March 6, 2009
Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Toronto Board of Trade and the Canadian Italian Business and Professional Association of Toronto
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It is a pleasure to be here today. It is a privilege to speak simultaneously to two of the leading business groups in Canada.
We are in a time of unprecedented uncertainty. This is an extraordinary time. That means that we need to take extraordinary measures. It also means that we need to be accountable to the people of Canada for the implementation of those extraordinary measures.
We will table the first report next week in the House of Commons about our progress on implementing Canada's Economic Action Plan. The plan will protect our economy from the immediate threat that we're facing. It will provide the help we need to secure our long-term growth and security. Also, next week, I will be in England with my G20 finance minister colleagues to assess how we're doing, further to the leaders' meeting which took place in Washington in early November. Then Prime Minister Harper, President Obama and the other leaders of the G20 countries will meet in London on April 2.
One of the things that we're doing together as the G20 is fulfilling our obligations to create stimulus in our respective economies. Canada is doing more than its share. The stimulus with our provincial partners over two years will be 3.2 per cent of our GDP. The commitment that we have together in the G20 is that each of us will do at least 2 per cent of our GDP over two years. The Americans are planning to do significantly more, but they need to because their economy is much more severely in recession than ours.
Having said that, we are in a synchronized global recession. Fortunately, Canada entered the recession in relatively good shape. We've been paying down debt and running balanced budgets. We paid down about $38 billion in less than three years. That gives us room to manoeuvre as we go into more challenging times. You compare that with some of the other nations in the G8 and G20 and you see that many of them have been running deficits. And now that we get into this time of turbulence, their ability to manoeuvre is much more restricted, or if they do create large stimulus packages, then they are creating long-term structural deficits, long-term permanent deficits, which was one of the things that we absolutely wanted to avoid in the economic plan in the budget this year.
In the fourth quarter of 2008, GDP fell by 3.4 per cent on an annualized basis in Canada. The U.S. was minus 6.2 per cent, France a reduction of nearly 5 per cent, and Japan a reduction of almost 13 per cent. And we're going to have some persistingly poor numbers in the first quarter of this year and onward into the year. This is to be expected as we go through the depth of the recession. But we've been through this before in Canada. Most of us in this room remember the early 1980s and the early 1990s; we know that we will come out of this.
The key for government is to make sure we take two steps. First, we make sure that there's stimulus in the economy and that the stimulus gets into the economy quickly. We do that to cushion the impact on Canadians who will lose their jobs, Canadians who will need to be retrained, Canadians who will be able to keep their jobs by work-sharing through an agreement between the Government and their employers. This is fundamentally important for a sizeable group of Canadians who are going to go through that kind of personal and family turmoil.
The next thing we have to do is make sure we keep the fundamentals right—don't create a structural deficit, a long-term permanent deficit, and invest in the type of infrastructure that will provide benefits in the long term, including things like broadband extension across Canada and things like Infoway, that is the continuing creation of electronic health records, which is fundamentally important for health care reform in Canada. We're doing all of those things. And that was the plan after we consulted with Canadians all through the month of December and through most of the month of January before we delivered the budget on January 27.
The international context is important. Our own plan is important. It is important that the stimulus is temporary so that we don't create long-term program spending obligations. That's how Canadian governments of all political stripes got into trouble in the 1970s and 1980s, by creating programs that had long tails and continued on year after year, and by not reassessing what they were doing in terms of programs.
So we are not doing that. We are ensuring that spending is incremental, that it is used by our municipalities, our provincial partners and our private sector partners promptly, and that it is a stimulus in the economy—that is, the "use it or lose it" principle. And we're going to enforce that so that money that is given to a municipality, for example, this year that they don't use this year, we will claw back next year. We'll use the gas tax to do it. We transfer 2 per cent of the gas tax to municipalities every year so if we have to use it, we'll use it. The idea is to make sure that the spending that the Parliament of Canada is going to authorize will be used on a timely basis. Otherwise, we run the risk of the spending being counterproductive a year or two years down the road by having an inflationary effect. So it's very important that this stimulus enter the economy now.
We want to stimulate spending by Canadians as well. We want to encourage Canadians to open up their pocketbooks. We have $20 billion in personal income tax relief—assuming the bill gets through the Senate, and I know it will—that will be reflected by the Canada Revenue Agency in deductions beginning April 1. So it's not far away as long as we get Royal Assent on that bill in the meantime.
We also introduced the Home Renovation Tax Credit. And we are taking action to support businesses and communities. There are communities across Canada that are really suffering. When a mill closes in a mill town everybody suffers in the town. So we have $7.5 billion in the budget specifically to help hard-hit sectors of the economy. All of this will help cushion the impact and get us ready to come out of the recession in a strong way.
How do we make sure that we don't create long-term, permanent deficits? We had a lot of discussion about this in Finance during the month of January. What we did, and I was insistent on this, is we put in a rule that as we come out of the recession and the Government starts to show surpluses again—which it will in the normal course because we're not creating a structural deficit—we will use every penny of surplus, as we come out, to pay down the deficits that we are going to incur in the next fiscal year, in the one after that and the one after that. And that will be the rule that we will follow to ensure that we stay away from long-term, permanent deficits.
