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July 26, 2004

Notes for Remarks by the Honourable Ralph Goodale, Minister of Finance, at the Public Sector Pension Conference

I think it was Woody Allen who said that 90 per cent of success in life comes from just "showing up"! Four months ago, when I accepted your invitation to speak at this luncheon, there were three hurdles in the way of my being able to "show up" today.

First, I had to get re-elected to Parliament as the MP for my home riding of Wascana. And I want to thank my local electors for the generous personal support which they provided on June 28th.

Second, our government had to get re-elected—which it did, albeit in a minority situation. We are grateful to the people of Canada for renewing our mandate. We also want to assure Canadians that we are reading, with great care, the pointed message that was delivered in the election results.

Included in that message, I believe, is strong personal support for the leadership of Prime Minister Paul Martin, plus an endorsement of the fundamental values and priorities embedded in our election platform. But Canadians are also insisting—and rightly so—on high ethical standards, strong and careful management, transparency, accountability and genuine value for the taxpayers’ money.

The third hurdle that had to be cleared—to allow me to "show up" today—was the Cabinet selection process last week. I am pleased the Prime Minister asked me to continue as Canada’s Minister of Finance—a role that now becomes more complicated in the context of a minority government.

We will need to be responsive and flexible in facing all the unpredictable pressures that will emerge from the new dynamics of a very different House of Commons. At the same time, we need to be firmly rooted in the disciplines of fiscal responsibility, prudent planning, sensible debt management and consistently balanced budgets.

After a whole generation of deficit financing—through nearly three decades prior to 1997—Canadians have simply worked too hard and come too far in cleaning up the nation’s finances to fall back now into self-defeating red ink once again.

Canada’s current economic situation is cause for some reasonable optimism.

Despite severe acute respiratory syndrome (SARS) and bovine spongiform encephalopathy (BSE), Ontario’s power blackout, droughts, a hurricane, forest fires and a big jump in the value of our currency—all within the space of about six or seven months last year—we still finished 2003 with better economic growth than many had ultimately expected.

And 2004 has started well. Both domestic and foreign demand have been strong.

Here at home, thanks to continued low interest rates and rising levels of disposable income, consumer spending grew at its fastest pace in four years in the first quarter of this year. Canadian companies are adding more equipment and machinery to their operations, boosting business investment to levels not seen since 2001.

At the same time, our exports—so vital to the health of the national economy—also began to pick up in late 2003. The appreciation of the Canadian dollar notwithstanding, foreign demand for Canada’s energy products, machinery and equipment, and industrial goods and materials has been growing. And the strengthening of global economies this year, led by the U.S. and China, should keep our export levels and our current account surplus in healthy condition.

On the jobs front, in the first half of 2004, the Canadian economy generated more than 110,000 new jobs—virtually all of them full-time. On an annual basis, our most recent tally stands at 342,000 new jobs since August of last year. With healthy consumer and business confidence, private sector economists expect sustained employment growth for the balance of 2004.

Meanwhile, higher energy prices have pushed up the inflation rate in Canada to 2.5 per cent. But it still remains within the 1 to 3 per cent band which was established jointly by the Government and the Bank of Canada as a desirable target range more than a decade ago.

While I always try to avoid jumping to any premature conclusions, all factors taken together, it is probably fair to say that Canada’s economic prospects have improved somewhat since the time of the federal budget in March.

So I have continuing confidence in our ability to implement the "Agenda for a New Decade of Achievement," which we set forth in that budget and upon which we elaborated in our election platform.

Our platform priorities for the coming five years are clear.

Fixing and funding health care is unequivocally Job Number One—and the subject of a major First Ministers’ Meeting in September.

Plus, in this mandate we want to address:

• early childhood development, learning and care;

• the well-being of seniors, the disabled and their caregivers;

• the further promised elements of a New Deal for Canadian cities and municipalities;

• the pressing needs of Aboriginal Canadians;

• measures to foster ongoing economic growth, innovation and commercialization, better productivity, greater competitiveness and higher standards of living;

• and internationally, the application of Canadian expertise in peacemaking and nation-building around the world.

All of this, of course, with a fiscal bottom line that is solidly in the black, as promised.

Also as promised in the 2004 federal budget, we have re-established the Office of the Comptroller General of Canada. We have recruited a senior professional from Ernst & Young, Charles-Antoine St-Jean, to fill that crucial role, and we are installing professional comptrollers to work with him in every department of government.

We are also implementing a stronger internal audit system throughout the Government, more transparent reporting procedures and new standards for the governance of Crown corporations, all part of our commitment to better management and stewardship.

That commitment is also buttressed by our expenditure review process, which we intend to be an ongoing effort to renew and rejuvenate government. Re-examining all expenditures. Testing for relevance and excellence. Shifting existing spending from lower to higher priorities.

To deliver in full on our policy agenda for the coming five years, we want to find at least $3 billion for ongoing reallocations—freeing up some fiscal space within current expenditure patterns to tackle the issues which Canadians say are the most important.

That sounds easy enough—given annual government spending of about $180 billion. Surely we could find $3 billion in internal flexibilities. But after you deduct mandatory things like debt-servicing costs, transfer payments to the provinces, federal pension entitlements, emergencies, public safety and national security—real discretionary federal spending is more in the range of $50 billion per year. And that makes the necessary reallocation decisions a lot tougher.

