June 7, 2011
Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, at a luncheon of the International Economic Forum of the Americas—Conference of Montréal
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Good afternoon. Thank you very much for the opportunity to speak to you today.
I’m happy to be here with my friend and colleague in international matters, Angel Gurría, the Secretary-General of the OECD.
Just last month the OECD celebrated 50 years of expert counsel in helping countries grow their economies, create jobs, boost investment and trade and raise living standards the world over.
His Report to Ministers is recommended reading for anyone involved in developing economic and fiscal policy, and certainly in the Government of Canada we participate in and follow closely the work of the OECD. As the Secretary-General indicated in that report, following the worst economic and financial crisis of our lifetime we must learn well the lessons it taught us, while working together to develop the kinds of policies that will lead to better lives for all.
It’s a subject where I think Canada has something to offer, both in terms of how our country prepared for the downturn and what we’re doing today to put those uncertain times behind us. In that context, I can’t think of a better venue for my first set of remarks following the reintroduction yesterday of our Government’s 2011 budget.
As I mentioned yesterday, the Next Phase of Canada’s Economic Action Plan has already received the most essential endorsement of all: the backing of Canadians themselves. I’m very optimistic for the future of a country whose prospects were enviable to begin with. What is a starting point for Canada would gladly be accepted as a finish line by many, many others.
Yesterday’s budget also recognizes that there is still much more work ahead, in spite of the many Canadian advantages in place today. This budget is really the first stage in our move back to balanced budgets in Canada. We are advancing by one year our move to balanced budgets. That will require some additional prudence in terms of spending.
We’re not in the business of raising taxes. We’re in the business of reducing taxes because we want to promote economic growth in Canada. In fact, the federal overall tax burden on Canadian citizens is the lowest it has been in 50 years, which is remarkable. For a family of four, it’s about $3,100 lower than it was when we took office a little more than five years ago.
As has been mentioned here, no-one predicted the credit crisis of 2007 and the crisis in the real economy of 2008, which the economists are now calling the Great Recession. So, what does a country like Canada do to protect itself from those kinds of international shocks?
Fundamentally, in our view, it’s about fiscal management. It’s about making sure that we run surpluses, get back to a balanced budget and pay down public debt so that when we do have a crisis, as we did in the fall of 2008, we have the capacity to act. And we were able to act, but after bringing in the Economic Action Plan in Canada and creating a lot of new spending and public stimulus in the Canadian economy, we need to move back to balanced budgets because it’s unpredictable when the next shock might come.
I hope that we will not be in the middle of an election the next time the shock comes, as we were in the fall of 2008. During October 2008 we were going through a federal election in Canada, and we were receiving continuing negative information about what was going on in the world economy, particularly the economy in the United States.
You’ll recall the bank failures on Wall Street, in the United Kingdom and in Germany. This was a shocking time. We were re-elected during the course of that with another minority government, and I can tell you that it’s a challenge to make major economic fiscal innovations as a minority government, but we managed to get through it.
We also took the opportunity—and conferences like this are vital in this way as well—to seek advice from prominent Canadian business people like Paul Desmarais, Jr. and our Economic Advisory Council, who gave us advice in late 2008 on how to respond to the crisis that did not emanate within Canada.
That advice quite frankly was invaluable. It helped us get to the point where we had the courage as a government to bring in a very large stimulus program in Canada. I’m happy to say it worked well.
We did not have double-digit unemployment in Canada. We did have three quarters of recession, but by mid-2009 we came out of recession and we have now had seven continuous quarters of growth, including a very strong first quarter this year.
That stimulus plan was large, at 4 per cent of GDP. When the G-20 leaders met in November 2008 at the Washington Summit chaired by President Bush, all agreed that we needed to try to have 4 per cent of GDP as stimulus.
I have to say also that the federation in Canada worked very well. The provinces and the territories worked very well with the Government of Canada in terms of also providing stimulus at the provincial and territorial level, and we had the cooperation of the municipalities as well. It was great evidence of the fact that the federation could work and work together in a time of crisis.
The Economic Action Plan has been integral in boosting economic growth and creating and protecting Canadian jobs, while underpinning a solid and enviable economic recovery. Canada has posted the strongest employment growth among G-7 nations since the recession ended in mid-2009. About 540,000 more Canadians are working now than were working in July 2009.
