September 10, 2009
Victoria, British Columbia
Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Greater Victoria Chamber of Commerce
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Check Against Delivery
Thank you very much for being here today. And thank you to the Chamber for inviting me back to Victoria.
Of course, this entire province is renowned as a prime tourist destination in Canada.
All you have to offer the world will be showcased next year when the Olympic spotlight shines on B.C.
Without a doubt it will be a marvellous time for Canada.
I’m looking forward to an exciting year.
Not that I’ve had to go far to find excitement over the past year.
Anyone who has been following the global economy since last September can appreciate that.
This past weekend, I attended a meeting of G20 Finance Ministers in the UK.
There, we laid some of the groundwork for the leaders’ summit in Pittsburgh that the Prime Minister will attend a couple of weeks from now.
During the past year, the expanding list of global get-togethers has been a blur.
If meetings could save the world we would be living in a time of unbridled prosperity.
But what was unmistakable at this most recent gathering, however, is how much anxiety levels have subsided.
We are certainly not out of the woods yet.
But the path ahead looks brighter.
Credit conditions continue to improve.
The IMF expects the global economy to grow in 2010.
In Canada, the economy grew in June, the first month of economic growth in nearly a year.
Consumer confidence has risen in seven of the last eight months.
Strong growth over the summer has brought home sales back above pre-recession levels in July.
Employment figures released last week show that the labour market is beginning to stabilize.
Without a doubt, these are encouraging signs in the Canadian economy.
They are encouraging, but they signal only the earliest stages of what is expected to be a fragile recovery.
The past year has been the most difficult year for the world economy since the Second World War, and we are far from out of the woods.
However, thanks to the strong position we established going into this period, Canada is handling the fallout as well as any country in the world.
We have been internationally recognized for our exemplary track record, our sound financial system, and our strong performance during the crisis.
This week, the World Economic Forum once again confirmed Canada’s position as home to the world’s soundest banks.
It also ranked Canada as the 9th most competitive economy in the world—a big jump from 14th under the previous Liberal government.
This backs what we’ve been saying all along: Canada is a model for the rest of the world.
This past weekend, at the G20 Finance Ministers’ meeting, France’s Finance Minister Christine Lagarde said, “I think … we can be inspired by … the Canadian situation. There were some people who said, ‘I want to be Canadian.’”
US Treasury Secretary Tim Geithner has spoken in praise of our system too. His goal is to make the US financial system as “boring” as ours.
These days, boring has its benefits.
In terms of economic activity, the IMF fully expects Canada to have the smallest economic contraction in the G7 this year, and one of the fastest-growing economies during the 2010 Olympic year.
However modest that economic growth may be, it is growth nevertheless.
On the fiscal side, we are in the best situation of any country in the G7.
Compare that to the unfortunate prognosis faced by our southern neighbour, now forced to contemplate a future of cumulative deficits in the trillions.
Canada’s fiscal health should surprise no one.
It is the product of relentless debt reduction by this government before the global downturn began.
That gave this country much greater leeway to act once economic times turned tougher.
At the onset of the crisis, Canada had the lowest debt-to-GDP ratio of all G7 countries.
This strong fiscal record allowed us to put Canada’s Economic Action Plan in place.
It allowed us to take the necessary step of running short-term deficits in order to deliver targeted and timely stimulus, and create and maintain jobs.
These deficits, as a proportion of GDP, are small.
This year, our deficit-to-GDP ratio is 3.7 per cent, well below the peak ratio of 5.6 per cent in the last recession in the early 1990s.
Over this year and next, Canada’s Economic Action Plan will provide the largest fiscal stimulus in the G7 as a proportion of our economy, and among the largest in the G20.
The Economic Action Plan is designed to help where and when it is most needed.
It is being implemented, and it is clearly showing results.
Infrastructure projects are underway, with more starting every day.
Canadians who have lost their jobs are getting more support through the EI system, and have greater access to new skills training.
The economy is being stimulated, and jobs are being created and maintained.
But we must not get complacent now.
We should remember that today marks a year to the day since Lehman Brothers announced a loss of US$4 billion on its way to the largest bankruptcy filing in American history.
The ensuing financial meltdown brought down stock markets, followed by real economies worldwide.
The global economy is still working its way out of the deepest and most widespread recession of the past 60 years.
So we must remember just how quickly global turmoil can erupt, and how easily it can sideswipe Canada.
An economic recovery can be put at risk by unpredictable events well beyond our control and our borders.
Indeed, it can be put at risk by things well within our control too.
Today, with Canada’s Economic Action Plan building steam and delivering real results, now is not the time to put economic recovery at risk with political opportunism.
This is not the time to create instability out of narrow, partisan self-interest.
This is not the time to play political games.
At the meeting of G20 Finance Ministers this past weekend, we agreed to continue to work together.
All governments agreed that no country should get sidetracked on its stimulus plan.
The recovery remains fragile, and the pace of that recovery remains uncertain.
While the economy may not be in a full-fledged recovery yet, we are doing the right things to get there.
In Canada, our Economic Action Plan is working.
It must be allowed to continue to work.
