October 16, 2006
Archived - Address by the Honourable Jim Flaherty, Minister of Finance, to the Canadian Institute of Chartered Accountants Commodity Tax Symposium
Archived information is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Check against delivery
It's a pleasure to be here during your Commodity Tax Symposium.
Over the two and a half days of your symposium, you will be focusing on various tax initiatives and sharing best practices, debating policy direction. This is important work for our great country, Canada. It's an opportunity to look forward at new approaches and the latest innovations. As chartered accountants, I know you are committed to excellence and protecting the public interest. It is the core of your mission statement. Canada's New Government shares your values and your determination to be the best that you can be. In fact, we are approaching our new responsibilities with focused precision, fiscal prudence and a new level of accountability.
You know, during the federal campaign-which seems now like it was quite a while ago, it was in January of this year-people demanded much more of their political representatives and candidates. I heard it on the doorstep, at the coffee shops and the local arenas-Canadians were fed up with the culture of entitlement, with the lack of accountability and the absence of leadership. And, as you know, Canadians expressed their displeasure at the ballot box. That's why they chose change. The winds of change blew across the country, offering Canadians a new sense of hope and purpose and an impressive new leader, Stephen Harper.
Now, I accepted Stephen Harper's invitation to enter federal politics because I believe in the positive difference he and like-minded Canadians who work with him could make in creating economic, social and workplace opportunities for future generations. I recognized that we could do so much more and go so much further with a fresh approach and focused leadership. I believed in the need, and I still do, for a fundamental rebalancing in the relationship between taxpayers and government and restoring fiscal balance to the federation. And I'm only the third person in Canadian history to serve as federal Finance Minister who's served provincially and the only one ever from Ontario and, you're right, it does make for some interesting discussions when we talk about some of these issues.
I got a letter recently from the Ontario Finance Minister Greg Sorbara about the tax agreement that we signed about two weeks ago now, 10 days ago. And I looked at the letter and he was making the same argument that I made to Paul Martin five years ago. So I told my deputy, "I agree with him." And we were able to move forward and consummate that agreement and I'll talk a little bit about that tax agreement in a moment.
We try to be a government operating on principles and moving from principles to actions, to policies and from policies to results, and not rhetoric. The principles are simple, direct and clear.
First, government has no absolute right to more and more of the hard-earned cash of working and investing Canadians when government is too large, which it is; taxes are too high, which they are; and Canada's ability to compete and make economic and social progress is hampered by all of the above.
Secondly, there is only one taxpayer who carries the federal, provincial and municipal tax load-not three separate taxpayers unrelated to each other. Governments have a duty to keep this in mind, which is why Prime Minister Harper committed himself and the government to significant tax reduction in our first budget-tax reduction in every way the Government of Canada raises money from Canadians.
And, finally, government must be respectful of the dollars they spend. Taxpayers expect and demand that spending is focused, transparent and accountable. We must ensure Canadians receive good value for the money they send and the money we spend.
Now a few words, if I may, about effective spending and debt reduction in Canada. Quite simply, we have ushered in a new area of fiscal responsibility. Just last month my colleague, Treasury Board President John Baird, and I delivered on our government's new disciplined approach to spending. We outlined our plan to find $1 billion in savings this year and next. We identified programs that weren't working, that didn't fulfill their original mandates or simply didn't provide good value for money.
For example, we're saving $4 million a year through the elimination of funding for the research into medical marijuana. We are saving $4.5 million by consolidating some foreign missions. And we're saving $15 million that was set aside to pay lawyers working on the softwood lumber issue.
A couple of words about spending growth, just to try to give you a context on the way the Government of Canada has been spending. Over the past five years total program spending has grown by an average of 8.2 per cent annually. In 2004-2005 growth in spending increased by an unbelievable 14.4 per cent. This growth is neither sustainable nor desirable. So in our May budget we brought spending growth down to 5.4 per cent for this year. That is within the range of nominal GDP, and we're planning 4.1 per cent for next year as we get control of these spending excesses here in Ottawa. As a result of our expenditure review, we reduced program spending for the first time in nine years-a major departure from the past.
Now spending restraint cannot and will not be a one-time exercise. There will be an ongoing review of all programs and departments in order to ensure compliance with the following guidelines.
First of all, that government programs be focused on results and value for money.
Secondly, that programs be consistent with federal responsibilities, and that is one of the principles upon which we operate. It's a big change. We respect the provinces and the territories and their constitutional responsibilities, and we acknowledge our core responsibilities as the Government of Canada and the importance of funding the core responsibilities of a national government.
And, thirdly, that when programs no longer serve the purpose for which they were created-and there are a number of those-they would be terminated. So by terminating outdated programs or saying no to bad ideas, we free up valuable resources that can be redeployed or reinvested for the benefit of all Canadians.
