June 15, 2012
Ottawa, Ontario

Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Canadian Institute of Steel Construction

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Good morning.

It’s a real pleasure to speak to members of an industry that literally helped build this great country.

Canada is doing relatively well in the world. We came out of the Great Recession in relatively good shape. We’ve recovered more than all of the jobs we lost in the recession. Yesterday, Moody’s again said that Canada has the strongest financial system and the strongest financial institutions in the world.

It doesn’t mean we’re immune to challenges in the world, so we have to be prepared for shocks that may come our way through events that happen outside of Canada. We are certainly prepared, with good economic fundamentals here in Canada. 

Let me talk for a while about the importance of the steel industry and some of the economic issues that concern us here in Canada and in North America.

This industry built Canada. As you know, more than 125 years ago, the Canadian Pacific Railway’s ribbon of steel connected Eastern Canada with the Pacific and cleared the way for the creation of this federation called Canada. If it weren’t for Canada’s steel railway tracks, we’d have missed out not only on our federation but on some excellent songs by Gordon Lightfoot including the Canadian Railroad Trilogy, which some consider Canada’s unofficial national anthem. 

As industry figures make clear, steel plays a major role in the success of our economy.

  • This industry employs directly and indirectly 130,000 Canadian men and women across Canada.
  • Steel production in Canada amounts to some 13 million tonnes.
  • Annual sales are about $14 billion.

Steel plays a major role in virtually every aspect of our daily lives: from paper clips to oil tankers, from autos to office towers, and from bicycles to bridges.

It is a critical element for strengthening a sustainable manufacturing sector for the Canadian economy in the future.

I am going to talk this morning about manufacturing and the manufacturing sector, including the steel sector.

I want to talk first of all about Canada’s economic and fiscal situation. Secondly, I’m going to say a few words about some of the challenges and the uncertainties we face here in Canada and around the world. And finally, I want to spend most of my time talking about one of the major things that we debated the last two nights in the House of Commons, and that is responsible resource development in Canada, which is all about being able to move forward and take advantage of our competitive advantage now to get some major resource projects moving.

Let me look for a few minutes at where we are today.

Our Government’s priority is jobs and growth, economic prosperity and long-term prosperity. The budget isn’t just about numbers. It’s the longer-term economic plan of the Government. We didn’t just look ahead a year or two. We looked ahead to the next decade and the next generation in Canada with a very clear goal—to make sure that our fiscal situation in Canada remains strong 2 years from now, 10 years from now, 20 years from now, that our foundation is as solid as a rock. We can’t control the things that happen in Greece and other places, but we can control our solid foundation here. Fiscal sustainability is vitally important. So we’re going to make sure we get back to balanced budgets in the medium term. 

Our real GDP growth is above pre-recession levels. We’re one of the few industrialized countries in the world that has recovered the GDP growth lost during the course of the recession. Citigroup recently noted that it believes Canada is one of a handful of countries that will be able to keep the highest credit rating in the world—we have a triple-A credit rating—both in the near and the longer terms, which is a reflection of confidence in the fact that we will implement what we say we will do in terms of the fiscal plan for the country.

Our fiscal fundamentals are rock solid. We did a US$3-billion bond issue earlier this year. There was incredible demand for it because of the solidity of the Canadian fiscal fundamentals. EuroWeek noted, “The fact that Canada is able to do a trade like this…cements Canada’s status as a true Treasury alternative and the best credit in the world.”

However, there are challenges and uncertainties. These risks are external but the economic recovery in the world is very fragile. I am concerned about the deteriorating situation in some of the European countries. It is not a new issue. We have been dealing with this issue since 2007–2008 and throughout the European debt crisis. Before that there was the banking crisis in the fall of 2008 in the United States, the fall of Lehman Brothers, and the major steps that President Bush and Secretary Paulson took at that time to recapitalize the banking system in the United States, which were ultimately successful, followed up by President Obama and Secretary Geithner.

