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August 15, 2005

Notes for Remarks by the Honourable Ralph Goodale, P.C., M.P., Minister of Finance, Canada, to the Association of Municipalities of Ontario

Toronto, Ontario

Good morning, ladies and gentlemen. Greetings and good wishes to everyone from the Government of Canada. Thank you for this opportunity to meet with the Association of Municipalities of Ontario.

I have great admiration for all of you who serve your communities, large and small in every corner of this country, on duly elected municipal councils. Yours is the most immediate order of government—local government—on the front lines of public service 24-hours-a-day, shaping the well-being of your citizens and ratepayers, indeed your neighbours, in many of the most meaningful and tangible ways.

In a turbulent age of globalization, when our world is shrinking and flattening and growing more intimately interconnected and interdependent every day, local community governance is increasingly important.

Cities and communities are the places with which most Canadians most closely identify—where we feel rooted, where we live and work, raise our kids, and hope to retire in dignity and security. They must be venues of economic growth, investment and innovation; centres of learning, recreation, arts and culture.

Externally, our cities and communities are the prism through which the rest of the world views and forms its perceptions of Canada. So municipalities really matter, more and more.

This was part of the motivation behind the Prime Minister's proposed "New Deal for Cities and Communities"—a deal to provide more reliable long-term federal funding to support community priorities, to be fair across different regions and among communities of varying size, to respect existing jurisdictions, to set shared objectives, and to report tangible results to Canadians.

We also pledged to listen carefully to municipal opinions and ideas. To promote consultations, in the federal budget-making process and otherwise. To make "a place at the table" for community-based input into national decision-making.

So for all of these reasons, I am happy to be with you today.

And I would like to take this occasion to outline what I believe are some of the greatest economic challenges and opportunities in Canada's immediate future.

Since the early 1990's, this country has enjoyed more than a dozen consecutive years of steady economic expansion—one of the best periods of sustained economic success in the nation's history. In part, this reflects a prolonged and remarkable Canadian rebound from the last downturn in the business cycle. But it also matches a period of rejuvenated economic and fiscal policies on the part of the Government of Canada, which helped to foster and sustain that rebound.

We started in 1993 with a disciplined approach to government spending and a sense of urgency about prudent, responsible fiscal behaviour, which led the Government of Canada to balance its books by 1997—a notion virtually unheard of through the previous quarter of a century.

But since 1997, we have recorded seven consecutive surpluses. We are hard at work on Number Eight. And we expect many more.

We have reduced accumulated federal debt by more than $60 billion. The size of our debt compared to the size of our economy has declined from nearly 70 per cent in 1995 to less than 40 per cent today, and we remain on track to bring that ratio down to 25 per cent within the coming decade.

The share of Canada's debt in foreign hands has also been slashed—from more than 40 per cent in 1993 to less than 15 per cent today.

Persistent, sensible debt reduction is steadily lifting the heavy mortgage that previous fiscal irresponsibility hung over the futures of our children and grandchildren.

Canada has regained a Triple-A credit rating. Inflation and interest rates remain low and stable. There is a high level of participation in the Canadian job market, three million net new jobs have been created, and we have the lowest unemployment rate in some 30 years. Canada is turning in the strongest fiscal performance of any country in the G7 group of world-leading economies, and we have the best fiscal record of any Canadian government since 1867.

But as satisfying as all of this is, now is no time to be complacent.

First, because the value of the Canadian dollar has jumped by more than 30 per cent over the past two years. As analysts are pointing out, this higher value reflects Canada's underlying fiscal and economic strength, but it also makes export markets tougher to penetrate and forces some parts of our domestic economy to make big adjustments.

Secondly, big trade and budgetary deficits continue in the United States, our largest and closest trading partner—and the market for more than 80 per cent of Canada's exports. When and how these American imbalances get resolved could have significant spill over implications for Canada. We already know that United States interest rates are rising. And we have felt the painful sting of knee-jerk protectionism when it comes to what should be the free and fair movement of Canadian products like wheat, livestock and lumber.

