November 8, 2011
Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Calgary Chamber of Commerce
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Thank you very much for the opportunity to be with you today.
I’m delighted to be here in Calgary this afternoon, particularly considering all that was unfolding where I’ve recently been.
Just a few days ago I joined Prime Minister Harper at the G-20 Summit in Cannes, where leaders had an in-depth discussion of the troubling outlook for the global economy and the steps that must be taken to address it.
One key step, highlighted in the G-20 communiqué, is the Cannes Action Plan for Jobs and Growth. Led by Canada and co-chaired by India, the Plan is a wide-ranging blueprint that we believe, once acted on, will address short-term vulnerabilities while strengthening the foundations for growth over the longer term.
While we must all recognize that the global outlook remains fragile, both the Prime Minister and I fully expect European leaders will turn these plans into action, and do what must be done to overcome an up-until-now unresolved crisis.
This high-stakes summit is just the latest in a season of urgent international meetings.
In the months prior to the summit, G-20 finance ministers met twice. These get-togethers were on top of meetings of the IMF and World Bank as nations collectively fought to keep certain elements of the global economy that were teetering on the precipice of dysfunction from taking down us all.
Canada has played a leading role in all of them.
After all, these efforts were vital to our nation’s economic future, and built on the significant actions our Government has taken to keep our economy secure and resilient.
Amidst all of this uncertainty, today I will provide you with a progress report on a Canadian economy that has outshone our major competitors, and a Government that won’t flinch from taking the hard choices necessary in the future to protect the financial security of all Canadians.
As I’ll describe, we have acted when a global crisis put at risk a solid Canadian economy, and we will continue to make protecting Canadian jobs and the economy our top priority through measures I’m announcing today.
We are well aware of the challenges ahead to the global economy and how that may impact Canada.
Let me be clear: we will not be bound by ideology when it comes to making decisions to keep our economy strong and protect Canadians, their financial security and their jobs.
We have responded to critical situations with flexibility and pragmatism, and we will continue to do so as situations dictate.
A leading performance
As this fall Update indicates, in a volatile world, our nation weathered the global recession better than most.
Canada is the only G-7 country, in fact, to have more than recovered both all of the output and all of the jobs lost during the global recession.
Both the IMF and OECD forecast we will have among the strongest economic growth in the G-7 in the years ahead.
These aren’t just statistics. Behind the numbers is a resilient economic performance that has directly benefited hundreds of thousands of households across this country.
While the weakening global economy has recently begun to be felt in Canadian employment, it must still be noted that close to 600,000 more Canadians are working today than when the recession ended, the strongest growth by far among G-7 countries.
And these are the kinds of jobs worth holding onto—close to 9 in 10 jobs created since July 2009 have been full-time positions and in relatively high-wage industries, with three-quarters in the private sector.
While we recognize that too many Canadians are still looking for work, Canada’s performance has been relatively better when compared to the hardships faced elsewhere.
Still, our Government will continue to be prepared to respond in a flexible and measured manner to support jobs and growth if required.
A Canadian edge
Such a resilient performance doesn’t just happen. Our nation had a number of advantages going into a crisis that made its effects much easier to handle once it arrived.
For starters, our Government paid down substantial amounts of debt before the storm clouds appeared on the horizon.
By controlling our finances pre-crisis, we were able to keep our net debt-to-GDP ratio well below our G-7 counterparts while other nations were piling vast amounts of new debt onto old.
Canada has also reaped the benefits of a flexible inflation-targeting framework that has complemented prudent fiscal policy and provided stability to, and greater confidence in, the Canadian economy.
It’s an approach that has served Canada well, as the IMF recently concluded, which is why our Government and the Bank of Canada has agreed to renew it for a further five years.
In addition, as my counterparts around the world have increasingly recognized, Canada’s financial system has been a model of stability and prudence.
It meant Canada did not suffer a single bank bailout or failure during the domino-like collapse of financial institutions elsewhere a few years back.
On top of that, in 2007—before Canada was sideswiped by the global recession—our Government introduced a bold tax reduction plan to brand Canada as a low business tax jurisdiction.
The final step in that process occurs less than two months from now, when the federal business tax rate will fall by a further 1.5 percentage points to reach 15 per cent, and most of the businesses in Canada will be taxed at 25 per cent when the final stage of Ontario’s business tax rate reduction takes effect on July 1, 2013.
Canada now has an overall tax rate on new business investment that is substantially lower than you will find in any other G-7 country, and below the average of the member countries of the OECD.
This commitment is about making Canada a strong destination for investment and jobs with competitive taxes.
It’s about creating jobs that support Canadian families.
And this is getting noticed and getting results—helping explain why Forbes magazine recently ranked Canada number one in its annual look at the Best Countries for Business.
In addition to reducing taxes on business, our Government has introduced measures that benefit individuals directly.
