February 6, 2009

Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Osgoode Hall Law School and Schulich School of Business LLB/MBA Students' Association annual conference

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Toronto, Ontario

It is a pleasure to be here today. It's also a special day for us in our government. This is the day, February 6th, three years ago, when our government was sworn in as the new Government of Canada and I became the 38th Minister of Finance. And I didn't have any idea then, I can assure you, what the next three years would bring: four budgets, another election, a series of economic statements, reducing taxes of all kinds, reducing the GST, a Tax-Free Savings Account as of January 1st this year, pension splitting, the child benefit, the Universal Child Care Benefit. And we did several other things, including the Registered Disability Savings Plan, which also came into force January 1st this year, to help parents and families with respect to related expenses and the economic security of children with disabilities as they become adults. So it's been a busy few years in Ottawa.

I'm very pleased also that the budget this year has received second reading in the House, that it is approved in principle. And that's a big step forward in a time of some economic distress on a global basis.

It's great to be in my alma mater, Osgoode Hall Law School. I was thrilled when I heard about this endeavour, the creation of this new centre. This is the first Canadian centre to promote and develop joint business and law scholarship and education. It is a reality thanks to the generous $3-million donation by Jay and Barbara Hennick backed up by the combined efforts of the Osgoode Hall Law School and the Schulich School of Business. The Centre for Business and Law is the response to, as I understand it, the query of Jay and Barbara's son: "What does it take to succeed in business today?" Today's event is a testament to their determination to never let a good question go unanswered.

Here Canadians will have the opportunity to pursue an expanded LLB MBA program. I understand there are also plans in the works for academic programs that combine business and law training and a new business certificate for practising professionals. So on behalf of the people and the Government of Canada, I congratulate everyone who contributed to this new centre. You should be proud of all that you have made possible today.

When I was looking at this, I couldn't help but wish that this kind of centre had been available when I went to law school many years ago at Osgoode. Premier Harris was always a big fan of lawyers. I know because he had so many of us in his cabinet back then. And I look at our cabinet now and I'm a lawyer as Finance Minister, and the other big money minister is the President of the Treasury Board, who's Vic Toews from Manitoba, who's also a lawyer who practised for many years. The Minister of Industry is Tony Clement, another lawyer from Ontario. The Minister of the Environment is Jim Prentice, another lawyer from Calgary. It shows the importance of this training. And I'm sure I can speak for all of my colleagues who are lawyers in the federal cabinet that it would have been a great opportunity for us to have the business combination as well when we were in law school.

I am also particularly delighted that the Hennick Centre will host a high level international gathering this fall on behalf of the UN Special Representative on Business and Human Rights. This is an excellent example of Canada taking its place as a world leader. And I'm going to talk a little bit about that when I talk about the G7 and G20 in economic terms in a moment.

The multimillion dollar donation to set up this centre is an extraordinary gift that's even more significant in these extraordinary economic times. The demands placed on business and law professionals today defy some of the traditional ideas we have of them. These are extraordinary times requiring new approaches, creative thinking and the determination to respond to unprecedented events with unprecedented actions.

I speak with some experience here, having recently tabled our government's fourth budget after seven weeks of broad and deep consultations with people from coast to coast to coast in Canada, including my Economic Advisory Council, public meetings, business meetings and listening to Canadians across the country. That resulted in our Economic Action Plan, which is an extraordinary response to extraordinary times.

Today we are in the midst of a synchronized global recession. And we are also in the midst of the worst financial market crisis since the 1930s. In many ways, Canadians are fortunate. Indeed, we are relatively fortunate in Canada. We are one of the last G7 nations to enter recession and the IMF expects that Canada will have the strongest growth in the G7 next year.

Our fiscal status is strong and this is important. Over the course of the past three years we have paid off about $38 billion worth of debt. We did not create new spending programs with that money. We paid off debt, which puts us in a good position with room to manoeuvre to respond to this serious financial crisis. It gives us the room to modify the impact of the recession on Canada and on Canadians.

For the U.S. and the U.K. and many European nations, their challenges are significantly greater. They have entered a recession after years of heavy deficit spending. This global turmoil did not originate within Canada, but we recognize that problems that did not start here can still harm us if we fail to act.