Third, huge new global competition is emerging in and from new international giants like China, India and Brazil. Together, they represent more than a third of humanity—increasingly well educated, with ready access to the most innovative technologies. They also have a high level of determination to become major global players, economically and otherwise. They are massive consumers and low-cost producers, and will be powerful forces in setting worldwide supply and demand.

Fourth, Canada is on the cusp of huge demographic change. By the year 2010, the big Baby Boomer generation will begin retiring in large numbers, to be followed by a much smaller population cohort coming along after them. Some implications of this unprecedented "inversion" are immediately obvious.

There will be growing demand for age-related social services, such as health care, retirement homes and pensions. And in order to pay all the bills of an ageing population and, at the same time, produce sufficient new wealth to keep the economy growing, each member of our future smaller workforce will need to be able to generate greater value than his or her more numerous predecessors.

Some fear this type of scenario. They suspect that talk about increasing Canadian productivity is just code for lower pay, longer working hours and job cuts. But let's be absolutely clear—that is NOT what "increasing productivity" is all about, and it's certainly NOT what the Government of Canada has in mind. In fact, we want the exact opposite. Expecting people to work harder for less money will not, ultimately, lead to real productivity growth. We are not interested in some mindless "race to the bottom"! Instead, Canadians want us to "reach for the top":

• Building an increasingly smart and sophisticated economy with the wherewithal to compete at the high-end of markets and to keep growing (notwithstanding a relatively smaller workforce).

• Generating not just more jobs, but better jobs. Well-paying jobs. Jobs of the future and jobs with a future.

• Higher incomes, broadly based. More purchasing power. Greater economic security. A better standard of living. A stronger quality of life.

So what are the elements of a realistic plan to keep Canada moving forward?

To start with, basic government "framework" policies need to be right. Fiscal discipline. Balanced budgets. Debt reduction. Competitive taxation. Attractive, accessible capital markets. Timely, sensible regulatory regimes. Smoothly flowing internal trade with as few barriers as possible. International borders that are closed to criminals and terrorists, but efficiently open for business, trade and investment.

On some of these fronts, we are already doing very well. Our fiscal performance, for example, is first-class. But there is other work that must get done. On the competitiveness of our tax system, for example, to keep Canada's business tax rate advantage over the United States which, in turn, helps to keep investment and jobs on our side of the border.

Others have important framework tasks to perform too. The provinces, for example, need to deal better with interprovincial barriers to the mobility of people, capital, goods and services. And business leaders need to ensure that the era of corporate governance abuses is over.

Next, governments at all levels, together with the private sector and individuals, need to concentrate on the highest calibre learning—lifelong learning—and the acquisition of new knowledge and advanced skills.

In this knowledge-based, technology driven, highly skilled and intensely competitive world, the success of our people, our enterprises and our country will be shaped largely by the quality of our home-grown brainpower.

Higher learning, knowledge and skills provide individual citizens with a sense of greater personal self-worth, empowerment, flexibility and freedom. But equally important, they drive the entire Canadian economy up the value-curve, improving productivity and generating higher incomes more generally.

Consequently, while always respecting other jurisdictions, the Government of Canada has made and will continue to make large and increasing investments in Canada's learning system—the tally at the moment is close to $10 billion per year, both through federal transfer payments to the provinces and directly on our own—starting with early childhood development and on up from there... lifelong; supporting students and their families, institutions, advanced graduate studies, workplace skills, literacy, new immigrant settlement and Aboriginal inclusion.

Thirdly, we need to put that brainpower to work through world-class Canadian innovation. The creation of new ideas and the successful transition into new products, technologies and actual wealth-generation demands top-notch facilities, plus at lot of talent, time and money—to get from the drawing board to the market-place.

Since we first balanced Canada's books in 1997, the Government of Canada has invested $11 billion in Canadian research and development (R&D), and that investment has moved this country from sixth place among the G7 to first place for publicly supported R&D. We must maintain that stature and momentum.

But we also have to pick-up the pace of Canadian private sector R&D activity.

