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September 12, 2005

Notes for Remarks by the Honourable Ralph Goodale, P.C., M.P., Minister of Finance, to the Winnipeg Chamber of Commerce

Good morning, everyone. Greetings and good wishes from the Government of Canada.

It is good to be back in Winnipeg once again—a city with strong and constructive representation within our government through Reg Alcock, Anita Neville and Ray Simard—plus your government senators.

It is a pleasure to work with them on such things as the Red River Floodway, the new Canadian Museum for Human Rights, the location in Winnipeg of the headquarters for the Public Health Agency of Canada, and the ambitious future evolution of what could become "Bio-Med" city. And many other undertakings—urban renewal projects and a new $120-million Canada-Manitoba infrastructure agreement, early learning and child care, Aboriginal issues, agricultural supports and much more.

I look forward to our efforts together, continuing to build Winnipeg, to build Manitoba and to build Canada!

One issue of importance to many Canadians is how to improve the nation’s equalization system—a system whereby the Government of Canada bolsters the fiscal capacities of less prosperous provinces, so they can afford an acceptable standard of provincial programs and services.

Last year we launched the biggest ever re-examination of equalization since it first began in 1957. We put a floor under the federal dollars available overall. That floor is $10.9 billion—matching the most money equalization has ever paid out! We will automatically index that floor by 3 per cent per year, every year going forward. We will reassess the whole program every five years.

And we have asked an independent panel of distinguished Canadians—including well-respected individuals with federal, provincial, territorial and academic expertise from all over the country—to give us their best impartial advice on how to divide up the available federal dollars among recipient provinces.

Last October, the provinces asked for two provincially selected members on this panel. We agreed. Between November and March we asked three times for the provincial nominees. We delayed the start of the panel to give the provinces lots of time to choose. But in the end, the provinces simply could not agree on any two acceptable people! That shows you how difficult this topic is.

But nevertheless, the federal nominees include strong provincial expertise. And the panel has consulted exhaustively with all provinces and territories—to be sure all are included and none are treated unfairly.

For the most part today, I’d like to make use of my time to focus on Canada’s economic prospects over the years immediately ahead.

To start with, we will be building on more than 12 consecutive years of steady economic expansion in Canada since the early 1990s—one of the best periods of sustained economic success in the nation’s history.

We also have the advantage of having the best fiscal performance of any country in the G7 group of world-leading economies over the last few years and the best fiscal record of any Canadian government since 1867.

Canadians have cause to be confident, but not cocky. We dare not take anything for granted. We have been chalking up some impressive economic and fiscal results, but at the same time the world around us has been changing in some dramatic ways.

For one thing, the price of energy. I can recall, during that period from 1997 to 2002 (when I was Minister of Natural Resources), the world price of oil ranged from as low as $11 per barrel to as high as $37 per barrel. Now, it’s almost twice that high. As a major producer and net exporter of energy, Canada earns a big upside from these prices. But as energy-intensive consumers, Canadians also experience a real downside, and recent figures from the Conference Board have shown a decline in consumer confidence, related in large part to higher energy prices.

Another change is in the value of the Canadian dollar. It has jumped by about one-third in just the past couple of years. Its higher value reflects Canada’s underlying fiscal and economic strengths, but it also makes export markets that much tougher to penetrate and necessitates adjustments in some sectors.

The situation in the United States has also changed. Their deep angst after 9/11 has now been compounded by the devastation of Katrina. Protectionism is strong. Interest rates are rising. Their trade and budgetary deficits are enormous. How long can those deficits just keep getting deeper? When and how will they get resolved? The spillover implications for Canada could be very significant.

Another big change is the emergence of new international giants like China, India and Brazil—representing fully 40 per cent of humanity. Increasingly well-educated, with full access to the most innovative technologies, these countries are massive consumers and low-cost producers with a powerful and increasing impact on worldwide supply and demand.

China and India also represent the realities of a new, smaller and flatter world—a world in which supply chains are not just local or regional or even national anymore, but truly global, in their reach and specialization. How do we ensure that Canada is positioned in the high value-added part of these global supply chains—performing the most complex processes here, creating the most demanding (and the most rewarding) jobs here?

And finally, in terms of change, let me mention one of the biggest yet to come—Canada’s impending demographic "time bomb," just around the corner, as our big baby boomer generation begins to retire in large numbers over the coming 5 to 10 years.

At least two consequences are immediately obvious.

There will be growing demand for health care services, pensions, retirement facilities and other age-related social programs. And the generation coming along behind "the boomers" will be smaller, meaning fewer people in the active workforce than before to pay the nation’s bills and maintain Canada’s rate of economic success.