Now with the budget this year, the Economic Action Plan, we acted to keep our economy moving and protect Canadians in this extraordinary time. Along with other industrialized nations, we made a deliberate choice to run short-term deficits and invest in stimulus for our economy. And this is in accord with the agreement that the G20 leaders made in Washington in November, when the leaders and the finance ministers met and talked about the need for all of us to take some stimulus action. Stimulus builds on stimulus from country to country because we export and import. And I'm pleased that when I was having these discussions at the World Economic Forum in Davos last weekend, most countries have moved in this direction in accordance with the agreement that we reached at the G20 meetings.

Our Economic Action Plan provides stimulus this year which, with our provincial and territorial partners, amounts to about 1.9 per cent of GDP, and next year about 1.4 per cent of GDP. That puts us well over 3 per cent over the course of two years, which is well over our commitment as partners in the G20. Yesterday one of the reporters asked me: Can you rely on the provinces and the territories to join us in sharing this? The answer is yes. We met with the provincial finance ministers in November. We met with them again in Saskatoon. In fact, we agreed in writing that we would all work to provide this sort of stimuli for the Canadian economy, and so did the first ministers when they met in the middle of January in Ottawa.

The stimulus measures in the budget are targeted, they are temporary and they must be timely. We need the stimulus entering the economy now. I'm sure this morning many of you heard the unemployment numbers for our country for the last month. This is regrettable anytime anybody loses a job, but it's not unexpected that we are going to have significant job losses in Canada this year—all the more reason why the stimulus needs to be timely and we need to work with the Official Opposition to get the budget bill through the process as quickly as possible, so that the money can flow as quickly as possible to help Canadians.

At the same time, in the budget we have been consistent with our long-term economic plan for Canada, Advantage Canada, which we published in 2006, to make sure that our investments have long-term effects. So, for example, we continue to invest in the Canada Foundation for Innovation. We continue to invest in universities and colleges in Canada, including in infrastructure for universities and colleges.

We concentrated the stimulus measures over this year and next year. The rule is "use it or lose it." This money will not be rolled over beyond the next two years. As I say, this fulfills our commitment to the G20. It's important that we don't let these types of initiatives roll over into future years. The reason for that is the need to avoid permanent, long-term deficits. This is how governments, whether they're provincial or federal, get into trouble as they did in Canada, federally certainly in the 1970s and the 1980s, running deficits year after year but creating new programs which go forward year after year after year. We have not done that. We have a permanent tax reduction for lower- and middle-income earners in Canada in this budget. But the vast majority of the investments are temporary over this fiscal year and the next fiscal year.

But I will say this: Canada's Economic Action Plan has been designed with today's tough economic forecasts in mind.

We announced key investments in infrastructure, knowledge and skills training, housing and the environment. We also recognize that the origins of much of this turmoil are not economic in nature but rather relate to the financial markets. We have some markets in the world that are barely functioning, if they are functioning. There's a major issue of access to credit, access to capital, access to financing globally.

To respond, in the budget plan, in the Economic Action Plan, we have created an extraordinary financing framework of up to $200 billion. We will use our financial Crown corporations—Export Development Canada, the Business Development Bank of Canada, Farm Credit Canada and Canada Mortgage and Housing Corporation—to ensure that there's adequate capital in our country and adequate credit. This is fundamental to being able to move forward out of this recession.

This initiative will improve access to financing for consumers. It will allow businesses to obtain the financing they need, invest and grow, and help maintain and create new jobs.

To help make sure our infrastructure investments get off the ground, the Government will ensure this framework is in place to support public-private financing in Canada through the Crown corporation which we created last year called PPP Canada Inc. These public-private partnerships are very efficient ways of getting projects done on time and on schedule.

I remember well being in Tony Blair's 10 Downing Street in October 2001 when I was the provincial finance minister and the U.K. was well ahead of us in terms of the use of P3s. And we had a discussion about that. I remember two comments that were made during the course of the meeting by Prime Minister Blair's Chief of Staff. One was we'd be able to get more of these—what they called them then was private financing initiatives or PFIs—done but we don't have enough lawyers. What he meant was that he didn't have enough lawyers that knew how to do P3s. But I'd never heard that before that they didn't have enough lawyers. So this is a growth part of the business and law connection in Canada as we go forward.

