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Ottawa, October 10, 1995
1995-082
Notes for an address by the Minister of Finance of Canada, Paul Martin, to the Canadian-American Business Council
Washington, D.C.
October 10, 1995
Delivered text is official version
Distinguished guests, ladies and gentlemen.
I would like to thank the Canadian-American Business Council for this opportunity to talk to you about Canada - about the successful Canada of today, but more importantly, about the stronger Canada you will see in the years ahead.
First, I want to talk about what we're doing to create jobs, boost incomes, and sustain social well-being. Within this context, I would talk to you as well about the need to restructure the very shape and thrust of government itself.
Second, I would like to look beyond Canada to the international arena. And there's hard logic to that leap.
Canada, along with all other nations, must implement the fundamental policies necessary to secure jobs and growth. But, in an era of growing globalization and deepening inter-dependence, domestic policy action alone is not enough.
We all have a responsibility to make the international system work better as well. Why? Because everything we do at home, every action we take, can be put at risk - even scuppered outright - by events thousands of miles away.
Jobs. Growth. Social well-being. International stability. These are not abstract issues. They are the nuts and bolts of nation building.
So now let me turn to the strategies our government has put in place for economic progress - and the vision that guides us.
We intend to maintain Canada as the best place in the world to live.
This means a Canada that creates the jobs we need, and the conditions for sustained, lasting economic growth. A productive, innovative Canada, whose people and their businesses are world-class competitors. A nation that investors trust.
These goals may sound ambitious. But it requires no stretch of the imagination to be bullish on Canada's prospects - and on our capability and absolute determination to follow through on the course we've set.
As a nation, Americans celebrate their challenges and achievements. In Canada, we too often tend to confess ours - reluctantly admitting that we do "okay."
But make no mistake, that Canadian "okay" includes much that is excellent by any standard.
For example the United Nations' "human development index" - combining life expectancy, education and income - has once again rated Canada as No. 1 in the world.
All of this of course, does not mean that we do not have problems to overcome, weaknesses to mend.
In the 1970s, '80s and early '90s, we let productivity lag. And we saw government spending and debt surge.
But today the country is responding with aggressive, concrete policies:
Policies to keep inflation low, and boost productivity.
Policies to get interest rates down and keep them down.
And as a result, most would agree that we are poised for renewed growth through '96, '97 and on.
For instance, we are currently enjoying the lowest inflation rates in three decades. This will continue. Indeed, the belief in the benefits of low inflation is now firmly embedded in the Canadian psyche. Let me assure you - we paid a heavy price to get these low inflation rates - we will never let them get out of control again.
And that in turn is boosting our productivity 'muscle.' Last year, Canada's unit labour-cost performance was the best in the G-7 by a wide margin.
Inflation, productivity - these are crucial to any jobs package. So is deficit reduction. I'd like to spend a bit of time talking to you about that.
First, I would like to underscore that our government's absolute determination to erase the deficit is all the stronger because it is not derived from a simplistic fiscal ideology. It comes instead from three individual, yet quite inter-related convictions.
One: From the beginning, we knew that, without a successful attack on the deficit and debt, our jobs and growth commitment would be stillborn.
Two: We recognized that a voracious appetite for debt was leaving us beholden to international lenders, vulnerable to volatile markets and thus clearly jeopardized our sovereignty.
Finally: We also felt strongly that economic indicators are just one measure of national success. That is why the course we've set includes making sure we can - we will - sustain the values that are so much part of our national identity.
For those of us who believe in a pro-active role for government, the fact that surging debt charges were crowding out needed spending on our most valued social programs - like health care and old age security - was simply unacceptable.
No one should question the absolute commitment of our government - of all Canadians - to Canada's Medicare program and to a fair and sustainable system of protection for our seniors.
These are the reasons that we campaigned on a commitment to ultimately balance the budget. And we said the first step would be to meet a specific interim three-year target, to reduce the deficit to 3 per cent of GDP by 1996-97.
