August 30, 2007

Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Canada West Foundation

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Calgary, Alberta

Check against delivery

Good afternoon.

I am delighted to be here today to share some thoughts with such a distinguished group.

For more than 30 years the Canada West Foundation has been providing strategic insight and thought-provoking research on a myriad of topics important to Canadians. Your initiative and leadership have been critical to the evolution of the economy here in the West and the Canadian economy as a whole. I applaud you for the good work you do each and every day.

Fiscal Balance

I am proud to say Canada's New Government, under the leadership of Prime Minister Stephen Harper, has resolved this issue and has restored fiscal balance with the provinces, territories and Canadians.

This past year was a turning point in our history. Our government not only acknowledged this difficult issue, we faced it head on and provided a fair and reasonable solution. A solution that is principles-based and predictable.

A restored fiscal balance will ensure provinces and territories have both the means and clarity of purpose to develop and provide programs and services that serve Canadians well.

To restore fiscal balance, our government is providing an additional $39 billion over seven years. That's billion with a "B."

Alberta's share is substantial. This new investment will bring federal funding to over $3 billion in 2007-08 and $3.4 billion in 2008-09.

In 2008-09, Alberta's share of the Canada Health Transfer will increase to more than $1.9 billion annually.

Alberta's share of the Canada Social Transfer will increase to more than $1 billion annually.

We are also addressing fiscal balance through the $33-billion Building Canada infrastructure plan, our $1.5-billion Canada Clean Air and Climate Change Trust and our new labour market training funding.

Our fiscal balance package also addresses some historic inequities.

We ended back-door Equalization by putting the Canada Social Transfer on an equal per capita basis and committed to do the same for the Canada Health Transfer when its legislation expires in 2013-14.

We also adopted a fiscal capacity cap so no Equalization-receiving province will be better off than a non-Equalization-receiving province.

We think that's fair and long overdue.

Canadian Economy

Restoring fiscal balance will make our strong Canadian economy even stronger. But we are starting from a position of strength.

Our economic fundamentals are as solid as the Canadian Shield:

  • We are experiencing the second-longest period of economic expansion in Canadian history;
  • Business investment is expanding for the fifth consecutive year;
  • Core inflation has remained within our set range of 1 to 3 per cent;
  • Our unemployment rate is the lowest in 30 years, with more Canadians working than ever before; and
  • We're on the best fiscal footing of any country in the G7. In fact, we are the only member of the G7 with both ongoing budget surpluses and a falling debt burden.

Canada, as you know, is also an emerging energy superpower:

  • We have the second-largest established petroleum reserves on the planet next to Saudi Arabia;
  • We are the largest exporter of oil to the United States;
  • We rank third in global gas production;
  • We are the world's largest producer of clean hydroelectric power; and
  • We are also the world's largest producer of potash and uranium, the world's third-largest producer of nickel, aluminium and diamonds, and the largest exporter of forest products.

Clearly, a major contributor to Canada's economic strength has been the province of Alberta. The provincial economy continues to fire on all cylinders. Just last week Minister Oberg indicated that he is expecting an additional $830 million in revenue for the 2007-08 budget year.

That's good for Albertans and that's good for all Canadians. A rising tide floats all boats, as they say.

The collective strength of our federal and provincial economies also helps us weather global financial storms like the one we have been experiencing over the past few weeks.


As I said in a statement issued on August 16, Canada is not immune to fluctuations in global financial markets, and there have been some stresses in some corners of the Canadian money markets.

But the Canadian economy is the strongest it has been in a generation. That fact, along with important initiatives taken by the Bank of Canada and the private sector, have supported the functioning of the markets.

Canada's major chartered banks have confirmed that they are supporting their own bank-sponsored asset-backed commercial paper programs. As well, a number of major investors and liquidity providers have been pursuing an orderly restructuring for third-party structured finance asset-backed commercial paper. These initiatives should help support the functioning of financial markets in Canada.

Our government and the Bank of Canada continue to monitor the situation closely as it unfolds.

To ensure our economy continues along an upward trajectory, we must be mindful of the other challenges that confront us:

  • The significant rise in the Canadian dollar and its impact on the manufacturing sector;
  • Increased competition from emerging economic giants like China and India;
  • A shortage of skilled workers and an aging population; and
  • Outdated and inadequate infrastructure.

Any of these could have a detrimental impact on the Canadian economy.

But we have a long-term economic plan.

It's a plan that will lead to a more rewarding future for Canadians and their families.

It's a plan to give Canada and Canadians the key advantages to be able to compete effectively and attract new growth and investment.