We have followed through on our commitment to reduce the GST by two percentage points, and we have reduced personal income taxes.
In total, our Government has reduced taxes on individuals, families and businesses by an estimated $220 billion over 2008–09 and the following five fiscal years.
All of this helps explain why Canada’s banking system has been deemed the world’s best four years running by the World Economic Forum.
Why Moody’s, Fitch and Standard & Poor’s have all renewed our nation’s triple-A credit ratings, and use words like “superior”, “resilient” and “conservative” when explaining why they did so.
Why every bond issue by the Government of Canada, even amidst historic market volatility, has been highly successful and oversubscribed.
And why two international studies prepared for the G-20 Young Entrepreneur Summit last week concluded that Canada is one of the best countries among the G-20 for small business owners, an entrepreneurial hotbed of business confidence and—these are their words—a “start-up paradise” within the G-20.
The road ahead
While this international recognition is certainly appreciated, I must stress again that our challenges are far from over.
When I recently met with private sector economists they echoed this concern.
While they agreed that the average of their forecasts is a reasonable basis for fiscal planning, all of them stressed that the European sovereign debt and banking crisis posed a significant risk to the global outlook, with obvious spillover effects for our own.
I share their concerns.
Accordingly, in today’s Update the Government is increasing the adjustment for risk, to take into account these heightened short-term concerns and, for fiscal planning purposes, provide the cushion the still-uncertain environment demands as we prepare the federal budget for 2012.
To further help Canadian workers and employers overcome the challenges posed by a still-fragile global economy and to support jobs and growth, we are announcing today that we are reducing the maximum potential increase in next year’s EI premiums from 10 cents to five cents per $100 of insurable earnings, the same rate of increase as in 2011.
This measure will leave over $600 million in the hands of Canadian workers and businesses in 2012. Our economy will only benefit as a result.
In addition, our Government will temporarily extend the enhancement to the Work-Sharing Program, which has helped stabilize Canada’s job market over the last three years, and supported more than 290,000 Canadians in the process.
Budget 2011 provided a temporary extension of up to 16 weeks for active or recently terminated work-sharing agreements, and there are currently 15,000 Canadians now benefiting from the program.
To support a continued recovery for Canadian businesses and workers, our Government will provide an additional extension of up to 16 weeks, until October 2012, for active, recently terminated or new work-sharing agreements.
Finally, the fulfillment of government priorities in other areas will have spin-off effects that will only enrich the Canadian economy and mean more jobs for Canadians.
One example is rebuilding the fleets of the Royal Canadian Navy and the Canadian Coast Guard, creating good, long-term jobs and generating significant economic benefits in shipbuilding and related industries across Canada.
Another is the ongoing partnership between Canada and the U.S. to make our shared border more secure and more efficient for the commercial and passenger traffic that crosses it every day.
The Government of Canada plans to modernize and expand capacity at priority border facilities across Canada.
That’s good news for Canadians and Canadian businesses who will directly benefit from a more efficient border that will bring greater prosperity to our two nations.
Given all of the current global unease, we must keep two things in mind in the preparation of Budget 2012.
One, that Canada’s key economic threats are not of our own making.
The risks to our nation’s economic future did not originate within our shores. This is why the global leadership that Canada has displayed since day one of the global crisis was essential to fighting against the undertow of global uncertainty.
And two, that until these global problems are resolved our country will only hold on to its advantages by continuing to pursue those strategies that made us so resilient in the first place—responsibility, discipline and determination.
Heed the relentless and increasing calls from some corners to betray those principles, and watch all that they made possible vanish.
Countries, just like individuals, do not stumble into prosperity. They set out a plan and stick to it, so that they are fully capable of seizing opportunity when misfortune hits, instead of merely being overwhelmed by it.
Temporary boost, not long-term burden
That’s not to say, of course, that our Government believes an inflexible approach for every conceivable scenario is anything to admire.
When faced with an unprecedented global crisis, for example, we responded with an extraordinary response: the Economic Action Plan, the earliest federal budget in Canadian history.
That the Canadian economy has recovered from the global downturn as well as it has is a reflection of the boost this plan provided.
It was a plan that protected jobs and fuelled economic growth. It was a plan that worked.
Part of the reason why it did work, however, was that it was designed to be a temporary support, not a multigenerational burden.
In our Government’s approach we’re not much different than the way Canadian families across the country manage their household budget.
When your basement gets flooded, you don’t agonize over fixing the problem. You fix it, and recognize the full value of taking on the extra cost.
At the same time, you don’t react by building an addition on your house and doubling the kids’ allowance.
In that way, our Government’s approach was to ensure the Economic Action Plan addressed an urgent dilemma, but did not overstay its welcome.
That’s why we will continue to implement the Next Phase of Canada’s Economic Action Plan, which includes a number of measures designed to solidify our economic recovery.
Together they will preserve Canada’s advantage in the global economy, strengthen the financial security of Canadian workers, seniors and families, and provide stability during an uncertain global recovery.
