Toronto, Ontario
January 15, 2010

Speech by the Honourable Jim Flaherty, Minister of Finance, at an Advocis conference entitled "The Time Is Now"

It is good to be here with Advocis again. I welcome your members' advice regularly as well as your support for the financial system of our country. Our country is doing very well in terms of our branding in the world, in terms of the integrity and stability of our financial system. That in large measure is due to the good advice that Canadians get from Advocis members.

If I may for a moment just speak a bit about the terrible tragedy in Haiti. This is a huge tragedy. Our government has been responding quickly, led by the Prime Minister. We encourage all Canadians to donate to help support the recovery effort in Haiti. The situation is quite dire. Tonight the CN Tower, which is right next to us, will start showing the national colours of Haiti and encouraging all visitors to the CN Tower and all Canadians to donate to help support the relief efforts in Haiti, which are needed in an urgent way.

I'm going to talk a bit about our financial system, as well as where we are and what we've been through in the past turbulent financial year. Our economy has been resilient. I've been out listening to Canadians this week, as the Prime Minister has. I was in western Canada for a few days this week and in Quebec and Ontario in December.

This is hugely important because you learn a lot just by listening. We certainly learned a lot last year by listening to Canadians, especially Canadian business people, about the severity of the situation which they were facing when the Canadian economy went into a precipitous recession.

This recession came from outside our country, but it was an issue we had to deal with in order to protect Canada, protect Canadian jobs and preserve them during the course of what was the most serious global economic downturn since the Second World War.

Our economy has been resilient. Our response to the global economic crisis is working. Our financial system has been widely recognized as the world's strongest. This is a great advantage for us, and we need to build on this as we start to come out of recession.

But an enviable performance has not meant a worry-free time for Canadians trying to pay their bills and save for the future.

Recent events have meant uncertainty, sacrifice and tough choices, and I know that members of this audience are more aware of this than anyone. Canadians turn to you to make sense of a confusing financial world. They count on you to help them realize their family's dreams. I've witnessed a fair amount of change in the four years that I've been Minister of Finance for Canada, including the credit crisis and the global economic recession during the past two years.

I can tell you that today Canadians have every reason to be cautiously optimistic. I can assure you that our government has worked hard and will continue to do so to ensure our country comes out of this turbulent period ready to reach even higher goals.

We have a world-leading performance, and Canada's current economic situation is a positive one. Canada is expected to have the strongest recovery in the G7 in 2010. Canada has by far the best fiscal position among the G7 countries. We were well prepared for a recession. I think this is important for Canadians to realize. In the first three years of our government, we paid down about $38 billion of public debt. We used the surplus not for new programs and for more spending, but to pay down the public debt.

That put us in better shape than other western countries to confront a serious economic recession. The debt-to-GDP ratio is widely used to assess the debt of various countries. In 2010 our net debt-to-GDP ratio will be about 31 per cent. In the US the debt-to-GDP ratio will be nearly 67 per cent. In the UK it is 75 per cent. In Japan it is 115 per cent. So Canada is in a much better position than other industrialized countries.

Unemployment is of great concern to our government. We were very concerned a year ago when we were preparing the Economic Action Plan about how bad the employment situation would get in Canada during 2009. So we included in the Economic Action Plan some very substantial measures with respect to enhancing employment benefits. Our unemployment rate right now is 8.5 per cent. That's too high. We're looking forward to that coming down. The unemployment rate in the United States is 10 per cent. This is a remarkable change. The gap in favour of Canada hasn't been this large since 1975.

Also, private spending on consumer and investment goods has rebounded strongly in recent months in Canada. Residential investment also bounced back in 2009, led by increases in renovation activity. I know you're all familiar with the Home Renovation Tax Credit, which has proven quite popular.

The Economic Action Plan is a very comprehensive stimulus package. A year ago we had to make a pretty serious decision. We are a Conservative government. I'm a fiscal conservative. We don't want to run deficits but the big risk was that, if we did not do enough, Canada would slide into a severe, prolonged recession.

So we made the decision to run what is for Canada a reasonably large deficit. As I've just illustrated to you, it's not a large deficit compared to the United States, the United Kingdom and Japan, but in Canadian terms it is.

We did it intentionally. We did it because we wanted to provide stimulus to the economy through tax reductions, protect workers through the unemployment system, and make sure we used work sharing, which has been very successful in preserving jobs and ensuring businesses are still there as we begin to see signs of recovery

We also introduced an infrastructure package. About 12,000 projects across Canada have been approved. Work on well over 4,000 projects is underway.—Shovels are in the ground. And many more will happen in the first six months of this year because the engineering studies, environmental assessments and tendering have been completed.

We extended EI benefits. In Swift Current the other day, a woman told me that her business would have closed last year and about 80 workers would have been laid off permanently had she not been able to work with the Government of Canada to create a work sharing program. Now business is starting to come back. This is a very practical program on the ground to preserve hundreds of thousands of jobs in Canada. 