In this welter of changes and challenges, I believe our goal and our "agenda" must be an increasingly smart and sophisticated economy with the wherewithal to compete at the high end of markets (reaching for the top, not the bottom) and the means to keep growing, notwithstanding a relatively smaller workforce.

An economy that is generating not just more jobs, but better jobs. Well-paying jobs. Jobs of the future and jobs with a future.

Higher incomes. More purchasing power. Greater economic security. A better standard of living. A stronger Canadian quality of life.

To begin with, a forward-looking Canadian agenda for continuing growth and increasing prosperity must be rooted in basic framework policies designed to ensure a climate in which enterprise will flourish.

Among other things, that means ongoing rock-solid fiscal discipline. Balanced budgets. Surpluses. And debt reduction.

I won’t belabour the point, but let me be crystal clear—our government and all Canadians have worked too hard and come too far over this past decade, sowing and harvesting the fruits of fiscal responsibility, to risk having that success frittered away. We will not let it happen!

As an aside—with our 8 consecutive surpluses since 1997 (after 27 previous years of chronic deficits and deepening debt), I am intrigued by the periodic frenzy among political and media speculators about the size of each year’s federal surplus. Earlier this summer, the pundits jumped on incomplete numbers released in May—extrapolating the arithmetic into a very large projected federal surplus for the fiscal year that ended last March 31st.

Despite repeated warnings about information and adjustments yet to come, the speculation continued—into the range of $8 billion or $9 billion. It is simply wrong! The final audited figures will be published within a week or two. I would expect the surplus for 2004–05 to be in line with what I projected in the budget in February—probably a bit lower, just as I have been saying all summer.

But we’ll be solidly in the black, as Canadians expect and support—all the premature speculation notwithstanding.

A second key framework issue is taxation—competitive taxation.

Since balancing the nation’s books in 1997, we have in fact reduced the tax burden on Canadians (both personal and corporate) each and every year. The cumulative tally is now well over $100 billion in federal tax relief already implemented.

My budget in February proposed another $13 billion in tax reductions over the next five years. Some of these were legislated in the spring. Others will be put before the House of Commons this fall. Our intention is to proceed with our full tax reduction plan, as promised and on time.

And the reason is quite simple. It’s not about tax breaks for the wealthy. With the greatest of respect, partisan sloganeering to that effect insults the intelligence of Canadians.

Our tax plan will take 860,000 low-income taxpayers off the tax rolls altogether. It is also designed to maintain, for Canadian businesses, our small but strategic tax rate advantage over the United States—to attract investment and create employment in Canada.

It’s all about jobs, jobs, jobs!

Also on the topic of getting the basic framework right for growth and prosperity, the Government of Canada needs to work harder on timely, more efficient regulatory regimes. We need international borders that are closed to terrorists and criminals, but open efficiently for business, trade, investment and immigration. And smoothly flowing internal trade with as few barriers as possible to the mobility of people, capital, goods and services.

In some of these domains, the active cooperation of other orders of government will be required:

• On the development of a fully integrated east-west power grid, for example.

• Or the proper recognition of the working credentials of new Canadians.

• The alleviation of provincial capital taxes.

• And—in an era of fully global capital markets—Canada needs a world-class securities regulatory system. (I used to joke that Bosnia-Herzegovina was the only other country with a system as fragmented and inefficient as ours. But I’m told that Bosnia-Herzegovina has since made some improvements. Surely we can too!)

Moving beyond basic framework issues, an agenda for Canadian growth and prosperity must also include investments in those key fields that propel a modern economy into the future. I’ll mention three—public infrastructure, our own homegrown brainpower and innovation (that is, the creation of new ideas and their commercialization into new products and services).

Let me touch upon each of these, just briefly:

Top-notch physical infrastructure is essential to a successful economy and a rising quality of life. It facilitates commerce, trade and tourism. It lowers the cost of doing business. It serves as a magnet to draw investment and people. It makes our communities attractive places in which to live and work.

Over the past decade, the Government of Canada has invested more than $12 billion in a dozen different infrastructure initiatives across the country, building roads, streets, bridges and highways, water and sewer systems, waste disposal facilities, energy and environmental projects, urban transit, parks, recreation and cultural centres, more affordable housing, and much more. The leveraged value of all this activity totals more than $30 billion nationally.

In addition to continuing our three current national infrastructure programs—one for regular municipal and rural projects, a second one for bigger-ticket strategic items, and a third for border issues—we are now providing two additional sources of new federal funding to local governments.

• A full rebate of the GST on all municipal purchasing. This will provide an average of $700 million per year across the country for the next 10 years.

