructure, investing in education and research, cracking down on crime, securing our borders.

There is a new momentum building in Canada. We're opening the doors to greater opportunity. Being Canadian today means being ambitious, innovative, confident and optimistic.

It means seeing ourselves and the world with new eyes and a new will to achieve more than ever before. It means unleashing our country's entrepreneurial potential, potential leading to increasing advantages for Canadians and a more attractive home for global investment, potential to work with the United States to build a more prosperous, productive and secure North America and a more efficient global economy. Canada is a country on the move. Canada is a land of great opportunity not only for Canadians but also for those abroad looking for sound investments.

A few words about our economy, our economic fundamentals. They are rock solid. We are the only G7 country to record a surplus in 2003, 2004, 2005 and the OECD projects we will be the only country to record a trade surplus this year and next year. We are reducing our debt. Our real GDP is currently in its 15th year of expansion, the second longest run in post-war history. Core inflation has remained at below 2 per cent for over two years. Our corporate profits are at all-time highs. Unemployment is at its lowest level in more than 30 years while the employment rate is at its highest on record.

So to help ensure Canada stays on a solid economic footing, our government made a deliberate choice to reduce taxes significantly. In our first budget three weeks ago we delivered the largest tax relief plan in recent history-more tax relief than the last four federal budgets combined-and our budget delivers more than twice as much tax relief as new spending. For every new tax dollar we spend our government is returning two dollars to hard-working Canadians and their families. Various taxes of all kinds, all sources of revenue for the federal government are being reduced-income taxes, corporate taxes, excise taxes, sales taxes. These tax cuts are broad-based and benefit individuals, families and businesses from coast to coast to coast in Canada. Our budget delivers tax relief people can see, tax relief that makes a difference, tax relief people can count on. And the budget also ensures Canadian businesses will regain a healthy corporate tax edge compared to businesses here in the United States. And we are committed to increasing it further over time.

Certainly there's more to do on the tax front and we will continue to do that work, but the progress we have made to date is part of and together with our iron commitment, the iron commitment of our government to a balanced federal budget, which our budget is.

Part of what we can do in order to make sure our budget remains balanced going forward is to control spending, and over the past five years or so we have seen federal spending in Canada increase at an average of about 8 per cent. It went into double digits in 2004-05. So what we did this year, we only had a limited amount of time to do this but we went ahead and we decided that spending would not increase at a rate greater than the economic growth of Canada's nominal GDP. So spending this year is increasing at 5.4 per cent, which is within that growth, 4.1 per cent for next year. We are determined to control spending in the federal government, and in order to do that we are going ahead with work now with the President of the Treasury Board. And I'm working on it also with him based on three principles that we're going to follow and get this done by the fall in preparation for the budget next year.

First of all, that government programs should focus on results and value for money. Secondly, that government programs must be consistent with federal responsibilities, which is important because there's been a tendency by the federal government in Canada to engage in meddling in provincial affairs in areas that are properly the constitutional responsibility of the provinces. And, thirdly, that programs that no longer serve the purpose for which they were created are terminated.

So we're taking care of the economic fundamentals but we're also trying to create a safe and friendly climate for investment. Everything we do is aimed at increasing opportunity, promoting enterprise and seeding a culture of innovation. Our recent budget provides billions in additional infrastructure spending over the next four years-spending that will make international trade more efficient and increase security at our borders. This means improving our own highway system in Canada, significant investments in the gateways such as the Pacific Gateway in British Columbia-vitally important for economic growth in western Canada-and security infrastructure at our major land border crossings and ports, where transportation networks converge to connect centres of economic activity.

It is these types of investments that will also increase the allure of what is already an attractive asset about which you know well-and that is Canada's energy resources. You know, it may be one of our best-kept secrets, but Canada is by far the largest exporter of energy to the United States. We displaced Saudi Arabia in 2004 as the largest supplier of oil and we are also the largest supplier of natural gas, uranium and electricity. Canada's potential in the energy field is very substantial. We are anticipating major future investment in production and exploration. Approximately $45 billion in new projects and expansions are expected in the Alberta oil sands by 2010, with oil sands production expected to triple over the next 10 years. Canada's cumulative investment in the energy sector between 2003 and 2015 is projected to be about $400 billion, half of which will be conventional oil and gas. Clearly, Canada has come a long way on the energy front, but the real strength of Canada's economy is diversification. We've made tremendous strides in a variety of areas including mining, forestry, finance, insurance, pharma, plastics and the auto sector, just to name a few.

Not surprisingly, since the beginning of 2000, employment in finance and professional services has increased by roughly 20 per cent-almost double the growth of total employment in Canada. The major automobile manufacturers have recently announced more than $5.6 billion worth of new investments in Canada. This is all, particularly in the auto sector, a reflection of the skilled labour force, competitive tax rates and our first-rate social benefits such as universal health care, education and our new universal child care benefit.

Some of the world's most innovative companies have also emerged in Canada including the creator of that thing we're all addicted to, the BlackBerry-Research in Motion is headquartered in Kitchener-Waterloo and this company without question has revolutionized the way we all communicate. These are just a few of the examples of the innovative spirit in Canada. We want to maintain, of course, a positive climate for investment, create a culture of fiscal responsibility and adhere to it, and create an environment that's safe and secure.