But we must not shrink from the challenge. Reallocation is an essential part of fiscal responsibility, sensible management and modern governance.

Another essential challenge that we must face—one that’s of prime importance to your industry—is Canada’s changing demographics.

By the end of this decade—just six or seven years from now—we will see the beginning of the retirement of the big baby boomer generation, the largest generation in history, with significantly smaller numbers coming after them. More people will be drawing upon our highly valued social programs. And fewer taxpayers will be contributing to them.

Today there are five Canadians in the workforce for every one retired person. Within the next 10 years that ratio will drop from 5-to-1 to about 4-to-1, and by 2030 it will be cut in half. That’s a big change with big implications, both social and economic.

That’s why it is crucial for us to work so hard right now to put our Canadian health care system on a solid and sustainable footing—not just for a year or two, but for the long term.

Similarly, with the Canada Pension Plan (CPP), it was crucial a few years ago for Canada and the provinces to make the changes necessary to render the CPP actuarially sound for at least another 50 years. We are one of only a very few nations to have so secured our pension system.

But the CPP is only one part of Canada’s retirement system. The people in this room are another big part of it. And our government stands ready to listen carefully to your concerns—always seeking to act in the public interest—to help ensure that the needs of pension plan members across the country are met.

In that connection, let me say a brief word about an issue of concern to some of you, and that, of course, is business income trusts.

As you know, the March budget proposed measures to limit the size of investment and the degree of participation by pension funds in business income trusts.

To date most of the larger pension funds have not been active investors in the growing business income trust market—mainly because of concerns about potential liability. But provinces (like Alberta and Ontario) are moving on new legislation to deal with liability issues, and in this context, more pension funds may consider more active involvement in business income trusts.

Pension funds play an important role in Canadian capital markets. And their unlimited participation in business income trusts could significantly impact government revenues due to their tax-exempt status.

Once the budget flagged this concern, a number of pension managers raised issues about the proposed limitations. On the other hand, others from the business community expressed their agreement with the budget measures.

Given the clear differences of view, in mid-May I agreed to suspend the limits on pension fund investments in business income trusts to allow adequate consultations to take place. I will provide further details about the consultation process later this summer. In the meantime, we will continue to monitor developments in the income trust market.

Once our consultations with industry representatives and other governments are complete, we will bring forward proposals which, I hope, will take fairly into account the interests of all stakeholders.

Beyond health care and pensions, the big demographic change just around the corner will also have other impacts.

Some economic modellers are predicting that the massive retirement of baby boomers, followed by a much smaller population cohort, could actually stunt overall economic growth.

As you know, real gross domestic product (GDP) growth results from an expanding workforce, plus increasing productivity. The more slowly our workforce increases, the less we will be able to rely upon its sheer expansion for real GDP growth, and the more we will be dependent upon productivity increases alone. This future prospect carries several significant implications.

First, Canadians in both the public and the private sectors need to strengthen their focus upon the achievement of truly superior productivity gains. That is why we cannot afford to lose the momentum we have built up in recent years toward greater Canadian innovation, scientific research and development, and the application of new technologies—with increasing emphasis upon more effective commercialization.

We must continue to bolster the quality of our homegrown Canadian brainpower, including more and better access to all dimensions of post-secondary education.

Of all the countries in the Organisation for Economic Co-operation and Development, Canada has the highest percentage of its population with post-secondary qualifications. But at 41 per cent, as "the world’s best," we can still do better and we must—within a solid continuum of lifelong learning, beginning in early childhood.

We will also need greater immigration and the more expeditious settlement of new Canadians, including language skills and the appropriate recognition of foreign credentials.

And we’ll need the better support systems that will help more low-income Canadians develop stronger and more successful attachments to the workforce. In particular—and especially here in western Canada—we need to bridge the gaping socio-economic gaps between Aboriginal and non-Aboriginal Canadians.

Unlike the rest of our population, the Aboriginal segment of Canadian society is growing rapidly and, on average, getting younger—50 per cent under the age of 25. But Aboriginal people are grossly under-represented among those economic indices that measure productivity gains.

For both Aboriginals and for Canada, there is a large untapped opportunity here that should receive high-priority attention.

Finally, as increasingly acknowledged by all G-7 governments, public debt reduction remains an important fiscal objective—especially in the face of an aging population. With more people relying upon social programs and with fewer active taxpayers, we will need to be very careful about our fiscal flexibility and sustainability.

Simply stated, the more old debt we are still carrying in 5 and 10 years, the less able we will be to respond to the growing needs of all those retired baby boomers. And that is an important point for all of us to keep clearly in mind—on all sides in a new minority Parliament.

No one should underestimate the challenges of Canada’s new political reality. Minority governments require all parties to pay close attention, to manage events with care and to show unprecedented levels of respect—toward our parliamentary institutions and toward each other.

There must be a constant search for constructive consensus.

And as Finance Minister, I am pleased at the outset that all parties in the recent election did agree upon one thing—the clear need for ongoing fiscal responsibility and balanced budgets. No one campaigned in favour of deficits!

So we’ve got some common ground to start on.

At the bottom line, Canadians have had their democratic say and they have elected the Parliament they want. It is now incumbent upon all of us who carry the public’s trust—in both government and opposition—to make this Parliament work as Canadians would expect.

Thank you.