The purpose of the federal office is to help facilitate the creation of P3s, to help invest more of our pension fund money in our own country as we go forward.

The other thing I remember from that meeting is, you'll recall Prime Minister Blair's government is a Labour government and we were talking about these public-private partnerships and we got near the end and they told me that they had more than 200 underway at that time in the United Kingdom—hospitals, prisons, schools, courthouses, all sorts of things across the United Kingdom. And his Chief of Staff turned to me, he said: "Minister, it's a conservative idea but it works." I've always thought that was helpful from a conservative point of view.

Let me talk a bit about what the perception of Canada is internationally. They look at our financial system as being sound, in fact, one of the few financial systems in the world that has remained sound. We have a banking system and a large insurance company system where our participants have been able to continue raising equity, which is virtually unheard of in most parts of the world. Before this global recession we had no banks in the top 30 in the world. We now have 2 in the top 15. There's also some acknowledgement that our fiscal situation is strong, that we have been paying down debt, that we have the room to manoeuvre, that our credit rating in the Government of Canada is the strongest in the world, and that that puts Canada in a good position going forward to come out of the recession stronger.

You can look at our net debt figures. Net debt as a share of the economy will remain the lowest in the G7 by a wide margin. Our debt-to-GDP ratio now is about 28.7 per cent. It will go up, because we're going to run some deficits, to about a little over 31 per cent in the next few years and then it'll come back down to where it is today and probably slightly below that by 2013–14.

If you compare that with the United States today, their debt-to-GDP ratio is about 40 per cent or in the low 40s, and it will go up with the spending that is going on in the United States. It will go up to the mid-50s during the course of the next couple of years.

So our financial system is viewed by the World Economic Forum as the world's soundest. The IMF has judged our financial system to be mature, sophisticated, well managed and able to withstand sizeable shocks. This leaves Canada well placed.

We are now leading the G20 effort with respect to transparency of financial systems and the regulation of financial systems. We are co-chairing a working group with India that will report back to the next meeting of the leaders and the finance ministers in London at the beginning of April. The important thing here is Canada has the credibility to lead this effort with respect to financial regulation given the stability of our system in Canada.

Canada is also advancing five necessary steps that need to be taken, in our view, globally. Of course, we all say that you must get your own fiscal house in order, you must get your own financial system in order but then going beyond that, where does the validation come that will encourage financial institutions to lend outside of their own borders?

So there was my column in the Financial Times in November which made five points on behalf of Canada. First of all, regulating all pools of capital that rely on leverage, making sure the transparency requirements are in place and that those transparency requirements are the price of admission to global markets. Secondly, creating capital and liquidity buffers large enough to handle big shocks with strong balance sheets similar to the Canadian system. Thirdly, ensuring regulation looks at the system as a whole, not just individual institutions. Fourth, making market infrastructure more transparent and resilient. And fifth, strengthening international cooperation, review and surveillance to create a better second line of defence.

Canada's financial system used to be described by many around the world as boring. And what I said in the Financial Times article was if Canada's financial system is boring, the world needs more Canada and needs more boring. We have done well in the course of this global economic recession in terms of the stability of our financial system.

Our system is weathering the financial storm better than most. As I say, good regulation begins at home. Canada can say that internationally because we've actually done it and achieved it in our own jurisdiction.

So we've done a lot of things right. This centre, charged with developing future leaders, can be assured that our own country is a leader in its own right. There is more work left for Canada and other nations. Our problems are far from solved and complacency won't help them disappear.

A week from today I will be at the G7 finance ministers' meeting in Rome with the finance ministers and central bank governors. We'll take a look at the global economy. We will discuss our individual and collective actions to restore confidence, economic growth and global financial stability.