Ensuring safety and security, especially at our borders, is in the best interests not only of the United States but of Canada. On March 31st, President Bush, Prime Minister Harper and President Fox of Mexico reaffirmed their commitment to the Security and Prosperity Partnership of North America. This partnership protects us against terrorist threats and includes a border strategy that results in the fast, efficient and secure movement of low-risk trade and travellers to and within North America. Our government in our recent budget committed to making these much-needed security investments. We will ensure secure and efficient border crossings for low-risk travellers. We will arm our border officers and eliminate work-alone posts. And we will develop and implement an electronic advance notification system for road and rail cargo.

Without smart, safe borders the U.S. and Canada would never have cultivated the kind of trading relationship that is now the envy of the world. Each and every day almost $1.6 billion worth of goods and services crosses our borders. In fact, Canada is a larger market for U.S. goods than all 25 countries of the European Union combined. These historical ties have flourished since the 1989 Free Trade Agreement between us and they work so well that the vast majority of goods cross our borders smoothly and efficiently-something we must ensure continues.

As I mentioned earlier, our government is taking a new cooperative approach to governing and it is already paying significant dividends. Last month it resulted in the resolution of what was quite an irritating, contentious trade issue, and that is the softwood lumber dispute. I want to congratulate President Bush and Prime Minister Harper for putting an end to this long-standing dispute not only because it's good to put it to an end but because we can move on and deal with the other important issues that we have with respect to the borders and security and trade. With the right blend of goodwill and determination, our two countries can work together for the benefit of people and businesses on both sides of the border.

If I can leave the Canada-U.S. border issues for a moment and talk about the global economy, this pragmatic approach to problem solving demonstrated by our two governments extends beyond our borders. The need to resolve global imbalances is an example of that. The global economy has proven remarkably resilient in recent years, yet with the world economy becoming increasingly integrated, difficulties in our own economies can have a ripple effect throughout the world. Low savings in the United States, weak growth in Japan and the euro area, and a lack of currency flexibility in emerging Asian economies have all led to large current account imbalances. These imbalances are a problem for all players in the global economy, and all countries have a part to play in resolving them and building greater global economic and financial stability. Closing these deficits will require higher savings in the United States and faster growth abroad, particularly in the euro zone and Japan. It will also require increased exchange rate flexibility and financial reform in emerging Asia.

Canada is doing its part. First of all, we are implementing the kinds of policies that encourage strong economic growth and increased productivity, such as tax relief for small and large businesses. And, secondly, we are committed to maintaining Canada's sound macroeconomic fundamentals by pursuing a responsible fiscal policy with balanced budgets, the best record in the G7, and an accelerated debt paydown plan that gives us the flexibility to respond to new shocks in the future. And, thirdly, we are working with the U.S. to reform the IMF, to ensure it plays a key role in promoting global action through enhanced multilateral surveillance, especially exchange rates.

There is certainly broad agreement on these objectives, but to be effective in carrying them out the IMF needs to be credible and must have legitimacy among its members. Over the years key elements of its governance structure have gone awry due in part to the spectacular growth of some emerging economies. This growth has lifted millions of people out of poverty, and is clearly the dividend of globalization. These emerging markets have a valid complaint. For some, their position in the fund is inconsistent with their role in the global economy. This must be addressed. Having said that, our emerging market partners must also recognize that the enormous benefits they receive from being a member in the international trade and financial system entail obligations of their own. With membership comes responsibility.

Canada and the U.S. are working together to encourage the governance reforms that will give these countries their proper role in the International Monetary Fund. We made substantial progress this past April in Washington, and our goal is to get an agreement on a first round of reforms by the IMF annual meetings in Singapore in September.

Global uncertainly, of course, extends beyond economic and financial imbalances. It is the result of the ongoing threat of terrorism. Canada and the United States are working together with our allies to bring peace and security to Afghanistan and to ensure it will never again provide a safe haven for terrorists. I am proud to say that last week, Canada's new government proposed and our Parliament voted in favour of extending Canada's role in Afghanistan by two years to 2009. Our government believes the mission is vital not only to preserve our security here at home but to help meet the basic needs of the Afghan people-to ensure access to clean drinking water, to schools and to human rights we all take for granted. In order to support our men and women in Afghanistan and throughout the world, our government is providing-which we did in the budget-our Canadian Forces with the support and resources they need to defend Canada's sovereignty, advance our national interests and support Canadian values around the world.

In conclusion, I urge you to consider the possibilities of investing in the new Canada. Our economic fundamentals are sound and our approach is fresh and innovative. Canada has a strong economy and we're taking steps to make it even stronger. We are reducing taxes, curbing spending, paying down debt. We're improving our health care, investing in education, supporting child care. We're improving our borders, building new infrastructure, increasing security-and we are determined. Our government is determined to maintain a positive working relationship with our ally and largest trading partner, the United States. Our government is determined to promote Canada's limitless potential and encourage investment. Our government is determined to focus on priorities and not over-promise. Canadians entrusted us a few months ago to make Canada a better place for themselves, for their families, for their businesses. In just over 100 days since our election we have made significant progress, and clearly there is much more to come. Canada is open for business. We're a country on the move and I invite each and every one of you to come and see for yourself. You may be surprised but you won't be disappointed. Thank you very much.