March 30, 2012
Toronto, Ontario

Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, at a lunch hosted by the Canadian Club of Toronto

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It is a pleasure to be here today. I would like to talk about the federal budget.

The last time I was here was in November, when I announced the launch of our public consultations on the budget. During the consultations I raised issues, I asked questions and, above all, I listened. We got a lot of views and information from Canadians across the country.

We have one of the strongest fiscal records among advanced economies, so the Government of Canada is starting from a good place. We are one of only two G-7 countries to have recouped all the jobs lost during the Great Recession of 2008–2009. In fact, since July 2009 our economy has created more than 610,000 net new jobs.

In addition, the World Economic Forum says our banks are the soundest in the world, and Forbes magazine says Canada is the best country in the world in which to do business.

Our net debt-to-GDP ratio remains the lowest in the G-7. It has gone up since we implemented the Economic Action Plan, but I can assure you that on the fiscal track we are on, it will return to where it was before the Plan in the medium term. Also, the OECD and the IMF predict that our economy will be among the leaders of the industrialized world over the next two years.

So that’s where we are starting from. We also have to look at where we are going. The budget focuses on jobs, growth and long-term prosperity for Canada. We are a majority government so we are able, as Sir John A. Macdonald urged his cabinet colleagues more than 100 years ago, to look a little bit down the road.

This budget sets out where we are going in the longer term. In 2006, 2007 and 2008, we ran surpluses and used them to pay down $37 billion in public debt. And then the crisis came from outside our country, but we were in a position to respond with the Economic Action Plan, which was a very large stimulus program for our country.

Why did we do it? We did it because we listened. I remember in December 2008 listening to a group of business people in Saskatoon, who told me how bad things were in the real economy. And I remember speaking to the Prime Minister that evening from Saskatoon and saying to him that this is even more serious than we think and we’re going to have to run a bigger deficit than we had anticipated. Then in 2009, we ran a large deficit of more than $50 billion.

We did it because we were afraid that we would have double-digit unemployment in Canada, and we wanted to do everything we could to avoid that. We also wanted to ensure that we did not go into a prolonged recession in this country—in the event, we had a recession that lasted three quarters.

In the Economic Action Plan, we ran deficits but we also built in an exit strategy so that we would gradually return to balanced budgets and get back to where we were before the Great Recession of 2008–2009. I am pleased to tell you that we are on track to accomplish that goal.

This is an important goal for our country because, as many countries such as Greece have learned, if we do not have our fiscal house in order, then when the next crisis hits, which it inevitably will, we will not be in a position to react, as we did from a position of strength in 2008–09.

So we are on track to return to balanced budgets. In our latest budget, we have had to modestly reduce government expenditures. There will be some job losses in the federal public service and some federal government initiatives will be discontinued. Most of you run organizations, programs and initiatives, and you know that not every program is designed to last forever. In government it’s a bit different. When we start a program, it never ends. So it is important that we look once in a while at our programs and ask if they are accomplishing the goals for which they were created.

Regrettably, there will be about 12,000 job losses after attrition, but this is out of a workforce of just under 400,000 people. So the spending reductions are relatively modest and will help us return to balanced budgets in the medium term.

So fiscal sustainability is key. About 25 per cent of the budget of the Government of Canada consists of transfers to the provinces and territories: Equalization, the Canada Health Transfer and the Canada Social Transfer. To have a long-term fiscally sustainable plan, we need some control over the growth of that large part of federal government spending. So we told the provinces several years ago that Equalization will grow at the rate of the growth of nominal GDP, which we accomplished.

In December, I told the provincial finance ministers that the Canada Health Transfer will grow at a rate of 6 per cent through to 2016 and then at the rate of growth of nominal GDP, but not less than 3 per cent, through 2024. You will note that in the provincial budgets so far this year, not one province plans to increase its health care spending at the rate of 6 per cent. None of them are increasing their health care spending at the rate that the federal government is. The Canada Social Transfer will continue to grow at a rate of 3 per cent through 2024.