G7 nations have done a great deal so far. We had these meetings at the beginning of October in Washington. I've been going to these meetings for three years—G7, G8, G20, IMF, World Bank. There are lots of international organizations. But the meetings in Washington at the beginning of October were different. There was a sense of crisis, of seriousness on the Friday afternoon. The G7 finance ministers threw away the script. We also threw away the pre-prepared communiqué and agreed on five fundamental points that we would adhere to. We then took those points and presented them to the G20 and the G20 endorsed them, then the next day to the IMF and the IMF endorsed them also. And then also to the Council of the Finance Ministers of the Americas, North, Central and South America. They endorsed it as well.

This is the Action Plan. This is the plan that is being pursued by Prime Minister Harper and the other G20 leaders as they meet three times, the first one in Washington in November. The working group's working now. And then the next meeting is in London at the beginning of April and then a third meeting which will likely be in Asia. So we are moving forward with that plan. It is key to stabilize the financial markets and restore confidence, trust and therefore the flow of credit.

While I can't predict what will happen at the next G7 meeting, I can assure you that Canada's determination to act decisively will not waver and we will continue our leadership role with respect to the regulation of capital markets.

We will also call on our G7 partners to avoid actions such as protectionist trade measures that may be domestically popular but could cause great harm to global trade. History has taught us that countries must resist such thinking, particularly during global downturns. We ignore these lessons at our peril.

In Canada's Economic Action Plan we have once again demonstrated our commitment to open markets by permanently eliminating tariffs on a wide range of imported machinery and equipment.

From Canada's perspective, there is still work left for all of us to do as well. As I mentioned in the budget speech, for all of its strengths, Canada's financial system does have one glaring weakness: Our patchwork of 13 separate securities regulators causes uncertainty for investors and unnecessary cost and red tape for all. Since our first mandate, our government has been working with provinces and territories and leading the call for a more efficient, streamlined securities regulatory system. Our aim is to reinforce financial stability, strengthen enforcement and protect investors.

The January report of the panel led by the Honourable Tom Hockin set out the path that would take us there. It laid out a plan for a single securities regulator that would provide clear, national accountability, maintain high levels of local service and continue to meet the distinct needs of regional markets. These recommendations deserve to be heeded. Our government will soon establish an office to manage the transition to a Canadian securities regulator. Later this year I will also table a federal securities act for Canada.

The new regulator will be integrated into the existing framework that already includes the Bank of Canada, the Canada Deposit Insurance Corporation and the Office of the Superintendent of Financial Institutions. For those provinces and territories that choose to participate, this will sharpen our competitive edge. For market participants, it will provide financial stability.

We'll also move forward in the first budget bill, which is being tabled this afternoon in Parliament. We will move forward with the recommendations of the recent Competition Policy Review Panel that was chaired by Red Wilson—important recommendations with respect to making our Canadian economy more competitive, certainly avoiding the peril of protectionism, in fact moving in the other direction toward a more open trading society in Canada. We'll also move forward with some of the recommendations by the Godsoe panel on international taxation, which I referenced in the budget. That was the panel chaired by Peter Godsoe, which reported a couple of months ago.

So these efforts, along with a Canadian securities regulator, will put our country in a much better position to seize new opportunities as the global economy begins to recover.

Whether we like it or not, we are living in historic times. These times may bring adversity but they also bring opportunity for those with the skills and the will be to part of this history in the making. We are going to go through a difficult year in Canada. We are going to experience the effects of this synchronized global recession. We're not immune to that; Canada is not an island. But we are strong. We go into the recession from a position of strength and we'll take the necessary steps during the course of the recession, as we did in the Economic Update and we did in the budget this year, to make sure that our economy stays strong and comes out of this even stronger, remembering as we go through these difficult months, especially in 2009, that this will end and that we have to make sure that our country is well positioned to take advantage as we emerge from the global recession.

For the future students of this centre, your personal challenges will be significant as well but so too are the possibilities for those who will immerse themselves in this new way of learning, who recognize the true potential of a more dynamic, a more diverse education. The issues I discussed today have implications for both business and law, not to mention for those with a foot in both disciplines. In a world that now calls out for solutions, the Hennicks, Osgoode Hall Law School, and the Schulich School of Business are to be applauded for this unique and visionary venture. By bringing together scholars, students and real life practitioners in business, law and public policy, our nation will benefit from new skills and innovative thinking.

Once again, congratulations. And it's a pleasure to be here with you this afternoon.