The plan is entitled Advantage Canada.

Advantage Canada

Advantage Canada

focuses on creating five key advantages:

  • A Tax Advantage-Reducing taxes for all Canadians and establishing the lowest tax rate on new business investment in the G7;
  • A Fiscal Advantage-Eliminating Canada's total government net debt in less than a generation;
  • An Infrastructure Advantage-Building modern world-class infrastructure that promotes economic growth, a clean environment and international competitiveness;
  • A Knowledge Advantage-Creating the best-educated, most-skilled and most flexible workforce in the world; and
  • An Entrepreneurial Advantage-Reducing unnecessary regulation and red tape and increasing competition in the Canadian marketplace.

Entrepreneurial Advantage

I would like to take the next few minutes to focus specifically on creating an Entrepreneurial Advantage in Canada.

As I mentioned earlier, Canadians are global leaders on many fronts. But immediate steps must be taken if our country is to be a base from where Canadian businesses can succeed globally.

We have a golden opportunity today to make our economy and our country work better than ever in the interest of all Canadians.

Currently our government is liberating the forces of investment by:

  • Reducing taxes significantly for individuals, families and business;
  • Reducing our national debt by $22 billion over two years;
  • Limiting the growth of spending;
  • Balancing the books; and
  • Improving our environment with a plan that's both responsible and achievable.

At the same time, it is imperative that governments cooperate better and remove the barriers to competitiveness and efficiency within Canada's economic union. It is simply unacceptable that there are fewer internal barriers to trade and mobility in the European Union than there are here in Canada.

A strong and prosperous economic union is essential if we are to remain ahead of the productivity and competitiveness curve.

Alberta and B.C. are leading the way on this front with their Trade, Investment and Labour Mobility Agreement.

This agreement has instantly created the second-largest free trade zone in Canada after Ontario. In the process, it has slashed red tape for business, removed the provincial straitjacket from our workforce and provided greater opportunities across all business sectors.

As your Chair noted in the Foundation's 2006 Annual Report"The booming economies, the blossoming populations, and the increased economic integration brought on by [this agreement] have given the West the economic strength to cement its prominence on the national agenda."

I couldn't agree more.

Alberta and B.C. have set a new standard.

As I said following our meeting of finance ministers at Meech Lake in June, I encourage all provinces to sign on to this agreement, allowing us to break down these interprovincial trade barriers and sharpen our competitive edge.

Common Securities Regulator

But there is more to do if we are to keep our economy on an upward trajectory.

Through this Trade, Investment and Labour Mobility Agreement, Alberta and British Columbia are blazing a trail to a stronger and better Canada. I believe these provinces can provide similar economic leadership by supporting a Common Securities Regulator.

Canada has a strong financial services sector that spans the country, providing good high-paying jobs. We have a great story to tell-one of economic success, visionary entrepreneurs, growing competitiveness and unbounded potential. And the world sees that potential.

Yet we have a capital markets regulatory system that is holding us back. A system of 13 regulators that is clearly out of step with our global competitors.

We are the only industrialized country without a Common Securities Regulator. For many our system is seen as cumbersome, fragmented, slow and repetitive, and lacking the proper tools of enforcement.

To maximize our potential, we must work collaboratively to develop a competitive advantage in global capital markets and reform Canada's securities system. This is the thrust of the Capital Markets Plan our government issued with Budget 2007.

Passport System

Three years ago all provinces and territories, with the exception of Ontario, agreed to a process to create a "passport-style" system to regulate securities.

Through their actions, the provinces and territories have demonstrated a clear commitment to improving our securities regulatory system. I applaud them for that. Their recent initiatives to narrow regulatory differences and harmonize and streamline securities laws are important to achieving a more efficient and effective securities regulatory system.

But unfortunately, they do not go far enough or fast enough.

As I told the provincial and territorial finance and securities regulation ministers, the passport system is simply inadequate for where Canada needs to be:

1) With the passport, Canada still has 13 securities regulators, with 13 sets of laws, however harmonized, and 13 sets of fees;

2) The passport lacks national coordination of enforcement activities-making it difficult to maximize results on this critical part of the system; and

3) The passport does not address our need to improve policy making. It is still necessary to obtain agreement from 13 regulators to make changes to rules.

The Answer

The vast majority of capital market participants and observers agree that we can no longer afford to sit back and watch our competitors pass us by.

We can no longer afford missed opportunities. Those who seriously considered all of the great advantages we have to offer in Canada, our educated labour force, our social benefits, our strong economy, and yet opted for a country with a more efficient market system.