We have also recouped all of the loss in output experienced during the recession. The IMF forecasts that Canada will have one of the strongest economic recoveries among the G-7 countries this year and next year, a promising prognosis backed by several factors.
One of them is financial. Our financial institutions did not require bailouts during the recession. They stood solid and steadfast.
We have an effective regulatory system in this country. A very important aspect of that is not so much having the regulations in place but having effective supervision that actually works, which we have had and continue to have in Canada through the Office of the Superintendent of Financial Institutions.
The World Economic Forum has rated our banks as the soundest in the world for three years in a row. Just recently five Canadian financial institutions were named to Bloomberg’s list of the world’s strongest banks. That’s more than any other country in the world.
On the tax side, as a result of numerous federal and provincial business tax changes, the overall tax rate on new business investment is substantially lower than in any other G-7 country. Finally, by eliminating more than 1,700 tariffs, Canada has taken the steps needed to become the first tariff-free zone for manufacturers in the G-20.
So yesterday in the budget we moved forward with the plan that will bring us to balanced budgets in 2014–15. We will have to find some economies on the spending side, but it is important to accomplish the goal of being prepared for the next difficulty that we may have in the global economy.
The unemployment rate in Canada is still too high, so we are making targeted investments to encourage hiring. Through an EI hiring tax credit, we are encouraging small businesses in particular to hire. We are continuing to invest in innovation, education, our colleges, our universities and skills training as well.
We are reducing the administrative burden that governments are very good at imposing on the private sector. We need to continue our efforts to reduce red tape and encourage competition in Canada. Importantly, we’ll continue to work with the municipalities in Canada to build more infrastructure, including public transit in our large cities.
We are also going to increase our transfers for health care and education. We are not going to reduce those. In fact, we will continue to increase the health care transfer by 6 per cent per year and the Canada Social Transfer for education and social services by 3 per cent a year.
We’ve built that into the fiscal track that I published yesterday in Ottawa. The key to all of this is sound fiscal management. Countries the world over are learning the hard way to get their fiscal houses in order.
It is a lesson that we must all heed. It is why fiscal consolidation was a priority when the G-20 leaders met about a year ago in Toronto.
At that Summit, leading economies committed to halve, by 2013, the significant fiscal deficits witnessed during the depths of the recession, and either stabilize public debt-to-GDP ratios or put them on a downward track by 2016. In Canada’s case, we will overshoot these targets by a healthy margin. Strong fiscal management will continue to be the cornerstone of the Government of Canada, as our country completes the transition from providing temporary stimulus to winding it down, to eliminating the deficit and returning to balanced budgets.
We will return to a balanced budget one year early, by 2014–15. In returning to balanced budgets, the Government of Canada will rely on the same fiscal discipline in evidence in the years prior to the global economic crisis, when the federal debt-to-GDP ratio fell to 29 per cent in 2008–09, which was its lowest point in nearly 30 years. By taking action to preserve Canada’s fiscal advantage, the federal debt in relation to the size of the economy is projected to broadly return to that pre-recession level. In fact, according to the IMF, Canada will be one of only two G-7 nations to return to budgetary balance by 2016.
If I can end my remarks the same way I started—with a reference to the OECD—I’d like to highlight the OECD’s recently published Better Life Index. The index compared housing, health and other measurements of overall satisfaction among nations. It concluded that Canada ranked at or near the top among the report’s categories, with one of the best education systems in the world and high employment. It determined that Canadians feel safe in their communities and content in their lives. In other words, Canada’s ongoing quality of life is based on much more than banks and budgets.
It helps explain why, after an unprecedented global downturn, Canadian voters opted for stability and competence—“no surprises” as the Prime Minister put it—last month. At the same time, and to quote an OECD official, “Overall I think Canada seems to be a pretty good place to be. But it shouldn’t make them complacent about everything.”
I can assure him that we will not be complacent. A complacent government does not announce the actions which we announced yesterday to accelerate moving back to a balanced budget.
We entered the crisis strong and well prepared in 2008. We’re coming out of it even stronger, more competitive and increasingly influential in the collective global effort toward a long-term economic recovery. For Canada it’s a good place to be. And it’s going to become an even better one.