Earlier this month, Mario Draghi, who is the head of the European Central Bank, called on European leaders to set a clear vision for the 17-member single currency group that is the eurozone and create a fund to guarantee bank deposits.

I agree wholeheartedly. This is the kind of action that the Europeans have not taken in the course of the past three or four years. One can contrast that with the dramatic actions that the Americans took, and I applaud the actions they took. I was at the table when they were taken. It was bold but it overwhelmed the issue in the United States in the fall of 2008 and restored market confidence. And that’s what it’s all about. You’re not going to have economic growth unless there’s market confidence. You’re not going to have market confidence unless you have a solid fiscal plan that’s credible and believable by the markets. And that’s where we have been encouraging our European colleagues to go.

Our budget here in Canada, our Economic Action Plan, for this year has substantial, responsible and necessary reforms. We could have stood pat. We could have been not very forward-looking, but we want to go ahead and create what we hope will be a continuing brilliant economic future for this country.

I would now like to talk about the natural resource sector in Canada. It’s important for your industry. It’s important for our country overall and for the future of our country. Some people go around dissing the natural resource sector in this country. I say thank goodness we have it. What an incredible asset for Canadians.

The issue is: How do we manage it? How do we make sure that we balance the economic growth potential, what it can do for this country and the wealth of our people and our standard of living and our quality of life? How do we balance that with the environmental concerns? There are some who will say it’s all one or it’s all the other, which of course is a false dichotomy. The polling shows about two-thirds of Canadians understand that you can balance the environmental concerns with the economic interests, that you can do both responsibly. 

And, quite frankly, the oil sands in Alberta are a very good example of that. And they certainly consume a lot of steel. 

Also, the benefit of the natural resource projects in Canada are spread across the country. The Canadian Energy Research Institute, or CERI, estimates that about 130,000 jobs across the country are directly related to the activity in the oil sands sector in Alberta, with indirect and induced employment representing another 260,000 jobs. 

And if we look a little ahead, as Sir John A. Macdonald was fond of saying to his cabinet colleagues, in the next 25 years, oil sands growth will support on average 480,000 jobs per year in Canada. It will add $2.3 trillion to our gross domestic product.

So this is all good news. And it can be overlooked, of course, given some of the misconceptions some people have about Canada’s oil industry.

Let me just take a moment to address a few of these misconceptions about the industry.

Some people claim the tremendous success of the oil industry has infected Canada with so-called Dutch Disease, inflating our dollar, making our exports too expensive and hurting our manufacturing sector. It’s unfortunate that they would look at one of the healthiest economies in the world and diagnose it as a disease that needs to be cured.

This Dutch Disease theory has been debunked again and again. In Canada, the manufacturing sector’s share of total input has been declining over the past four decades, but the decline in Canada’s manufacturing share of GDP has been one of the smallest among the advanced economies. The trend toward declining manufacturing as a share of GDP in the Western industrialized world reflects the increasing importance of the service sector as well as an ongoing global shift in the location of lower-valued manufacturing activity to low-wage, low-cost manufacturing countries.

That brings me to myth number two. There have been suggestions from some quarters that Canada’s resource development only helps the West while hurting the East. This is both inaccurate and divisive. Despite the claims by certain prominent critics, there’s ample evidence that the petroleum industry’s benefits spread across the provinces and create new markets for a number of manufactured goods.

The oil sands industry generates significant demand for services and labour that come from all regions of the country. For example, according to the Canadian Association of Petroleum Producers, over the next 25 years the oil sands industry in Alberta is expected to add $63 billion to the Ontario economy. CERI estimates that over the same period almost 10 per cent of the total indirect jobs related to the oil sands will be in Ontario. The Institute also expects that the oil sands industry will add $14 billion to the economy of Quebec and a further $2 billion to that of Atlantic Canada over the same period.

