Ottawa, December 14, 2004
Speech by the Honourable Ralph Goodale, Minister of Finance, to the
Board of Trade of Metropolitan Montreal Challenge and Opportunity in the
Canadian Federation
Montréal, Quebec
Check Against Delivery
Good morning, ladies and gentlemen. Greetings and good wishes from the
Government of Canada. And thank you for this opportunity to meet once again
with the Montreal Board of Trade.
Yours is one of Canada’s most interesting and dynamic business
organizations, and I want you to know that your advice to government is both
welcome and valued.
The Government of Canada is now well into its pre-budget planning cycle
for 2005. I expect to table the next federal budget some time in the latter
part of February or in March.
Between then and now, as usual, I will be engaged in a series of
discussions with Canadians—in every region and from every walk of life—to
identify their expectations for this upcoming budget. I want to ensure that
our economic and fiscal planning reflects the beliefs and the aspirations of
a broad cross-section of citizens, voters and taxpayers.
The consultative process continues today in Montréal—doing more
listening than talking.
So far I have heard requests for more federal spending on both social and
economic programs. I have also heard about the need for tax relief and
ongoing debt reduction. Sometimes the debate among those who advocate for
these different and competing priorities becomes quite intense.
But I have also heard about some common themes.
One is the need to achieve an inclusive balance among all the many
purposes to which we could dedicate available federal resources—to be fair
to all Canadians.
Secondly, I hear consistently that we must never deviate from prudent
planning and responsible behaviour—to ensure that the books of the nation
stay solidly in the black. No one proposes a return to deficit financing.
And third, it is recognized that we, in this country, have the rare
privilege of actually having a debate about how best to allocate successive
surpluses—at a time when a great many other countries are deeply in debt
and going deeper.
This is just one of the things that makes Canada special. And let me
focus on that thought for just a moment.
As Canadians, we have devised for ourselves a truly remarkable nation—one
that is both highly improbable and yet hugely successful, the envy of much
of humankind.
Someone once said that we are a country that works far better in practice
than in theory. And it’s true! Our nationhood is a continuous act
of sheer political will—achieving against the odds.
Just think about it. Canada stretches across a huge land mass on the
northern part of this vast continent. We are the second biggest country in
the world. Quebec alone is three times the size of France.
We have fantastic geography and topography to admire, to wonder at and to
challenge us, from coast to coast to coast. We have a difficult and
sometimes downright perverse climate—ranging all the way from the North
Pole to the same latitude as the state of California.
Canadians are a small but complex population—beginning with Aboriginal
peoples, and then the Norse and the French and the English explorers and
settlers, and then wave after wave of enriching immigration.
To the point now that we count in our numbers every colour, every creed,
every ethnic origin, every political background, two official languages and
many cultures—quite literally, the diversity of the whole world. All here
and mixed together unevenly, not in a melting pot, but as a mosaic. And
strung out sparsely along some 4,000 miles of American boundary—studded
only here and there by a world-class metropolis like Montréal.
Yes, indeed, you could hardly imagine a more unlikely set of
circumstances from which to forge a country. But in fact Canadians have done
it—faithfully and patiently together—over a span of nearly 138 years.
Never easily. Not flawlessly. But in these early years of the 21st
century, global personalities as diverse as the rock star Bono and the
Secretary-General of the United Nations Kofi Annan have ventured to say that
what the world truly needs these days is "more Canada"!
So how has this unlikely country prevailed? Through lots of hard work,
yes, and some generous good luck, yes. But mostly, through the steady
application of some deeply held and broadly shared Canadian values.
A sense of fairness and justice. A spirit of generosity. Compassion and
tolerance. Caring and sharing. An instinct of inclusion. Open minds and open
hearts. Pride in our vast diversity. A knack for honest accommodation.
We have always practised that willingness to listen to each other. To
reach out. To bridge differences. To try very hard to understand one
another.
And once we have listened and understood, Canadians have always been
prepared to act—with and for each other, together. Not because it is in
the narrow self-interest of some comfortable majority. Not because we have
to. But because we want to. Because it is right for the fair and
decent and successful country that we aspire to be.
Canada is thus a triumph of our common will—a triumph of the human
spirit. And it’s never "done." Canada is now and it always will
be a precious "work-in-progress." A masterpiece in the making.
That is the reality of Canada that I carry with me in my job as Minister
of Finance.
The economic strength and the fiscal integrity of this nation are
works-in-progress—works that have been progressing very well since 1993,
but works we must never take for granted. We can never afford to get
careless.
And Canada’s remarkable achievements over the past decade in terms of
economic and fiscal success are not just ends in themselves—our goal is
not the mere accumulation of statistical bragging rights. Our goal is to use
the dividends of fiscal and economic strength to empower Canadians to
keep on building a world-leading society with a top-notch quality of life,
and to do so in a fair and balanced way.
We have made huge progress in that direction!
Some 10 years ago, in the first part of the 1990s, this country was
quickly becoming an economic basket case. Annual government deficits were
out of control. Public debt was skyrocketing. The cost of borrowing was
high, and we were borrowing a lot.
Economic growth was sluggish or non-existent. Jobs were evaporating. Hope
and confidence were in very short supply.
The Wall Street Journal wrote back then that Canada could be a
candidate for honorary membership in the Third World.
But Canadians were not content with that prospect. They demanded a change
in direction, and they provided the disciplined support that was essential
to get through the tough decisions necessary to accomplish change. And it
paid off.
After 27 years of ever deeper and deeper red ink, we balanced Canada’s
books in 1997. We have tabled seven consecutive surplus budgets since—the
best performance of any Canadian government since Confederation and the best
performance of any country in the world-leading G-7 group.