Now, a good example of that very recently is debt reduction. Thanks to our new responsible approach and Canada's strong economic growth, we were able to reduce Canada's public debt by $13.2 billion for the last fiscal year. This is the third largest debt payment in our country's history, and I can tell you I'm a Minister of Finance who likes to pay down debt. I made the largest debt payment against the debt in the province of Ontario's history in 2001-$3.1 billion that year.
And why do that? Why is it so important? Well, it's important of course as you would understand because it frees up-that reduction we did two weeks ago-somewhere in the neighbourhood of $650 million to $700 million this fiscal year, next fiscal year, every fiscal year, that we can use to reduce taxes or we can use for those priority, core, Canadian national programs that are the proper responsibility of the Government of Canada.
I appreciated the support on the debt reduction of the Canadian Institute of Chartered Accountants. President and CEO Kevin Dancey said, and I quote: "We cannot live beyond our means. Federal spending reached a record level in fiscal 2004-2005 and continued spending increases threaten debt reduction and make tax relief more difficult to achieve." And I couldn't agree more. Canada's New Government is not prepared to mortgage the future of our children or our grandchildren. As I said, as a result of our recent debt payment, we are able to save approximately $700 million in interest payments each and every year, forever. That's money that can be used to provide priority programs or to reduce those high taxes.
Let me say a few words about those taxes, the tax burden for Canadians individually and for our larger businesses and our smaller businesses. I don't think I need to convince anyone in this room that taxes in this country are still much too high. We've made progress in this area but more needs to be done if we are to strengthen our economy and remain at the forefront of this highly competitive global economy. We want Canada to grow. We want our companies to create jobs, to invest in equipment and machinery and to develop the next great inventions. Canadians have the skills, the drive and the talent. What they need is an economic climate that encourages innovation and rewards ingenuity.
That's why our first budget immediately delivered on our commitment to leave money in the pockets of Canadian families and businesses, where it belongs. We delivered 29 tax cuts in every area where the Government of Canada collects revenue. We provided almost $20 billion in tax relief over two years-more tax relief than the last four federal budgets combined. As you know, we promised to reduce the GST immediately by one percentage point. We did that. That is a tax cut for everybody, and it's often forgotten that that includes the one-third of lower-income Canadians who benefit from a GST cut but not from an income tax cut because they don't pay income tax.
On the personal income tax side, we increased the basic personal amount above the previously legislated levels in 2005, 2006, 2007. On the corporate side, we announced a reduction in the general corporate tax rate to 19 per cent by 2010, an elimination of the corporate surtax and the end of the federal capital tax two years earlier than scheduled. For small business-which, as you know, are 95 per cent of all Canadian businesses-we announced an increase in the small business income threshold to $400,000 starting this January and reductions in the small business income tax to 11 per cent starting in 2009.
In addition to these reductions, we brought in the Canada Employment Credit-a tax break for every Canadian worker. We doubled the pension income credit amount-the first time that had been increased. We brought in a new tax credit for transit users so that people who use public transit with monthly passes in Canada will have about two months free public transit per year. This is an environmental measure. It's also a measure to encourage the use of public transit and public transit infrastructure in which we're investing. A new tax credit for children's fitness programs. I'll be receiving the report of that panel within the next short period of time, and that tax credit is scheduled to come into effect January 1, 2007. And new tax credits for post-secondary students and apprentices. And the immediate capital gains tax exemption for donations of publicly listed securities to public charities.
And I'm very proud of that. That's something that should have been done a long time ago. It was sitting on the desk of the Minister of Finance. You know, we have this beneficence trapped because of a capital gains rule with publicly traded securities. So we changed the rule and now it does two things. One, across Canada the outpouring of support for our charitable organizations, which includes of course our universities and colleges and our teaching hospitals and other hospitals, has been just amazing. I've heard about it in Halifax, Montréal, Toronto, Winnipeg the other day, Vancouver the other day, Calgary, Edmonton. There's been a tremendous outpouring of generosity by Canadians with publicly traded securities.
And the other thing it does of course is that this largesse, this charitable giving, is then directed by people who are giving the securities, not by government. And as a Conservative I believe in that. I think people should direct their own largesse as they see fit to their charitable causes. So that's been a great, great success.
And we're looking now-which I said in the budget on May 2nd-we're looking at the other issues of the private foundations in Canada and reviewing that in preparation for Budget 2007.
As a result of the income tax reductions, over 655,000 Canadians who earn in the lowest bracket will be removed from the federal income tax rolls altogether. That's a lot of people in Canada who won't be paying federal income tax anymore. Keep in mind, all of this was done with our government's unwavering commitment to a balanced federal budget-to which we are absolutely committed-and reduced spending. It was also done within the first 100 days of taking office. And I can assure you that there is much more to come.