Another part of our budget is transfers to individuals. We committed not to reduce these transfers just as we committed not to reduce transfers to the provinces and territories. So there are no reductions in those areas.

The last area is the program spending of the Government of Canada itself. This is where we found 70 per cent of the $5.2 billion in savings over three years as a result the spending review.

So our fiscal house is in order and we have a long-term plan. What do we do to create jobs, economic growth and long-term prosperity in our country? Do we compare ourselves with the European countries, where economic growth is flat? Or do we compare ourselves with the strong emerging economies of Asia and South America? I suggest that we should compare ourselves to the latter looking forward over the course of the next decade.

To be competitive, we have to address certain pillars of the economy.

First of all, innovation. We have the benefit of Tom Jenkins’ panel, which we appointed last year and reported back to us a few months ago. We followed the principles of the panel yesterday in the budget. We are going to make some changes with respect to the Scientific Research and Experimental Development program. And we are creating a large $400-million venture capital pool, having looked at some of the most successful venture capital initiatives in other countries.

Secondly, we need regulatory reform. Canada has enormous potential. Great economic projects are being undertaken across the country, from coast to coast to coast—hydroelectric power in Atlantic Canada, the Plan Nord in Quebec, the Ring of Fire here in Ontario, minerals and oil on the prairies and in Alberta, and minerals and forestry in British Columbia. There are incredible opportunities all across our country. We believe in environmental protection at the same time, but some of the review processes have gone on for three, four, five or six years, resulting in some projects becoming uneconomic over time. So there will be time limits with respect to these processes, and our basis will be one project, one review, with a time limit. This is not an infringement in any way on environmental protection. It just means these matters will have to be dealt with in a more expeditious manner as we go forward. This is fundamentally important to jobs, growth and long-term prosperity for Canada.

The third pillar is jobs. We are doing better than other countries but job growth is not strong. So the budget has initiatives for seniors, Aboriginal youth, training, people with disabilities and people whose skills are mismatched to available jobs. We are dealing with some of the disincentives in the Employment Insurance system to encourage people to work. For example, we will make sure that people can still receive Employment Insurance benefits while they are working part-time and similarly, that Aboriginal youth will have more training opportunities through the EI program and still be able to receive EI.

The fourth pillar is the immigration system, which currently does not place an emphasis on economic growth. We want to attract people who can contribute to the Canadian economy, as generations have over the years, so we will reform the immigration system.

Finally, we need to expand trade. We have signed nine free trade agreements. We are currently in negotiations with the European Union and India. And the Prime Minister just announced that we will begin discussions with Japan and Thailand.

We also had to deal with the retirement income system. This does not include the Canada Pension Plan, which is actuarially solid for the next 75 years. But we did need to address our largest social program—Old Age Security. This program was brought in at a time when the life expectancy for men in Canada was 69 years, but today their life expectancy is 79 years. For women it is 83 years. We are living longer and we are healthier. We should celebrate this.

But we need to adjust to that reality. So along with other developed economies, which are increasing the age of eligibility of their public pension programs, we will gradually increase the age of eligibility for OAS from 65 to 67. But this is a long way out, so it will not affect anyone who is 54 years old or older now.

We are increasing the age of eligibility to make sure that that this very important social program will be there for people when they need it. We want to maintain this program in the long term.

So our budget is a long-term plan. Sometimes governments are accused of just looking at tomorrow or next month or next year. We have in fact looked at the next decade and beyond the next decade.

We have a vision for this country. We see Canada, at the centre of the world—with a great and friendly market to the south; a continent of opportunity across the Atlantic; and a world of growth across the Pacific. We see Canada, whose wealth, while immense, will be measured ultimately in the greater happiness and security of its people.

We see Canada for what it is and what it can be—a great, good nation, on top of the world, the True North strong and free.

Thank you very much.