Yesterday, Minister of Industry Tony Clement and I met in Washington with the Secretary of the Treasury and the Chief Economic Advisor to the President. We talked about the auto sector because it is a truly integrated industry in North America. That's a significant challenge that has to be dealt with during March. So there will be more on that. The goal is not a complicated one in the auto sector. It is to make sure that if we are going to use taxpayers' money to invest in the auto companies, that there's a long-term plan for sustainability. And it is our duty—as stewards of the public purse, as stewards of other people's money—that we ensure that happens.
So that's an ongoing discussion with the Detroit Three about what they are able to offer the Government. It's going to take some progress on the part of the auto companies for this to be successful.
We entered the recession with a balanced budget. We're going to run deficits for the next three or four years to help cushion the impact. Our debt-to-GDP ratio is about 29 per cent. It will go up in the next three or four years to about 32 per cent and then it will come back down five or six years out to less than 29 per cent.
You can contrast this with the United States, where their debt-to-GDP ratio will likely be up in the high 40s, maybe even into the 50s, as they go forward. So when you're comparing figures around the globe, especially in the G20, we look quite good on the debt-to-GDP ratio.
We are making sure that Canadian financial institutions are noticed. In an op-ed last November in the Financial Times, I referred to the Canadian financial system as boring, saying that if it is boring, maybe the world needs more boring financial systems these days. The United States and the United Kingdom are very aware of the relative success of our financial system. So Canada's financial system is getting noticed. This is an opportunity for Canada, and I hope that we build on that opportunity, that stability and that reputation we have.
President Obama said that Canada has shown itself to be a pretty good manager of the financial system. Similar to our fiscal situation, we have a number of strengths in our financial system, one of which is fiscally conservative management. Another is that most of our investment banks were acquired by the commercial banks in late 1980s and early 1990s, so that our banking system was subject to the regulation of the Superintendent of Financial Institutions, which was not so elsewhere with respect to overall prudential regulation. Our banking system is also less leveraged than in other countries.
Also, the balance sheets of Canadian households are stronger than those in other G7 countries. So we are well positioned. But there is a need to act quickly. We need to get this stimulus into the economy in April, May and June.
Many of you in this room know the construction industry a lot more than I do, but we have about six months to spend this money and create employment and stimulus for Canadians and suppliers in Canada. So that's why we are pushing the extraordinary measures in the stimulus plan.
The first thing we did is deliver the earliest budget in Canadian history on January 27, 2009. Secondly, we have streamlined the approval process in cabinet. What this means is that more decisions are being made at the highest level of cabinet quickly.
We've had continuing discussions with our provincial and territorial partners. The attitude of the provinces and the territories for the most part has been very positive. We've been urging them to make sure that their spending on infrastructure is incremental. This is fundamentally important so that we have that stimulus and that it matches what we are doing.
By and large, the provinces have been quite cooperative and we try to coordinate what we do. I don't think that's anything more than what Canadians expect of governments in this country during a time of serious recession. They expect us to cooperate and to be collaborative.
There will be some mistakes made, as the Auditor General has said and as the former Clerk of the Privy Council, Paul Tellier, has said. So is it worth taking a risk that there will be some mistakes? My answer is yes. The much greater risk is that—and I've had this discussion with the Auditor General—we don't act in time and that we see tens of thousands of Canadians suffer more than they have to in terms of retraining and so on, because we failed to act as a Parliament in time.
It looks like we'll get this accomplished during March and we'll get this implemented during the course of the next several months. This is fundamentally important for Canada—for individual Canadians, for Canadian families and for Canadian businesses. As I say, the provinces and territories are being quite cooperative. The First Ministers met on January 16 in Ottawa, and the premiers and the territorial leaders agreed to work with our government to provide stimulus to the Canadian economy. They also talked about timely introduction of full labour mobility, harmonized business regulation and accelerated infrastructure investments.
So we have a plan with our provincial and territorial partners that is very much going to help us through this difficult period that we are in now and that is going to continue for some time. The plan follows on Advantage Canada in terms of the advantages being built for Canadian society so that when we do come out of this recession, we will be well prepared and stronger than ever.
Canada is showing leadership on the international stage. I am very proud to talk about our financial system, our prudence, and the solidity of the fiscal situation, not only of the Government of Canada but of the other governments in our country as well. This is a good example of what Canada can accomplish. Also, we are co-chairing a financial regulation working group for the G20. When the leaders meet in London on April 2, the first report they are going to see will be about what to do about financial regulation and how to avoid these problems in the future. The report will have been co-authored by Canada.
So we have to be encouraged, and we have to have courage and maintain our convictions during this difficult time.
Right at the foot of Bathurst Street, there's a beautiful park called Ireland Park. It reminds me of the fact that this country was built by people who came here on boats, and for the most part they didn't have a lot. This is a difficult time, but it is nothing like what they endured in their time.
And we will persevere. We are Canadians. We have the resources. We are better positioned than any other country in the world to weather this storm and to come out of it stronger than ever, and I know you will support me in that effort.
Thank you very much.