We must move to a Common Securities Regulator now. The benefits are well known. It will:

  • Lead to more investment and jobs;
  • Protect investors;
  • Save money; and
  • Give all regions a real say.

Such a solution would make the regulation of our markets more responsive and accountable by creating a decision-making body that would coordinate the views of all jurisdictions promptly and fairly.

Recent developments in global capital markets underscore the need for policy and regulatory capacity that can be applied quickly and effectively to address new and emerging issues.

A Common Securities Regulator would improve market efficiency and ensure the best use of money and resources by making the system more efficient to operate, lowering costs and making it more affordable for all who benefit from it-both those with capital to invest and those with businesses to build.

A Common Securities Regulator would improve enforcement and better protect investors with a common set of sanctions and remedies and better enforcement across the country. By serving as a single contact for law enforcement agencies, both at home and abroad, to share information and detect market fraud. By being able to set clear enforcement priorities across the country, while making sure investigation and enforcement resources are deployed efficiently.

A Common Securities Regulator would better serve our common interest by having a structure that would allow all regions of the country to participate in market regulation in a more meaningful and constructive way. By having a structure that would ensure broad and equal participation by all provinces and territories, with a strong on-the-ground presence in all regions with local expertise that would respond to regional needs.

A Common Securities Regulator would also represent an opportunity to move toward simpler, more principles-based regulation. Canada needs a regulatory framework that is world-class but also adapted to the make-up of its capital markets, with both Canada-based global corporations and a large number of small and medium-sized businesses.

Too many complex rules get in the way of both efficient financings and effective investor protection. Western provinces have championed more streamlined, principles-based regulation. Exerting further leadership in developing a single code for Canada, with the right balance of rules and principles, would help establish a clear competitive advantage for Canada in global markets.

A Common Securities Regulator would also allow Canada to speak with one voice on the international stage, enhancing the protection and promotion of the interests of Canadian market investors and businesses.

For example, I personally have been championing the concept of free trade in securities with my counterparts in the U.S. and other G7 and international partners that share high standards of investor protection. Under mutual recognition of each other's regime, our investors would have better access to global opportunities, and businesses listed on our exchanges would have better access to global investors. It is a win-win proposition, and I am getting enthusiastic responses from my counterparts.

Clearly, there will be a first-mover advantage. Our securities regulators are engaged constructively, but our capacity to implement a strategy and secure an agreement for all of Canada would be greatly enhanced with one regulator clearly accountable to negotiate on Canada's behalf. We don't have that, and it clearly puts us at a disadvantage.

Expert Panel

During my meeting with finance and securities regulation ministers in June, I made the case that we must look beyond the passport system, that we cannot continue to ignore what was happening in world capital markets.

As a result, I announced on behalf of the federal government that I am establishing an expert panel to give third-party advice, validation and recommendations to all ministers-federal, provincial and territorial-on how we can move this file forward.

Specifically, the panel will advise ministers on:

1) The objectives, outcomes and performance measurements we should rely on while pursuing a Canadian advantage in global capital markets;

2) How Canada could best promote and advance proportionate, more principles-based regulation;

3) How enforcement could be improved in the process;

4) How this regulatory approach could be implemented under a passport system or under a Common Securities Regulator; and

5) A model common securities act and the critical path that will take us there.

I expect to announce the panel shortly.

In six months the expert group will report on the first three points and then secondly on the alternatives for implementation.


Let me conclude with a few final thoughts.

When it comes to establishing a Common Securities Regulator, to breaking down interprovincial trade barriers and strengthening Canada's economic union, I want to be absolutely clear: my resolve is unwavering. It is in the best interest of Canada and all Canadians.

The approach we take today is not insignificant.

This is about improving the efficiency and integrity of our capital markets and better protecting people who are investing for their future, their children's future and their family's future.

This is about strengthening the Canadian economy, improving labour mobility and creating jobs and opportunities for our friends and neighbours.

This is about attracting new foreign investment to ensure our standard of living continues to rise and quality services are available to everyone.

Canada historically has benefited from vibrant, competitive capital markets. But to sustain our Canadian advantage, we must not just embrace change, we must lead it.

I encourage Alberta and B.C. to look beyond their trade agreement. To help create a true Canadian advantage in global capital markets, an Entrepreneurial Advantage, if you will, by supporting a Common Securities Regulator.

I truly believe it supports the vision of the Canada West Foundation: "A dynamic and prosperous West in a strong Canada."

Thank you for inviting me here today.