We began to turn the corner with our first budget in February '94, followed this year by what many have called the most ambitious - certainly the toughest -Canadian budget of the post-war era.
Shortly, we'll be releasing the financial results for the last fiscal year. I can tell you we have kept faith with our commitment.
I can also tell you that, despite slower growth than expected this year, we remain on track, and next year we will hit our 3 per cent target on schedule.
Indeed, our market borrowing requirements - equivalent to the Unified Budget Basis deficit here in the U.S. - will be down to 1.7 per cent of GDP by 1996-97. That's projected to be the lowest deficit among G-7 central governments.
Getting there takes tough decisions. And we made them.
We're taking $29 billion in deficit-fighting action over three years. That's the same as taking $210-billion in such measures here in Washington.
And we are not doing it by relying on tax increases. The course we set was to focus overwhelmingly on carefully considered spending cuts. These outweighed revenue action by a factor of 7-to-1.
Furthermore, these were not cuts that merely slowed the rate of growth in program and departmental spending. They were real cuts - year-over-year declines. In fact, I believe we are the only member of the G-7 to be projecting an absolute drop in program spending.
By 1996-97, federal program expenditures will be just over 13 per cent of our economy. That's the lowest level since 1951.
Finally, what is of greatest importance, starting in 1996-97, our debt to GDP ratio will have been put on a modest but irrevocably downward track. This is, of course, the real key to fiscal sustainability.
But these facts and figures tell only part of the story.
What we've really tried to do is change the structure of federal government spending. Since our fiscal problem is structural, it's obvious that our remedies had to be structural as well.
For example, it was clear that many long-standing business subsidies were in fact hurting our competitiveness.
So in last February's budget, we cut them by 60 per cent over the next three years.
I don't want to belabour the "hows" of our fiscal reforms.
But I would highlight one point which is the subject of current debate in many of the industrialized democracies.
We've adopted a two-year deficit horizon, rolling the second year's target forward one year at a time. This means we've rejected the traditional approach where, typically, a balanced budget would be projected five or more years down the line.
I can tell you frankly, in the Canadian context - with federal elections about every four years - that's political never-never land.
With our two-year rolling targets - and our very public promise to hit them "come hell or high water" - our feet are held to the political fire now. And maximum pressure is kept on government to deliver promised savings, regardless of the circumstances.
Looking ahead, our commitment to stay the course of fiscal recovery is unequivocal.
In our next budget, we will set out a new deficit target that will take us beyond 3 per cent for 1997-98.
All this being said, these budgets are clearly much more than simple cost-cutting exercises. What we have really launched is a fundamental reappraisal of the appropriate role of government.
The context for such a reappraisal is an increasingly interdependent global economy. The truth is that the limits on the ability of governments everywhere to decree social and economic outcomes have become starkly apparent.
The nation state is evolving. How can its governments be immune from the process?
In both the domains of social and economic policy, we have a responsibility to begin distinguishing clearly between those things governments can do, and those they can not.
In short, it's time for governments to come clean and stop creating - or giving in to unrealistic expectations.
It's true that this will lead to governments that are smaller.
For some, this is an objective in itself. For us, it is simply a means to an end.
We believe that government should do only what it can do best, leaving the rest for those who can do better - whether business, labour, or the voluntary sector.
But, in the end, the bottom line must be more effective government - a government that has regained its capacity to assist the disadvantaged. A government that's more adept at providing those things the private marketplace by itself cannot.
This means we must, as never before, concentrate on setting priorities. Achieving the needed transformation poses a very large challenge.
That's because the habits and incentives of bureaucrats and politicians, and the institutions they have created over the past 50 years, have all been adapted to the "fiscal growth" of government.
For Canada, those days are gone. This means we have to find ways to get more leverage - more bang for the buck - in everything we do.
