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September 30, 2004

Speech by the Honourable Ralph Goodale, Minister of Finance, at the 2004 Diplomatic Forum Regina, Saskatchewan

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

And welcome to my hometown. Regina is the home of the RCMP, Girl Guide cookies and the longest bridge over the shortest span of water in the world. And welcome to the province of Saskatchewan, birthplace of medicare and Joni Mitchell. And where next year, we will be celebrating our 100th anniversary as a province in the great Canadian mosaic.

As heads of diplomatic missions, you are, of course, an important part of Canada’s window on the world—a way for us to connect with your countries, and for your countries to connect with ours. I understand, later in the forum, you’ll be hearing as well from my federal cabinet colleagues, the Honourable Pierre Pettigrew, Minister of Foreign Affairs, and the Honourable Jim Peterson, Canada’s Minister of International Trade.

As finance minister, one of the best parts of my job is having the frequent opportunity to talk about Canada’s fiscal progress and economic outlook.

For the last few years, this has been more pleasurable than in years past. It is only since 1997, after nearly three decades of continuous deficits, that Canadians are reaping the tangible benefits of sustained fiscal responsibility. Only since 1997 have Canadians escaped the "vicious circle" of annual deficits, rising debt, higher interest rates, high taxes, slow—or no—economic growth and lost jobs.

Today, that vicious circle has been replaced by a different one—a "virtuous" circle of seven consecutive surpluses, a declining debt burden, rising consumer and business confidence, the largest tax reductions in our history, low interest rates and consistently strong economic performance, with a world-leading rate of job creation.

This robust fiscal position has given our government the capacity to deal with a number of unpredictable economic shocks, whether they be threats to security, health emergencies like severe acute respiratory syndrome (SARS), or the economic toll of the bovine spongiform encephalopathy (BSE) crisis. In fact, BSE alone, just by way of one example, has cost the Government of Canada just over $1.8 billion so far to offset some of the painful burden on Canadian farmers and ranchers of the unjustified and unjustifiable closure of key markets for our beef—an expense that was totally unforeseen and unforeseeable before May of last year. We simply had to provide compensation and adjustment measures.

But federal fiscal responsibility has allowed Canada’s economy to do more than defend against shocks. Sustained balanced budgets and putting the debt on a steady downward track have also restored Canada’s Triple-A credit rating in financial markets. Since we, federally, set the credit standard for the whole country, everyone benefits—from provinces and municipalities to individuals wanting to buy a home, start a business or run a farm.

We have also worked to transform our economy into one of the best environments for investment in the world.

Consider some of these facts.

To firms investing in our country, we offer access not only to a rich domestic market of more than 30 million sophisticated consumers, but to the whole North American marketplace.

Businesses in Canada enjoy a corporate tax rate advantage over firms in the U.S. as a result of our Five-Year Tax Reduction Plan and the phased elimination of the capital tax announced in the 2003 budget.

Our scientific research and experimental development program is one of the most advantageous systems in the world, providing about $1.6 billion in assistance annually.

We have one of the world’s most highly skilled and educated workforces—the best rate of post-secondary education in the Organisation for Economic Co-operation and Development.

We have a sophisticated high-tech infrastructure—the backbone of a modern, 21st century knowledge economy—that sustains and encourages basic and applied research as well as an entrepreneurial private sector.

Few countries, if any, can match the percentage of our population that is online, and we have one of the highest per capita ownerships of computers and the widest access to cable systems in the world.

I could go on. But suffice it to say, no matter which criteria you choose, no matter how you measure the value of a country and an economy as a place to invest—people and businesses win with Canada.

But our success is far from preordained. If we are to continue to reap the benefits of the virtuous fiscal and economic circle I mentioned earlier, we must continue to respect its principles—living within our means, planning carefully and behaving prudently.

Which brings me to the question of how we sustain Canada’s positive performance. How do we stay on the side of fiscal virtue?

First, I believe we must be more careful than ever in our fiscal and economic forecasting.

In the fall of each year, we prepare our updated projections for our fiscal framework for the coming five-year period, based upon the average of the independent analyses done by a broad range of private sector economists.

While it is still very early in that process this year, I can tell you that we are more optimistic today about our future prospects than at the time of the last federal budget in March or the election in June—given recent economic developments and monthly fiscal results published so far this year.

All indications are that our national economy seems poised to do better than expected in 2004, translating into greater overall government revenues—and more fiscal room for both us and the provinces to work with this year and going forward.