Access to financing has been a challenge. For the first time, Export Development Canada has a domestic lending mandate, which Parliament gave them pursuant to the budget last year. The Business Development Bank of Canada (BDC) has also been involved. I have a special advisory committee on finance that's been working hard. We still have some access to financing issues, particularly relating to small businesses, that we're continuing to work on with BDC.

We will continue implementing the Economic Action Plan. We're in the process of preparing the budget for 2010–2011. We're consulting broadly—not only the Prime Minister and I, but also our Cabinet colleagues and other Members of Parliament. I've written to every Member of Parliament, regardless of their political party, asking them to meet with their constituents and hold town hall meetings, and to let me know what their constituents are saying we ought to do.

This is democracy in action in more than 300 constituencies across the country. I'll be meeting with my Opposition critics as well to hear what suggestions they have to offer. But the clear priority will be the implementation of the second year of the Economic Action Plan. This is a two-year plan, which we made clear in the budget on January 27th last year.

When we get to the end of the second year, the stimulus spending will end. This is a use-it-or-lose-it proposition. It's very important that that spending end because we need to move toward balancing the budget again. We can't have this long tail of deficit spending, spending that is designed to be a stimulus to the economy, not long-term programming. It will not become long-term programming.

We need to move toward restoring a balanced budget. We're looking at measures in that regard and how we will accomplish that goal.

There are several things we won't do. We won't reduce transfers to the provinces because those are transfers for health, education and social services that are needed by the Canadian people.

We will look at program spending in the federal government. There are something like 2,500 federal programs that are growing by about 3.3 per cent per year on average. We can restrain that rate of growth if necessary in order to move to a balanced budget.

We also want to build a strong base for future economic growth and prosperity in Canada. Part of that is the reduction in taxes since January 2006. We've continued that tax relief in the Economic Action Plan. Tax reductions introduced by this government will amount to about $220 billion over the following five fiscal years. These are enormous tax reductions, and it is one of the ways of controlling spending because it's always easy for politicians and governments to raise taxes and spend more. We've seen lots of that federally and provincially in Canadian history. Discipline requires that, when you reduce taxes, you control spending and the growth of spending in government.

For a practical example of the effect of tax relief for Canadian families, let's take a one-earner family with two children and an income of $90,000. Before the last budget, our government had already reduced personal income taxes for that family by about $1,200 a year. In the Economic Action Plan, as part of the stimulus, that family's taxes were reduced by another $350 and child benefits were increased by $76 for a total of $426. So that family's total federal personal income taxes in 2009 will be reduced by 11 per cent, or $1,532. 

Now there has been a lot of discussion about retirement savings. The provincial and territorial Finance Ministers and I met in Whitehorse in December. We spent a fair amount of time on this issue and we're going ahead with public consultations and more research to drill down on some of the specific issues relating to retirement income. 

In Budget 2008, we introduced Tax-Free Savings Accounts, the single most innovative savings vehicle since the introduction of the Registered Retirement Savings Plan. As we go forward, it should be possible for Canadians using these vehicles to shelter from tax more than 90 per cent of their retirement savings.

This is a product that is being used. The numbers are fairly good in terms of uptake but obviously there's a lot of growth potential. For seniors, the Tax-Free Savings Accounts provide a tax-efficient vehicle that they can use beyond age 71, because at age 71 they are required to begin drawing their RRSP savings.

In addition to the Tax-Free Savings Account, which is of general application, we also created the Registered Disability Savings Plan, which is very important for families with persons with serious disabilities as family members. We also made the Registered Education Savings Plans more responsive to the changing needs of families and students. We eliminated the annual RESP contribution limit, increased the lifetime limit and increased the time an RESP may remain open by 10 years.

These are some of the reforms I know you are familiar with and that you draw to the attention of people to whom you give advice.

We can regulate and we can create savings plans. Yet RRSP contributions are not as high as one would hope they would be. So there is an emphasis now—and we started this in the recent budget—on financial literacy, trying to make sure that Canadians have the knowledge they need in order to take advantage of the vehicles that are available to them, including with respect to retirement income.

I appointed the independent Task Force on Financial Literacy, which is working very hard. It is chaired by Donald Stewart, who is the CEO of Sun Life. The task force will make recommendations later this year on a national strategy to make all Canadians more informed consumers, investors and savers. I look forward to developing an action plan based on the recommendations of the task force.

The global financial crisis showed us all that the financial world is more complex than ever. Investment and credit products have become much more difficult to comprehend. So we also acted to discourage certain kinds of practices that can lead to future financial difficulty.

Some of you will recall that, in 2008, we put limits on insured mortgages backed by a government guarantee, reducing the maximum amortization period, increasing the down payment requirements and tightening up some of the credit restrictions.

