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Ottawa, January 13, 2004
2004-004

Speech by the Honourable Ralph Goodale, Minister of Finance, to the Board of Trade of Metropolitan Montreal

Montréal, Quebec

Introduction

Hello. Ladies and gentlemen, dear friends.

It is always a pleasure for me to visit Montréal. This is not the first opportunity I have had to speak at an event organized by the Board of Trade of Metropolitan Montreal. In June 2003 it was in front of the members of your board of trade that I announced changes to the federal government’s practices with respect to public opinion research. I want to thank you for your pre-budget submission. I look forward to reading it in detail.

Today I am here in my new capacity as federal minister of finance to consult the people of Quebec on priorities for the next federal budget. After all, Montréal is the economic engine of Quebec. It is a great Canadian city with an economy and a society that are dynamic, solidly Québécois and francophone, but also open to the finances, technologies and cultures of the whole world. It is also the metropolitan area represented by Prime Minister Martin. And, you know, it is always a good idea for a minister of finance to listen to the people the Prime Minister represents in Parliament.

Before going any further, I ask you to be patient with my French. I am a guy from Saskatchewan and I am not yet perfectly at ease in French. But, you know, Quebecers are known for their great tolerance. So I am convinced that my efforts to correct this deficiency will not be in vain.

But, ladies and gentlemen, let me tell you this. No matter which official language I speak today—and I will use both to the best of my ability—I will be delivering a consistent set of core messages. They are shaped by the basic language which the vast majority of Canadians speak, and that is the language of common sense.

Canadians instinctively understand the proposition that a strong economy and a secure society go hand in hand. Both are essential building blocks for a greater Montréal, a greater Quebec and a greater Canada.

Canadians understand that good government is about living within our means; that every dollar counts and must be spent wisely; that good government is about making wise choices, including not only balancing our books, but also finding and maintaining the right "balance" among the many competing economic and social priorities of Canadians.

This afternoon I will participate in a roundtable on priorities for the next budget of the federal government. At that roundtable there will be business people, of course, but also representatives of social groups. I want to make this initiative a consultation exercise that is inclusive, not exclusive.

Here, as elsewhere in Canada, I will be listening to Canadians about how we can launch a new decade of achievement for Canada.

To be more precise:

How can we strengthen Canada’s social foundations?

How can we build an economy for the 21st century?

How can we ensure Canada can play a relevant and influential role in the world?

All that, while ensuring that we have a sound public administration with balanced budgets, debt reduction and prudent management of spending?

Why Balanced Budgets Matter

Why this firm commitment to a sound financial environment?

Simply put, balancing the budget in 1997–98 was a watershed event for our country. The transformation in our fiscal situation was nothing short of revolutionary. It was a fundamental turning point for our economy. Balanced budgets are not only good fiscal policy, they facilitate better economic performance and better social performance too. And Canadians understand this. They have told us loud and clear that maintaining a balanced budget is our fiscal job number one.

Since Mr. Martin, as finance minister, first balanced the books in 1997–98, we have had six consecutive surplus budgets. The federal debt has been reduced by more than $52 billion. The total government debt-to-GDP (gross domestic product) ratio has gone from the second worst in the Group of Seven (G-7) to the second best. We are the only G-7 country to have stayed in surplus during recent global economic turmoil.

The benefit of $52 billion in debt reduction over the last six years is clear and compelling. Today we are paying $3 billion less a year in interest payments on our debt. That is money that year after year is now going to Canadian priorities such as health care and learning, instead of paying bondholders around the world. We need to keep reducing our debt to make sure taxpayer dollars can go, more and more, to improving the lives of Canadians, while we avoid further mortgaging the future of our children.

But balancing the budget is not an end in itself. It is a means to building a better Canada for everyone. A solid fiscal situation is the prerequisite for robust, and sustained, economic growth. And strong economic growth translates into more jobs for more people. It boosts government revenues, allowing us to invest more money in the social priorities that have helped define Canada as a caring and compassionate nation.