A plan that works
Canada’s Economic Action Plan is delivering help today, when and where it is needed the most.
- Permanent tax reductions;
- Billions of dollars of help for those out of work through no fault of their own;
- A massive injection of infrastructure spending; and
- Support for industries and communities most affected by the global downturn, including forestry and other sectors here in B.C.
Our government will soon present our latest update on how Canada’s Economic Action Plan is progressing.
We have come a long way since our last report in June, when 80 per cent of the plan was already being implemented.
Businesses and families, in B.C. and across Canada, have reason to be confident in how the year has progressed.
Economic Action Plan initiatives are giving them a boost as we speak.
Homeowners across Canada are investing in their biggest asset while taking advantage of the proposed Home Renovation Tax Credit.
Everyone from lumber producers, to manufacturers and suppliers, to carpenters and roofers are benefiting as a result.
The Action Plan has improved access to credit and financing as well, after the financial crisis froze up credit markets.
Through more than $115 billion worth of financing support, Canadian families and businesses have been more able to get loans, mortgages, and lines of credit to help them invest and improve their quality of life.
Ongoing tax reductions are providing immediate stimulus for Canadian businesses, and positioning them to be even more globally competitive in the years ahead.
In fact, since taking office, our government has introduced tax relief for Canadian businesses totalling more than $60 billion over 2008–09 and the following five years.
Thanks to the business income tax reductions introduced by this government, the federal statutory income tax rate continues to fall from more than 22 per cent when the government took office to 15 per cent by 2012.
Other levels of government also deserve credit for this tax-fighting effort, this province in particular.
Several provinces are reducing their corporate income tax rates.
Over the next few years, Ontario, New Brunswick and B.C. will be reducing their corporate income tax rates to 10 per cent or below.
Alberta is currently at 10 per cent.
These actions are helping Canada move closer to our government’s goal of a 25-per-cent combined federal-provincial statutory corporate income tax rate.
It’s an unmistakable Canadian tax advantage we can sell to investors.
In fact, just this summer, our tax advantage drew a Canadian icon back home.
Tim Hortons chose to relocate its corporate structure away from the US and back to Canada.
We can expect even more global enterprises to consider calling Canada their home base.
Some will also be looking to take advantage of the tariff relief introduced this year on a range of imported machinery and equipment.
Our government remains solidly committed to providing even more such relief.
As a result of these and other changes, by next year we will meet our commitment to have the lowest overall tax rate on new business investment in the G7.
And we expect to have the lowest business statutory tax rate in the G7 by 2012.
While other nations struggle just to get through the crisis at hand, Canada is persistently laying the foundation to thrive long after it’s behind us.
Staying on course
It is clear that Canada is in an enviable position as a result of our efforts.
We were in an enviable position even before, thanks to our string of balanced budgets and the significant amount of debt our government paid down.
We made affordable and temporary spending decisions, and reduced taxes, to help see Canada’s economy through a difficult period globally.
We do anticipate that things are going to improve.
We have every reason to be confident.
However, we still have to be cautious, and make our decisions based on the best and most objective information we can gather.
Our federal fiscal projections are based on the full spectrum of the data available at any given time.
These are typically the result of about 15 individual projections representing the collective forecasts of respected private sector economists at the nation’s banks and academic institutions.
The Department of Finance gathers their views on a number of key economic variables, such as interest rates, the unemployment rate and gross domestic product.
It’s an approach based on the full forecast picture, not just the forecasts some may happen to prefer.
It’s an approach we have taken because it brings with it credibility and independence from government interference.
During our budget planning over the course of the past year, global conditions deteriorated well beyond any expectations.
The survey of forecasts was similarly lowered and there is no consensus on medium-term prospects.
The divergence of opinion from the top to the bottom forecasts is the widest the government has ever seen.
This has not made our work easy.
Since this time last year, global economic prospects reversed course significantly, from continuing growth to an economic downturn.
Even during the course of this year, downward revisions of private sector economic forecasts have meant that our deficit projections have had to be revised as well, including today’s revision for our deficit.
Combine these now more modest forecasts of economic activity over the next several years with the decision to launch an unprecedented economic stimulus plan, and the result is a series of deficits that we must address going forward.
As our economy improves, Canadians have every reason to expect their government to return to balanced budgets.
We made that commitment in our January budget, and we are staying the course.
That is not to say that returning to balance will be easy.
It will require leadership and sustained discipline, especially with such an historic degree of uncertainty for the months and years ahead.
The question, then, is how to do it.
There are those who argue that tax increases are an inevitable, even desirable way to return to a balanced budget.
That will not be the approach of this government.
We have worked too hard to create the tax advantage we have today to reverse course now.
Not from the government that lowered corporate taxes.
Not from the government that lowered personal income taxes.
And not from the government that reduced the GST.
This government has brought taxes down, and we will keep them down.
In total, actions taken by this government since coming to office will reduce taxes by $220 billion over 2008–09 and the following five years.
There are those who argue that a return to balanced budgets and surpluses must be focused on simply slashing away at government spending.
We’ve actually seen this in practice before.
The previous Liberal government got rid of the deficit not by making smart reductions in government spending, but by slashing federal transfers to provincial governments.