There are some concerns now that I've spoken about and the Governor of the Bank of Canada has also spoken about relating to insured mortgages and whether or not we are in danger of developing some sort of housing bubble. So we're watching that carefully.

In addition, we've strengthened the disclosure requirements on federally regulated financial institutions that offer loans to consumers, including credit cards. Our regulations will mean consumers will be better equipped to make informed decisions.

We also limited some credit card business practices last year. Those regulations are coming into force now. In our view, there were some practices that were not in the best interests of consumers. For example, there was not consistently a full 15-day grace period allowed and we have corrected that by regulation.

I have also taken steps to ensure that insurance promotion on bank websites is subject to the same principle that applies to bank branches. We want to ensure the Bank Act reflects the reality of online banking and at the same time ensure both continued consumer protection and fair competition.

We are continuing to work on this issue, and in the near future the Government will be coming forward with a formal proposal that supports a level playing field for the promotion of insurance products for all insurance providers.

We have also taken significant steps to move forward quickly with the provinces and the territories to establish a Canadian securities regulator. This is an old Canadian chestnut. Governments over the years have talked about creating a national securities regulator. We're actually going ahead and doing it. It's been four years that I've been working on this.

It is a source of awkwardness if not embarrassment internationally, when you look at the Canadian financial system, the strength of our financial institutions, both the banks and our three large life companies and others, and you look at the integrity of our financial institutions, the integrity of our system, the effective regulation that we have nationally in Canada, how well Canada withstood the test of the past two years in credit markets and in the recession. Then we have 13 securities regulators.

It doesn't fit the model. We have the Financial Consumer Agency of Canada—President Obama's government wants to create one now if the Congress allows it in the United States,—but we have this regulator anomaly. I'm really happy to say that most of the provinces are working with us. We now have a transition team which is headed by Doug Hyndman, who is the past Chair of the British Columbia Securities Commission.

We will have the draft Securities Act ready by the spring. As we've already announced, we will refer the bill to the Supreme Court of Canada so the Court can offer an opinion with respect to the constitutional jurisdiction of the federal government on this issue. Then we'll be able, subject of course to the direction of the Court, to move forward with the Canadian securities regulator. A lot of work is being done on this. We have most of the provinces and territories working with us to accomplish the design and goal of a Canadian securities regulator.

In October, our government announced that we would move forward with a balanced package of measures that would benefit federally regulated pension plan members, retirees and sponsors. The reforms we announced will enhance security for workers and retirees while allowing pension plan sponsors to better manage their funding obligations.

We certainly had some challenges during the crisis with respect to some of the federally regulated pension plans. The equity markets have come back to a significant degree and that has helped alleviate some of that pressure.

But there was the well-known instance of Air Canada during the first half of 2009, which had very serious underfunding challenges. We were able to work with the unions and the management of Air Canada to create an opportunity for them to work their way through this and not have the company fail and have all those jobs lost.

We have created a mechanism in the new proposals that we brought forward so that we could use the type of approach we used with Air Canada in order to be successful and save jobs were this type of situation to arise again. 

The Finance Ministers of the provinces and territories and I are working together. We met in Whitehorse in December. We looked at some of the research that Jack Mintz's working group had done and at some of the research that has been done by some of the provinces on the issue of whether or not it's necessary or advisable to create another savings vehicle in Canada.

The provinces have indicated to me that they certainly would like the federal government to take the lead on this, working with the provinces, because of labour mobility issues and so on. We want to make sure that people are not discouraged from moving around the country because there are different plans in different places. Labour mobility is very important for economic success and competitiveness in Canada.

As I mentioned earlier, we're drilling down on the research, looking at some specific questions. We know the Canada Pension Plan is successful. It's admired around the world. So the first thing we need to do, in my view, is not to do anything to harm the Canada Pension Plan.

Then we need to look at why, for example, some people are not using their RRSP contribution room. We need to look at some of the research, which would indicate that some middle- and lower-middle-income Canadians are not saving adequately for their retirement, and what, if anything, might be the role of governments or the private sector. We do have a strong life insurance sector in this country.

What are the roles respectively that we might undertake? My own view is we have to tread very carefully here. We don't want to do any harm. It doesn't mean we drag our feet, but it does mean we take each step carefully, look carefully at the research and make sure we get it right as we go forward.

As this audience knows investing is a marathon, not a sprint. It requires a long-term focus, not short-sighted hunches. As those bold enough to open their investment statements during the global downturn often found, it is also not for the faint of heart. We live in a different world than our parents and grandparents, an alphabet soup of acronyms and an endless array of investment and market theories.

Yet we would do well to consider the same traits that served our predecessors so well: don't make promises you can't keep; don't buy something you can't afford; don't invest in something you don't understand; and take your neighbour's financial opinion with a grain of salt.

Unless, of course, your neighbour is a member of Advocis.

Thank you.