That's not easy. In most countries, governments are only now learning to act as creatively as they must in the environment of static or shrinking financial resources.
In Canada we have to do it now because more effective government is critical for our success in the increasingly open global economy.
This economy is Canada's work place. It's where we have to win.
We have always been a trading nation. We depend more on trade than any other major industrial country. Exports represent almost 38 per cent of our economy. That means we export three times as much per person as the U.S., more than double the level of Japan.
And this then, brings.me to the second issue I want to highlight. The need for a sound international structure, a constantly improving international architecture.
It is why I am here in Washington, meeting with fellow G-7 finance ministers, and with my colleagues on the governing committees of the International Monetary Fund and the World Bank.
Domestic policy action is essential for economic gain. But, by itself, it won't guarantee complete success.
Canada depends on foreign capital. As a small domestic market, we need to borrow to finance new technology, and seize new opportunities.
Thus, the growth and integration of global capital markets - with currency flows well over $1 trillion every day - has created further opportunity for us. But it also exposes Canada to dramatic new risks.
The Mexican peso crisis was a compelling example. The flight of capital zapped markets and interest rates around the world. It drove home that no nation - not even powerhouses like the United States of America or Japan - is immune to the decisions of a handful of traders, their lap-top computers, or their corporate treasuries.
For developing nations, and for economies in transition, there are further critical concerns: The competition for aid and investment. And, even more basic: domestic security and peace.
These were key issues at the June summit of the G-7, which Prime Minister Chretien hosted in Halifax. There, we set out a number of broad issues and initiatives for institutional reform. And we have been pursuing those issues again here in Washington.
The IMF has begun to seize the nettle aggressively. We believe that it is clearly the best equipped institution to acquire and share the information required to make reasonable, reliable appraisals on national policies and market developments. This is information needed not just by partner governments, but also by private sector analysts, rating agencies and investment houses.
That's why we support both more information to the IMF, and increased transparency by the IMF.
The meetings this weekend of the World Bank and the International Monetary Fund were quite successful in this regard.
But despite this, in some areas, there have also been real disappointments.
In particular, Canada is disappointed that almost all the meaningful reform activity is centred in the Washington-based institutions.
At the Halifax summit, we made clear that a critical examination of the entire international institutional framework is needed. In short, Canada feels that a genuine effort to tackle reform of the United Nations is long overdue.
Addressing the consequences of globalization has clearly become one of the paramount issues facing all nations. It is an issue of fairness, equity to the less well-off, to the poorest of the poor.
It is also a fact that global peace and development as much as stable capital markets mean jobs and opportunities for us all.
To this point, I've focused on where Canada is coming from - and where we're heading: On key challenges we face at home, and in the international arena.
I would now close on another issue, one that must be dealt with in the context of a successful Canada operating in a world of ever expanding horizons.
This month, the people of Quebec - my home province - will make a clear choice: to abandon our federation or to remain partners in its bold evolution.
Let there be no doubt. Federalism and unity will win for many reasons, one of which is because the true Quebec is a vibrant society that looks ahead in the 21st century.
We will win the referendum because inward-looking isolationism has been a failure across history and around the world. Quebecers know that, Quebecers are not inward-looking.
Modern Quebec is a province whose citizens are not blind to global currents and a changing world order. They understand the though economic and scoial challenges we face for growth, good government and preserving social programs.
Quebecers know that a Quebec within Canada is best positioned to keep conquering the markets of the world. Quebecers understand that our economic vitality and cultural health will continue to be enhanced within Canada not without.
Quebecers recognize that our language and culture have flourished as part of a large, vibrant, internationally admired nation. Quebecers understand that the challenges we continue to face - creating jobs, improving productivity, protecting our social safety net - can be best met within a strong, competitive, Canada.
The Canada, Quebecers are committed to strengthening.
The Canada, all Canadians are committed to strengthening.
Thank you.
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| Last Updated: 2002-11-26 |
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