This includes such measures as a temporary Hiring Credit for Small Business, a two-year extension of the temporary accelerated capital cost allowance rate for investment in manufacturing or processing machinery and equipment, a boost to the Guaranteed Income Supplement for low-income seniors, and the extension of the ecoENERGY Retrofit – Homes program to make homes more energy efficient and reduce high energy costs.
With the Canadian electorate’s May endorsement to guide us, this next phase—and our Government’s economic approach—remain on the right track.
On track for balance
Critically, however, the phase we’re in now also includes a clear and necessary goal to return to balanced budgets in the medium term, and an achievable strategy that will get us there.
The fiscal projections outlined in this Update show that the Government remains on track to eliminate the federal deficit over the medium term.
These projections are based on an average of private sector forecasts, as has been the case for over a decade, and they incorporate a substantial adjustment for risk given the considerable uncertainty surrounding the economic outlook.
At the same time, we’re following through on the deficit reduction action plan in order to achieve at least five per cent of savings of the program spending being reviewed.
These savings will help ensure the budget is balanced over the medium term.
This is a review about improving the efficiency and effectiveness of government operations and programs to eliminate waste and ensure value for taxpayer money.
This is something Canadian families and businesses do all the time when managing their budgets—especially in challenging economic times.
Keep in mind, of course, that the targets of this review will be operating and program spending.
It will not include raising taxes, cutting transfers to seniors, children or the unemployed, or reducing transfers to other levels of government that support health care, social services, or other Canadian priorities.
By sticking to our target of eliminating the deficit in the medium term and finding savings within government operations we will follow through on our pledge to Canadians, while focusing on what truly matters: jobs and economic growth.
This is not the approach everyone would take.
On one hand, we have people urging us to slash spending across the board, no matter the effect it will have on services we provide to Canadians.
On the other, we have calls for billions of dollars of new spending that will impose deficits on our children and grandchildren for years to come or higher taxes that kill jobs and growth.
We reject both these extremes. We will continue with our balanced approach.
An approach that protects our economy, protects Canadian jobs and protects the services we provide our citizens.
But an approach that also reins in spending so we eliminate the deficit in the medium term, keeping our Canadian economic advantage now and for generations to come.
It bears repeating, though, just why we are so committed to fiscal prudence in the first place.
Balanced budgets are not important for their own sake. They are important for what they make possible and what they avoid.
Going back to my comparison to household budgets, for Canadian families the benefit of paying off the mortgage early shouldn’t be solely to have something to brag about at dinner parties.
The real value is to provide the added financial wherewithal to pay for your children’s education, or to help provide for your grandkids’ future, or to thank your own parents for a lifetime of personal sacrifice with a family vacation.
For governments the motives aren’t that different, even if the specific rewards aren’t exactly the same.
Reducing debt frees up tax dollars otherwise absorbed by interest costs. This can then be reinvested in the things that matter to Canadians: health care, public services, or lower taxes.
It keeps interest rates low, encouraging businesses to create jobs and invest for the future.
It signals that public services are sustainable over the long run.
It strengthens the country’s ability to respond to economic shocks such as the recent global financial crisis and challenges such as population aging.
And it preserves the gains made in Canada’s low-tax plan, fostering the long-term growth that will continue to generate high-wage jobs for Canadians.
That’s why we are so determined to see this commitment to budget balance through, and why global economic angst will not sidetrack us from our ultimate goal.
At the same time, let me be clear: our Government is well aware of the global economic turbulence happening now.
We understand we must be prepared to be flexible and pragmatic when circumstances demand it.
A Government that didn’t follow this philosophy would never have been able to successfully respond to a historical global recession the first time around.
We will continue to monitor the ever-changing global economic conditions closely.
And, should the situation require us to take additional steps to support Canadian jobs and growth, we have the flexibility to respond to new economic developments.
For proof of this practical approach, look no further than the actions to protect jobs and the economy being announced in the Update of Economic and Fiscal Projections today.
It is measures like these, and the financial means to introduce them, that illustrate the importance of focus and determination.
If I could leave you with one message, it’s that our country currently possesses something that many, many nations today consider precious and exceedingly rare.
And no, I’m not talking about oil.
The stability that only comes when you have a plan for where you want to be, and a clear-cut strategy that will get you there.
The stability that enables you to have the resources to tackle a crisis, without risking your long-term goals in the process.
As recent events have shown all too clearly, what makes stability rare is that so few countries today have been able to set out—and abide by—the conditions necessary to create it.
What makes it so precious is that it can slip through your fingers if you allow yourself to get distracted by fleeting demands.
Canadians made that stability possible.
And our Government has been called to be stewards of this national strength.
As today’s Update makes clear, it’s a responsibility we take very seriously.
And, in an unstable world, it’s a competitive edge we have every intention of preserving.