They made devastating cuts to the funding that provinces rely upon to fund health care, education and social services.
Since we took office, our government has taken steps to fix this problem.
Federal transfers to provinces, so that provinces can pay for essential services, have been brought to an all-time high, with built-in growth.
Our plan to return to balanced budgets will not undo this work either.
To get to a balanced budget, we must look at the short-term challenges we face, balance them with our longer-term challenges, and build a plan that meets them, all at a reasonable cost to taxpayers.
Our immediate challenge, in the short term, is to see our country through the global recession.
That’s what Canada’s Economic Action Plan is all about.
It includes temporary measures, which will expire at the end of the two-year timeframe outlined in the budget.
For example, much of our new infrastructure funding as part of the Action Plan is for this year and next.
It is for the proverbial “shovel-ready” projects—to be spent now when the economy needs it most.
The proposed Home Renovation Tax Credit is also a temporary measure, available for renovations made before February 2010.
We extended the maximum amount of time individuals are eligible for regular EI benefits by five weeks, also as a temporary measure for this year and next.
We froze EI rates for this year and next as well, benefiting both employers and employees.
We took these decisions on the EI program knowing that their cost would contribute to the size of the deficit.
They were far from a break-even proposition, but they were necessary changes.
They are helping right now to cushion the impact of the recession on those who have been hit hardest, people who have lost their jobs.
The implementation of Canada’s Economic Action Plan remains our top priority as a government.
That will continue to be our focus for this year and next—staying the course.
Once the plan is fully implemented, and we are certain that the recovery has fully taken hold, we will move forward on a plan to return to balanced budgets, as we committed.
But a sustained economic recovery must come first.
By all accounts from private sector forecasts over the next few years, the recovery will be relatively modest.
The forecasts expect only moderate improvements in economic growth and government revenues.
Uncertainty in the global economic outlook has made the timing of a return to surplus more uncertain.
Despite the volatility, our plan will fundamentally not change.
Taking into account revisions to the private sector outlook, we now forecast a small but manageable deficit in 2014–15 of only $5.2 billion—roughly one half of one per cent of our expected GDP.
Within overall spending of around $300 billion, this would be a very modest deficit to deal with at that time.
Our government has identified an approach to deal with it that is fair, that does not raise taxes, and that keeps government performing the tasks Canadians expect and need from it.
When the time is right—when our Economic Action Plan has been implemented, our recovery is entrenched, and the private sector forecasts become more certain—we will determine the amount of growth restraint that will be required to balance the budget.
We’re taking a cautious approach to a fragile recovery, not overstating its potential strength for the sake of making the books look better.
It will be in the context of a recovering economy—not necessarily a booming one—that we can begin restraining spending growth, in order to eliminate that last small deficit five years from now.
This may sound easy. And since spending will continue to grow, it may not sound particularly painful.
But restraining the growth in government spending will still mean tough choices for the government.
It will require leadership, determination, and sustained discipline.
It will require decisions of government that won’t always be popular or pain-free.
I am telling Canadians today that if a politician tries to tell you that getting back to surplus will be pain-free, they are simply not telling you the truth.
In the years ahead, it will take a clear and determined focus to stay on track to a surplus.
It will require a lot of saying “no” to pet projects and special interests.
Our government is prepared to meet that test of leadership.
A prudent, responsible course
While grey skies may be clearing, the task ahead will be no easier.
With forecasts likely to keep changing, nothing is assured, so our government will take nothing for granted.
We will stick to our principles.
We will follow the prudent and responsible approach that has put Canada in a position other nations can only envy—well prepared going into the turmoil, and with a competitive edge going out.
Imperfect as private sector forecasts may be, the government will continue to consider them as an independent, objective basis for projections in our fiscal planning.
It is becoming clear that the depth of the global crisis has led to an impact on the Canadian economy even larger than the government planned for in the budget.
We are not alone in this. Governments and businesses around the world have had to go back and look at their numbers based on changing conditions.
In addition, uncertainty about the economic outlook, both now and in the medium term, remains extremely high, due to uncertainty over the global recovery, the full effect of the current recession on unemployment, and the impact on commodity prices.
We’ll deal with those challenges in the same manner that has led to kudos for Canada around the world—with prudence, discipline and decisiveness.
We will demonstrate the leadership required to bring our books back to surplus at the earliest opportunity.
We will do it in a way that is fair, that keeps taxes low, and that keeps government performing the tasks Canadians expect and need from it.
Should conditions change, we will continue to do the responsible thing and fine-tune our plans to respond to them.
As I have heard again and again at international gatherings over the past year, our made-in-Canada approach is the right one, and it has served us well.
As we will shortly see in this province, a medal-winning performance is only possible through hard work, planning, and using every last drop of the resources you have on that day.
Excellence will never happen by waiting for more favourable conditions, and criticizing those who have been doing the heavy lifting when conditions weren’t as good.
On the economic stage, this past year has already demonstrated that Canada is more than capable of leading the world.On any stage, including those covered in snow and ice, I have no doubt that there are far more Canadian accomplishments still to come.