Economic Prospects Mixed

The economic payoff from balanced budgets, debt reduction and low inflation took Canada to the top of the G-7 growth charts over the 1997 to 2002 period.

But 2003 was another matter. Canada was hit by an unprecedented series of economic blows, ranging from the severe acute respiratory syndrome outbreak and a major power blackout in Ontario to forest fires in British Columbia, a hurricane in Atlantic Canada and mad cow disease on the Prairies.

At the same time, the Canadian dollar soared by more than 20 per cent against the U.S. dollar last year. This rise was in part the result of sustained weakness in the American currency, which also fell against the British pound, the euro and the Japanese yen. The rising Canadian dollar contributed to a decline in the volume of our exports over the past four quarters.

These developments cut heavily into Canada’s growth in 2003. Private sector forecasters now believe our economy grew by 1.6 per cent last year, which is about half as much as originally forecast in the 2003 budget.

In spite of the economic shocks we experienced in 2003, Canada’s economy was remarkably resilient. As we enter the new year, it looks poised for stronger growth.

• First, the robust growth in the U.S. economy is expected to boost Canadian exports to the United States. The question mark is how much the rapid appreciation of the Canadian dollar will reduce the positive impact of U.S. growth.

• Second, consumer and business demand remain positive in Canada. Consumer spending was very strong in the third quarter, and business spending is recovering.

• Third, employment growth is picking up again. Over the last four months, the Canadian economy has added 219,000 new jobs.

• And finally, inflation is below the mid-point of the 1 to 3 per cent target range set by the Bank of Canada. As a result, interest rates remain low.

On balance, private sector forecasters predict that Canada is likely to achieve economic growth of close to 3 per cent this year. While that is an improvement over 2003, it is still below the 3.5 per cent forecast in the last budget. And, when combined with the weak 2003 economy, it leaves us with a sizeable gap relative to Canada’s potential performance. Until this ground is regained, it has a direct impact upon our fiscal situation.

Fiscal Challenges Ahead

In light of these economic developments, it is clear that our government faces fiscal pressures not just in the current year, but also over the next two to three years as well. And that means, given our firm commitment to a sound financial environment and a new decade of achievement, we had to take actions immediately to protect the bottom line and free up resources for our priorities. Within five days of taking office, we launched a series of measures to deal with immediate pressures and medium-term priorities.

For 2003–04 the federal government is forecast to post a surplus of $2.3 billion. However, we have agreed to provide the provinces and territories with up to an additional $2 billion for health care from any surplus, once our books are closed at year-end. Doing so, however, would leave us with only $300 million in contingency funding between now and the end of the fiscal year. This cushion is simply not enough to protect our commitment, especially when you consider the kind of shocks we have experienced over the last 12 months.

With this in mind, effective immediately:

• we are closely scrutinizing every expenditure that remains to be made in the current fiscal year;

• we have frozen new capital spending; and

• we have placed a cap on the overall size of the public service.

These measures should enable us to both balance the books and provide a high degree of assurance to the provinces and territories that the $2 billion in surplus will be there at year-end for health care.

For 2004–05 and beyond, we must also deal with some unfinished business. In Budget 2003, a commitment was made that the Government would find fiscal savings of $1 billion every year through reallocations from lower to higher priorities. These savings were secured for 2003–04. But they have not yet been found and implemented for subsequent years.

My colleague, the President of the Treasury Board, has been given the task of achieving this target. He will do so by the time of the next budget. And, for those of you who do not know my colleague, Reg Alcock, I can tell you that he is not the type of man to back away from a challenge. I have no doubt that he will succeed.

We have also launched a thorough review of government programs. Our objective? To provide better management of taxpayer dollars and reallocate resources to respond to the needs and priorities of tomorrow.

To this end, we have created an Expenditure Review Committee. This committee will conduct an extensive and rigorous review of all our spending before the 2005 budget. Our goal is to instill a whole new culture in government—it is called respect for taxpayers. And its watchwords are "expenditure review" and "reallocation."