Furthermore, these latest data also suggest that the final results for last year (2003–04) should show higher-than-expected revenues, and hence a better fiscal outcome, due to significantly higher-than-expected levels of nominal income in early 2004.

In the August 31st data from Statistics Canada, for example:

• Canada’s annualized economic growth rate for the first quarter of 2004 was revised upward, from 2.4 per cent to 3 per cent.

• For the second quarter, our economy grew at an annualized rate of 4.3 per cent—much faster than the private sector had predicted in the spring, and well above the 2.8 per cent growth rate in the U.S.

• Export growth was very strong, propelling Canada’s current account surplus to $42 billion in the second quarter.

• Corporate profits, wages and salaries are all up significantly.

• Overall, nominal gross domestic product (GDP) growth, which effectively determines our tax base, was over 10 per cent in the second quarter of this year.

The Canadian economy has thus shown remarkable resiliency despite more than 20 per cent appreciation in the value of our currency, the impact of both SARS and BSE, a big power blackout in Ontario, a hurricane in Atlantic Canada and massive forest fires in B.C. All of these factors were flagged just a few months ago by all private sector and public sector economists as significant downside risks. But the Canadian economy appears to have coped with them very well.

However, these uncertainties (and other things like geopolitical tensions and the impact on global markets of sustained high energy costs) highlight the need for continued vigilance and prudence in the management of all economies. That is why our government has launched a comprehensive review of how we do our economic and fiscal forecasting, to test our assumptions and make sure that we are still using best practices—benchmarking ourselves against the best in the world.

We are also determined to continue the Canadian practice of sensible and sustained public debt repayment.

By reducing debt, we save on unnecessary interest charges—to date for Canada the value of that saving is more than $3 billion per year.

Simple fairness demands that future generations not be saddled with a huge debt they did not incur. Even after the progress we’ve made in eliminating the deficit and reducing debt, annual servicing costs are still the largest single expense faced by the Government of Canada.

By reducing our debt burden, we reduce the mortgage our children must carry.

And we better equip them to deal with the costs and challenges of caring for an aging population—a demographic trend that will hit when the baby boomers begin to retire around 2010, just over six years from now.

As the largest generation of Canadians ever leaves the workforce, a much smaller one will be left to take its place. A great burden will be put on this nation’s social programs, particularly health care, at a time when there are fewer working people to support them.

It is a priority of this government to act now in a way that helps the next generation cope with that future burden. The less debt we are carrying in 2010 and thereafter, the more flexibility Canada will have to meet those emerging demographic pressures.

That is why we are committed to our $3-billion annual Contingency Reserve going to debt reduction, if it is not needed to deal with genuine shocks or crises. And that is also why our last budget announced a new goal of reducing Canada’s debt-to-GDP ratio—the size of our debt relative to the size of our economy—from its current level of about 40 per cent down to 25 per cent within 10 years.

Of course, as I’ve already pointed out, the benefits of our fiscal and economic strategy are not just reserved for the future. The benefits are with us now.

Since moving into surplus, Canada has ranked first among the Group of Seven (G-7) countries for growth in living standards. Indeed, the average standard of living for Canadians has increased more in the past seven years than it did over the previous seventeen. And we have been able to significantly boost federal support for the priorities of Canadians—the most important of which is health care.

Had we not won the battle to balance our books in 1997 and every year since, the Government of Canada would not have been in a position to commit $41 billion in new health funding over the coming decade. That’s $41 billion in new money, on top of an annual base of about $36 billion each year which the Government of Canada currently invests in the health of Canadians.

We now have a long-term deal which every province and territory supports, which all have signed, which includes the best terms ever on transparency and accountability. A deal which allows us to focus on the real substance of shorter waiting times; more health care professionals and better equipment; improved primary care, home care and drug coverage; better services in the North and for Aboriginal people; more health innovation; and improved public health and wellness.

And beyond enhancing our system of health care, fiscal responsibility has also allowed Canada the wherewithal to invest in other key priorities too—economic equalization and equity among our provinces; the well-being of families and children; the advancement of skills and learning, science and technology; communities, infrastructure and housing; the environment; defence, international development and security.

To make all of this balance, a finance minister must always respect that most basic of accounting relationships—debits and credits. Measuring what’s going out against what’s coming in. It has to add up!

This will be an important part of Canada’s message tomorrow in Washington, where I will be taking part in the annual fall meetings of G-7 finance ministers and central bank governors, as well as the International Monetary Fund and the World Bank.