This is a key area in which Canada clearly lags behind the United States, and it slows our productivity growth compared to theirs. Some parts of our private sector don't do as much of their own research and development as their American counterparts. In some fields we are slower at commercializing our ideas, and in others we are not adopting the world's best available technology options. We need to better understand why this is so, so Canadian businesses can fix the gaps.

I've mentioned sound framework policies, high quality human resources and innovation as important elements in our Canadian drive toward 21st century growth, employment and prosperity. The final component that I want to mention this morning—and perhaps the most important to all of you—is physical capital, including public infrastructure for which you carry a big responsibility.

Since 1993, largely at the behest of the Federation of Canadian Municipalities (the FCM), our government has invested more than $12 billion to help rebuild and revitalize Canada's public infrastructure—streets and roads, bridges and highways, water, sewer and waste disposal systems, public transit, environmental upgrades, energy efficiency improvements, and a broad range of other community facilities from coast-to-coast-to-coast.

The fully leveraged value of this investment, in partnership with municipalities and provinces (and sometimes the private sector) now exceeds $30 billion altogether. All to make our cities and communities more attractive and interesting, healthy, safe and efficient—which in turn contributes to productivity and prosperity.

The success of our multiple federal infrastructure programs (no fewer than 10 of them all-told) led to another early precursor of the New Deal for Cities and Communities, and that is the Green Municipal Fund which we have now endowed with a total of $550 million, administered very successfully by the FCM, to target innovative environmental initiatives.

I am pleased that my two federal budgets in 2004 and 2005 were the key instruments in bringing the New Deal to reality. In the wake of those budgets, many of you were kind enough to note that the "new" deal had thus become a "real" deal.

We are providing a full rebate of 100 of the GST paid by local governments on all their municipal purchasing, as of February of last year. That will be worth up to $700 million per year, or $7 billion over the coming decade across the country.

We have accelerated our Municipal and Rural Infrastructure Fund to invest its $1 billion over five years, instead of 10. And we have signalled our intention to renew all three of our current infrastructure programs—Municipal and Rural, Strategic and Border—as and when they come due.

Most importantly, we have started to phase-in the sharing of the federal excise tax on gasoline. The necessary agreements were signed in Ontario in June. And as you know, your own organization will handle the administration of this initiative for your member-municipalities.

Over the ramp-up period of five years, the Government of Canada will be transferring $5 billion to municipal governments nationally, and then the ongoing sum of $2 billion per year thereafter—representing half of our federal gas tax revenues, exactly as promised.

Ontario cities and communities will gain a total of $1.87 billion during the ramp-up between now and 2009, and of that amount, the Association of Municipalities of Ontario will process more than $1.45 billion—the difference being the amounts that will go to the City of Toronto and to unincorporated entities.

Once the whole gas tax program is fully phased in, cities and communities in Ontario will have some $746 million to share each and every year.

And in the short-term, over the coming two years (contingent upon continuing robust federal surpluses), the Government of Canada will provide an additional $310 million to Ontario, specifically to help meet urgent urban transit pressures. This is the province's share of some $800 million nationally that was earmarked for this purpose during this spring's federal budget process.

Given a broad federal suite of funding measures to help support local governments—our three infrastructure programs, the Green Funds, full GST rebates, the new gas tax revenue and the Transit money—Ontario municipalities are now better positioned to deal with a broad range of local financial needs.

Border crossings. Urban transportation. Water supplies and wastewater treatment facilities. Waste disposal systems. Community energy projects. Roads and bridges. Cultural facilities. And more.

All of these undertakings contribute to attractive, productive communities and, consequently, to a more successful country with a higher quality of life. And I thank you for your partnership.

Symbolic of our work together, I am pleased to note that this is the week in which the Government of Canada is scheduled to deliver to the Association of Municipalities of Ontario the first instalment of your federal gas tax money.

It amounts to one-half of the total amount that will flow to you in 2005/06.

And since I was going to be in the neighbourhood anyway, I thought I might hand it over in person—to your President, Roger Anderson.

From the Receiver-General of Canada, the Honourable Scott Brison, on behalf of the Government of Canada and particularly Minister Godfrey—$87,150,000.00—for the municipalities of Ontario.

Thank you.