I could spend more time giving you some similar benefits for the provinces but I think I’ve made my point. My point is that a rising tide lifts all boats. It’s an advantage in Canada to have the hydroelectric development that’s planned for Newfoundland and Labrador, the potash development in New Brunswick, the offshore oil and gas in Nova Scotia, Plan Nord in Quebec, the Ring of Fire here in Ontario, the hydroelectric work in northern Manitoba, the huge expansion of mining in Saskatchewan, oil and gas in Alberta, the ports in British Columbia, and in the territories incredible mining advances. These are all great opportunities for our country to grow and prosper over the next generation.

The third misconception I want to talk about is that the oil industry is perceived to be much less innovative than manufacturing. In fact, R&D spending in the oil extraction sector has tripled since 2003. It now exceeds that of the pharmaceutical sector by a comfortable margin. What’s more, the oil sands industry has invested billions of dollars in technologies that have lowered the cost of extraction, increased the amount of economically recoverable resources and reduced the industry’s environmental footprint.

Some people also view the steel industry as being slow to innovate. The reality again is quite different. Your industry has invested more than $2 billion since 2005 in new technologies and better processes to make Canadian steel more innovative, less expensive and stronger than ever.

Of course, energy sources like oil and gas will still need steel-based products for extraction and processing, and distribution through steel pipe and tubular products.

But your industry has also looked to a greener future and has made significant achievements in improving the environment. For example, steel is the most recycled product in the world and steel scrap can be reused virtually without limit. According to your analysis, the energy required to produce a tonne of steel has dropped 25 per cent since 1990, and in the same period the steel industry’s greenhouse gas emissions have been significantly reduced. And it can play a key role through alternative energy sources like wind and solar-use steel towers and frames.

And that brings me to the final point I want to quickly raise before I conclude.

To ensure that Canada has the right conditions in place to attract global investment in our provinces and territories, we must compete with other resource-rich countries around the world for those job-creating investment dollars. And this is the fundamental reason why our Government is committed to modernizing Canada’s regulatory system through our plan for responsible resource development. 

Unfortunately, Canadian businesses in the resource sector must currently navigate a maze of red tape, a maze of overlapping and complex regulatory requirements. This leads to delays in investment and delays in job creation. Some plans are even abandoned. This is wrong, and we have worked since 2006 to streamline and improve regulatory processes. But more needs to be done. So our Economic Action Plan responds to this need by introducing system-wide improvements to streamline the review process for major economic projects.

To streamline and modernize our outdated regulatory system, we are taking a whole-of-government approach. We want to put in place a new system of “one project, one review” with defined time limits. This will achieve project reviews that are more predictable and timely. It will reduce duplication of project reviews with the provinces. The bill will strengthen environmental protection. And finally, we have put aside even more resources to enhance consultations with Aboriginal peoples.

Canadians understand that we do not have to choose between economic development and the environment. It is not an either/or proposition. As I said, two-thirds of Canadians in the most recent polling understand that reality. 

Our new plan will strengthen pipeline inspections and introduce tough new monetary penalties for violations of National Energy Board conditions on new pipeline projects. And, for the first time, it will provide enforcement of environmental assessment conditions under the Canadian Environmental Assessment Act.

The natural resource sector is an asset that will increasingly contribute to the prosperity of all of us, including the steel industry. We currently estimate that over the next decade, there is a potential for at least 500 new projects and more than $500 billion in investments across the country in the energy and mining sectors alone.

As Canadians, we have a wonderful new opportunity before us. We know that it is absolutely necessary that we develop our natural resources in a responsible way. Responsible resource development achieves the balance that is needed. We will unleash the potential of our resource sector to create jobs across Canada while also ensuring strong environmental protection. That is what Canadians expect of us and it is what our plan delivers. 

Much of Canada has been built with steel. Your industry has been crucial to our country’s development in the past and will, I’m sure, make an even greater contribution in the future.

So I ask for your support in helping our Government make our plan for responsible resource management a reality for the benefit of all Canadians. And I look forward to the steel industry joining with the rest of the industries in Canada and the other manufacturing industries in what is a brilliant future for our country.

Thank you.