Among industrialized countries, Canada stands alone in its track record of budgetary surpluses. Among all our partners in the G-7, every one of them is currently operating in the red. Canada (and Canada alone) has been able to balance its books year after year—global turmoil and unprecedented domestic shocks notwithstanding.

Having spoken about the state of this nation’s debt, let me now turn to the pressing question of the debts of other nations—another topic that will be under discussion in Washington. I am speaking of course of the debts of some of the world’s poorest countries, many in Africa.

A reduced debt makes room for spending on important social and economic priorities. Dollars spent servicing debt cannot be spent on building safer roads, on providing better health care, or teaching a generation how to read.

This is why Canada remains a supporter of the Heavily Indebted Poor Country Initiative, or HIPC.

Excessive debt is one of the heaviest burdens to economic growth for African nations. Canada’s goal is to lighten that burden, enabling these countries to spend more on priorities such as health and education, and less on debt payments.

Last week, Canada announced the cancellation of all debt owed to it by three more African HIPC nations—Senegal, Ghana and Ethiopia. These countries join Tanzania, Benin, Guyana and Bolivia, whose debts to Canada have also been forgiven since December 2000. Five other African countries—Cameroon, Democratic Republic of Congo, Madagascar, Rwanda and Zambia—have had their debt payments frozen. Altogether, more than $1.1 billion in debt will be forgiven through the Canadian Debt Initiative.

Canada was the first creditor country to call for forgiveness of all bilateral debt owed by countries eligible for the HIPC program. Canada remains dedicated to that same goal.

While all can agree on that goal, there are, of course, many views on how to get there. Many of you will have heard discussions of a proposal to cancel outright the debt of all HIPC nations. I understand the intent of this proposal. Canada too supports deeper debt reduction, and any sensible plan that recommends that end deserves careful consideration.

HIPC has delivered critical debt relief to countries that need it. But has it delivered enough? No, of course not. Can it do more? I believe so. But it must have international support if it is to achieve its objectives.

Any new proposal, whether it is a change to the HIPC Initiative or the creation of a new program, must, of course, provide deep and sustainable debt relief. That is an important condition, but it cannot be the only condition.

Any new proposal should as well include a net increase in the flows of resources to developing countries; should provide equitable treatment for non-HIPC countries; and should not hurt the abilities of international financial institutions to provide financing to other poor countries.

This is the standard by which Canada will measure this or any new proposal and, those measures met, Canada will continue to do its share to bring the world’s poor out of the vicious circle of debt and into the virtuous circle of sustainable and continuous economic growth.

Before concluding, I would like to mention one of my other duties as finance minister—one in which I have a great deal of personal interest.

Last March, I accepted the invitation of British Prime Minister Tony Blair to join his Commission For Africa in anticipation of the UK making African issues a central focus of their chairmanship of the G-7 process through 2005. The Commission’s mandate is to generate ideas to help African countries reduce poverty, achieve their economic potential and meet their development goals. I am serving, in particular, on the Commission’s working group on the African economy.

In support of this endeavour, I wanted to hear first-hand what Africans themselves think, and what they see as the best solutions to the challenges they face. So in August I spent some time in Tanzania, South Africa, Nigeria and Mali. I met with government ministers and officials, academics, non-governmental organizations, development experts, representatives of the business community and civil society.

I also had the privilege of meeting several African leaders—Tanzanian President Benjamin Mkapa, President Touré of Mali and President Obasanjo of Nigeria.

Since that trip, I have continued to seek the views and opinions of numerous experts here in Canada—development workers, business leaders and academics. The experience has been personally enriching and, from a public policy point of view, deeply stimulating.

Canada wants to make a constructive contribution to the work of the Commission for Africa and to next year’s G-7 meetings, which Mr. Blair and the UK will lead. We also want to identify key subject areas in which Canada may be well positioned to assist.

Further debt relief may be one of those. Greater real fairness in world trade may be another. The building of an economic environment conducive to a vibrant African middle class and private sector—with a specific focus on small and medium-sized enterprises, value-added development and appropriate sources of reliable investment capital—is another crucial area of need. Vital public infrastructure (for transportation, communications, energy and water) is also a high priority.

While the needs and demands in all these fields, and many more, are enormous—almost daunting—I would make two final comments.

First, I came away from my African experience as an optimist about what can be achieved—a realist too, but not gloomy or defeatist.

And second, ideas and solutions must not be imposed externally. The leadership and the ownership of both the process and the content of future activities and solutions must be in African hands. Countries from the West and the North must be there to help, not control.

Thank you.