Ladies and gentlemen, that is what this is all about. It is about making the right choices and freeing up resources to invest in the things that matter most to Canadians. It is also about continuing to meet, or better, our fiscal targets. It is about managing risks by being prudent in our budget planning so that we do not go back into deficit.

Consider this. With an annual budget of some $180 billion, a mere 2-per-cent miscalculation in our revenues can result is a swing of $3.5 billion. Are we being too prudent? I think a world-beating record of six consecutive balanced budgets speaks for itself. Quite frankly, I ask, would Canadians want the alternative—going back to the bad old days when governments wore rose-coloured glasses and would forecast balanced budgets, but always delivered ever-increasing deficits?

Priorities for the Future

Our fiscal resources may be tight for the next while, and we will cut our cloth appropriately. But while short-term resources might be limited, our longer-term agenda is not—it is ambitious, it is transforming, it is exciting. As the Prime Minister put it, we have a decade of historic possibility before us. And, like him, I believe that the time has come for this country to aspire to and achieve great things.

The Prime Minister has outlined his vision for achievement. It focuses on three imperatives: strengthening Canada’s social foundations, building a 21st century economy and ensuring a place of pride and dignity for Canada in the world. These imperatives will serve as guideposts for my pre-budget discussions with Canadians from coast to coast over the coming weeks. In short, I want to hear your ideas on how we can address the fundamental issues we face in the next budget.

For example, how can we strengthen and reform our health care system while coping with our fiscal realities? How can the federal and provincial governments work better together to reduce waiting lists and improve access to health care?

With respect to our cities and communities, what must we do to help them answer the needs of their citizens? How can we transform our cities into economic advantages for Canada while maintaining the quality of life they offer?

How do we ensure learning opportunities for Canadians at all stages of their lives? How can we best cope with an aging population? How do we ensure our seniors enjoy dignity and a high quality of life as their numbers and life expectancies continue to grow?

I want to hear from Canadians about our approach to financial management. How can we be better stewards of taxpayer dollars? How rapidly should we reduce our debt? Should we set a formal debt-reduction target? What about further tax reductions? Should they be a high priority, and where should we focus our efforts?

I want to hear from you about how best to build an economy that can succeed in the 21st century. How can we encourage innovation, research and development in Canada? What actions can our government take to make our economy more productive and competitive? How do we improve the productivity of our nation, in a way that both seizes the opportunities of technological change and advances the quality of life of our citizens?

And I want to hear from you about our place in the world. How can Canada best play a practical and constructive leadership role in global affairs? In particular, how can we refocus and reinvigorate the relationship we enjoy with our largest trading partner, the United States? What steps can we take to strengthen our common border and promote a safe and secure North America? And how do we safeguard our independence and sovereignty?

Needless to say, there are no easy answers to these questions. At a minimum, they require clear priorities, specific goals and, at times, difficult choices. Why? Because government cannot answer all demands from all people all the time. We must, therefore, clearly understand what our objectives are at the national level and make the choices that are necessary to launch our new decade of achievement. The answers we develop will be crucial if we want to find the best path for our country in a world of fierce competition and uncertainty. These answers must be based on clear analysis and solid confidence in ourselves.

That is why I am in Montréal today. I have confidence in the wisdom and common sense of Canadians. I want to know what they think, where they live and where they work.

Conclusion

Ladies and gentlemen, a new year has meant a new beginning for Canada, with a new prime minister and a new team of ministers. This team is committed to serving Canadians and to doing its very best to ensure that Canada remains strong, united and prosperous.

Let us resolve to make 2004 the first year of a new decade of achievement for our country, a decade during which we will build an economy that is stronger and more dynamic than ever, stronger social foundations based on Canadian values, and a constructive, independent and compassionate voice for Canada in the world.

The discipline and wisdom that we show, together, in making our first budgetary choices for the short term will consolidate our strength and build the fiscal space and opportunity for our future creativity and achievement—the new agenda of the 21st century.

Thanks to all of you and thanks also to Infoman, who has made a new friend of me for 2004. Such visibility in Quebec for a minister from Saskatchewan is invaluable.

Thank you.