• And sharing up to half of the federal excise tax on gasoline. That’s worth another $5 billion as it ramps up over the coming five years, and then $2 billion per year ongoing thereafter. For cities, towns and municipalities in Manitoba, this revenue-sharing plan will provide $167 million during the ramp-up and then something over $60 million per year ongoing.

Let me move on to innovation—that is, the creation of our own bright new ideas, the successful transformation of those ideas from the drawing board to the marketplace, and the adoption and adaptation in Canada of the best new technologies from around the world.

Since Canada began posting balanced budgets, the Government of Canada has invested more than $11 billion in new funding for research and development in Canadian universities and teaching hospitals.

Brandon University, the universities of Manitoba and Winnipeg, Red River College and St. Boniface General Hospital have made use of this support to conduct leading-edge science in everything from cardiovascular health to more efficient crop production and plant biology.

Our federal investments in this area have helped move Canada from sixth place to first place overall among G7 countries in terms of R&D conducted at universities and teaching hospitals. And we are determined not to lose that hard-won edge. We will maintain our leadership but publicly funded research—all by itself—is not sufficient.

The achievement of world-calibre sophistication in science and technology needs the indispensable push-and-pull of private investment too. In some important sectors, this is where Canada lags behind the United States. We’re ahead in government-sponsored activity, but behind in the private sector.

Some Canadian firms don’t do as much of their own R&D. Some are slower at commercializing their ideas. And some are not adopting the world’s best new technology options. Generally speaking, as a proportion of GDP, Canadian firms invest less in new machinery and equipment than their counterparts in any G7 country.

And it’s perplexing that this is the case, despite one of the world’s most favourable tax regimes for research and development, and despite strong corporate profit levels in recent years. We need to work closely with business leaders to identify the roadblocks and fix them.

Finally, I want to mention education, skills and lifelong learning—as perhaps the single most important element in an agenda for new growth and prosperity.

It should be our constant ambition that every Canadian should have an opportunity to experience the fulfilment…the freedom…the empowerment that flows from greater knowledge and understanding. And it’s not just a matter of personal success and satisfaction. In this knowledge-based, technology-driven, highly skilled and intensely competitive world, our country’s success will hinge on the quality of Canadian brainpower.

In fact, Canada does have one of the best learning records of any major economy. Among the G7, we have the highest proportion of people with some form of post-secondary education. Canadian high school students have, on average, the best scores in reading and the second-best in math and science.

That’s good, but such skills are still confined to a minority of our population. We must do better. Canada’s future depends upon it.

To this end, while education is a jealously guarded provincial prerogative, the Government of Canada invests more than $10 billion every year to support the nation’s learning system:

• More than $2 billion in cash flows every year to provinces and territories, through the Canada Social Transfer for post-secondary education.

• Another $1.7 billion flows through intergovernmental tax transfers.

• Close to $600 million goes to the so-called "have-not" provinces for education through the federal equalization system.

• More than $5 billion is invested annually in direct federal support for student scholarships, grants, bursaries and loans; in funding from our science councils and other federal agencies for university research chairs, graduate studies, indirect costs and other R&D initiatives; and tax breaks for students, learning and innovation.

• Plus, as provided in the budget this spring, there is additional federal funding for student access, early learning and child care, basic literacy, workplace training, immigrant settlement, foreign credentials and Aboriginal education.

Our country will need to keep sharply focused on issues like these.

One important priority I see for the future is university training designed specifically to meld scientific expertise with commerce or business administration. This is a combination of disciplines that is all too rare in the world around us and one that could be in great demand.

An important consideration going forward will be how and where to inject additional federal support. At a time when federal transfers to provincial governments are at an all-time record high and rising automatically from year to year, there is not a compelling case for just "more of the same."

The debate about learning should not be about how much money gets recycled from one order of government to the next, but rather how much net new money each order of government is actually putting into education.

It must be truly incremental and it is often best done directly, carefully respecting each government’s sphere of jurisdiction.

Higher education. A culture of innovation. Strong public infrastructure. Clear framework principles, including competitive taxes and fiscal prudence. All to what end? To keep Canada successful!

A confident Canada that stands as a beacon of tolerance and cohesion amidst great diversity—a rare achievement in this rancorous world.

An inclusive and caring society in which fairness and equality of opportunity are the measures of our progress.

A clean and green country that safeguards its rich natural heritage.

A respected people with a clear sense of our global responsibilities—diplomacy and peacekeeping, defence and security, foreign aid and the advancement of human rights and freedoms.

And all of this underpinned—enabled and paid for—by a truly excellent Canadian economy.

That is our 21st century agenda!