This fall I will be presenting the fall economic update on behalf of Canada's New Government. It will outline the state of our economy and public finances and set out our forecasts and projections as we look ahead. I'm sure I'm going to get some guidance this afternoon when I meet with I think it's 14 economists at the Department-these are the private sector economists-at the Department of Finance. They are actually very helpful. The private sector economists provide opinions not only pre-budget but also before the fall economic update, which is the purpose of the meeting this afternoon.
In the fall economic update I intend to discuss with Canadians not only the state of the Canadian economy but also the long-term challenges and plans for our economy. We want to look ahead. As I pointed out earlier, the world economy is changing. And Canada needs to adapt to it.
I spent a good part of last month at an APEC meeting-Asia-Pacific meeting-in Hanoi in Vietnam and then in Singapore at the IMF/World Bank/G7 finance ministers meetings, and the Asian economies are not waiting for us, as you know. And it's imperative for Canada's future that we seek to enhance economic growth and incent economic growth in our country. So we need to look further ahead than the previous government ever did and think seriously, which we are, about the steps we need to take to build a stronger economy and a more confident Canada, to make Canada a world leader with a long-term, focused economic plan not just for today but tomorrow, a plan that will ensure a brighter, more prosperous future for Canadians wherever they live in this great country and a plan that will get results.
As you had mentioned in your pre-budget submission, more competitive taxes will be a vital component of that vision. It's critical to attracting the investments that will make our country more productive. Certainly, our budget began to improve our corporate tax competitiveness by eliminating the federal capital tax and reducing the general corporate income tax rate. By doing so, it ensures that Canadian businesses will regain a corporate tax advantage compared to businesses in the United States. For Canadian manufacturers, the tax rate advantage will increase to just over 5 percentage points versus their American competitors. But we recognize that even with these tax reductions in place, Canada must continue to improve our tax competitiveness even further. We must establish a meaningful, marginal effective tax rate advantage-the acronym METR-one that goes beyond the statutory tax rate itself and takes the overall impact of the business tax system on investment decisions into account.
It's true that thanks to Budget 2006 we have a narrow tax advantage over the U.S. by 2010. But while Canada's tax competitiveness is improving, we still place the highest burden on investment when compared to smaller, developed economies. Canada stands out as one of four OECD countries that still impose capital taxes and one of three that impose retail sales taxes on investment. If provincial governments eliminated these taxes and harmonized their sales taxes with the GST, Canada would actually have the lowest marginal effective tax rate among G7 nations. So clearly, all governments have a role to play in creating a real Canadian tax advantage, one that will get noticed by international investors and businesses. I can assure you that our government is by no means finished in our efforts to improve our tax system for the benefit of Canadian families and businesses.
So in the months to come, we intend to go even further to provide tax relief to deserving Canadian businesses and to the workers who make these businesses thrive. Our historic tax agreement with the province of Ontario is one example of how we are working to improve the system. As I mentioned earlier, earlier this month Finance Minister in Ontario Greg Sorbara and I signed a memorandum of agreement that will benefit hundreds of thousands of businesses throughout the province of Ontario. In fact, this one initiative will reduce red tape and save Ontario businesses up to $100 million in compliance costs each and every year.
This is an initiative your institute advocated last month to the House of Commons Finance Committee and praised in a recent news release, and I quote: "The single administration of corporate income tax in Ontario is a significant step toward enhancing the efficiency and competitiveness of businesses of all sizes, but especially for small business."
In fact, all Ontario taxpayers-and, after all, there is only one taxpayer-will benefit from lower tax administration costs. It demonstrates the tangible benefits available to Canadian taxpayers when all levels of government work together and make it easier and more cost-effective for businesses to operate. It's further evidence of our ongoing commitment to reducing the tax burden on Canadians and promoting a more competitive, productive Canada.
Now I've gone on almost as long as it seems, I know. Let me conclude with a few closing thoughts.
Our goal should not simply be to have a country fit for the 21st century. It should be to build a Canada ready to lead in the 21st century. By reducing the tax burden, by making the tough but necessary spending decisions, by focusing on the priorities of Canadians and being accountable, we are going where the previous government chose not to go. We are in a minority parliament, of course, and the views of opposition parties always matter and they matter even more in a minority situation, and we're taking them into consideration in our fiscal planning. But our prime minister is working hard to provide Canadians with stable, balanced and effective government.
And if I have one message to leave with you this morning, it is that the government serving Canadians today is different from the one that came before. Our priorities are less numerous. Our fiscal stance is more precise and disciplined. And our belief in a more compelling federal-provincial partnership is more determined. This is a pragmatic government which has focus and it has priorities, and we have as a goal results, not rhetoric. It's a different balance. It's a different government. It's a more precise reflection, I'd suggest, of core Canadian values dealing with freedom and choice and stability and democracy and the virtues of community, family and the values of a pluralist but grounded society. And that is a good thing, my friends, for Canada and Canadians and for all with whom we are fortunate to be partners and collaborators worldwide.
I wish you an excellent conference the next few days. I hope to see you on Parliament Hill. And thank you for inviting me here this morning.