The federal debt is now on a steady downward track, both as a proportion
of the gross domestic product (GDP) and in absolute dollar terms. It has
been slashed by some $61 billion. The federal debt-to-GDP ratio is now 41
per cent, compared to 68 per cent in 1995.
And in my budget last March, we committed to lowering it to just 25 per
cent within 10 years. That would mean debt-servicing charges will consume
only 12 cents out of every federal revenue dollar, instead of what used to
be 39 cents just eight years ago.
And here are two very key points. Canada’s net foreign
indebtedness has been slashed from 45 per cent of GDP in 1993 to less than
14 per cent—a huge turnaround.
And because of overall debt reduction, we are now saving more than $3
billion per year on debt-servicing costs—$3 billion every year which can
now go to building a better country and not just paying creditors.
Canadians have worked very hard to get the nation’s fiscal fundamentals
in order, and the benefits are unmistakable.
Liberated from the suffocating impacts of chronic deficits and rising
debt, the economy has generated remarkable and sustained rates of growth.
More than 3 million new jobs have been created. Inflation and interest rates
have been low and stable.
The nation has regained its triple-A credit rating. Consumer and business
confidence have gone up. Close to two-thirds of Canadians believe the
country is now headed in the right direction. And we have seen more
improvement in the average Canadian standard of living in the past 7 years
than in the previous 17.
In this atmosphere, beyond just debt reduction (as crucial as that is),
we have also implemented the largest tax cuts in Canadian history. We have
been able to meet and beat a series of expensive nasty surprises that have
come our way—like natural disasters, the security fallout from global
terrorism, the outbreak of severe acute respiratory syndrome (SARS) and the
impact of bovine spongiform encephalopathy (BSE).
We have also invested heavily in Canadians’ prime priorities—like
health care, equalization, learning and innovation, housing and
infrastructure, the well-being of children and families, environmental
protection, and others.
I should say a bit more about the first two items on this list—health
care and equalization—because they involve some of our biggest federal
investments and they were both the subject of successful
federal-provincial-territorial First Ministers’ Meetings earlier this
fall.
In September all jurisdictions signed onto a groundbreaking $41-billion,
10-year agreement to bolster our health care systems.
That deal is significant for many reasons. It was unanimous. It involves
an asymetric arrangement to accommodate Quebec. It includes important
systemic reforms and the best terms ever on reporting and accountability. It
surpasses every public test of federal financial support.
And it shifts the attention of all governments from a never-ending feud
about funding to concrete measures to shorten waiting times, to bring on
more health care professionals and better equipment, to improve primary
care, home care and drug coverage, to advance health research and
innovation, and to achieve greater public health and wellness.
For Quebec, the health deal means an additional $502 million in federal
transfer payments this year, $736 million next year, and further increases
annually thereafter—totalling more than $9.6 billion in incremental
federal health money for Quebec over this coming decade.
With respect to equalization, a second First Ministers’ Meeting in
October produced the most beneficial program changes since the federal
equalization system first began in 1957.
The reforms address chronic previous problems about clarity,
predictability and adequacy. Significantly more risk is being assumed by the
Government of Canada. As with health care, an automatic escalator clause has
been included. Over the coming 10 years, the new equalization deal is worth
an incremental $33 billion to Canada’s less wealthy provinces, with the
largest dollars flowing to Quebec.
For Quebec, this additional equalization amounts to $477 million more
this year, rising to $1.12 billion more next year, and so on into the
future.
I know I have rattled off a lot of numbers. Let me just put them all
together for you for this current fiscal year. Total federal transfers to
Quebec in 2004–05 are expected to reach close to $14 billion. And as a
result, the provincial government is on track to record a balanced budget
this year—crediting "significant" federal increases as a large
part of the reason.
Federal transfers will account for about 25 per cent of Quebec provincial
government revenues this year.
We are able to help and we are glad to help—thanks to strong federal
fiscal fundamentals earned meticulously over the past decade.
And what of the future? Our plans are clear. They were laid out during
the June election campaign and in our October Speech from the Throne.
They include high-quality universal, affordable and developmental child
care—inspired by the Quebec model. A powerful New Deal to support cities
and communities. Enhanced support for seniors, the disabled and their
caregivers. Meaningful action on serious Aboriginal issues. Protection of
Canada’s natural environment. Meeting the imperatives of national security
and national defence. And building Canada’s role in international affairs.
This agenda is ambitious. But promises made will be promises kept.
Founded upon a robust, competitive and innovative economy—growing and
thriving in a knowledge-based, technology-driven and highly skilled world,
and rooted in rock-solid fiscal responsibility.
In that important vein, bearing in mind future downside risks to our
economy—like currency uncertainties, global energy costs, geopolitical
tensions and the twin budgetary and trade deficits in the United States—Canada
will need an effective plan to strengthen our nation’s productivity
(especially in light of that huge demographic change that is just around the
comer when the baby boomers begin to retire in 2010).
We will require the highest quality of human resources; increased
capacity for innovation; efficient, transparent and predictable regulatory
systems; fewer internal impediments to trade and commerce; competitive
taxes; much improved public infrastructure; smart border crossings; and
aggressive promotion of international trade and investment.
We are at work on all these files to build and bolster Canadian
productivity. I would especially appreciate the views of the Montreal Board
of Trade on how Canadians can better advance our "productivity
agenda." Steady gains in this regard will be crucial to our future
economic success and social well-being.
Finally, this morning let me touch on the issue of intergovernmental
balance and fiscal fairness—always a fundamental Canadian preoccupation.
With the greatest of respect for those who hold other views, I have to
tell you that I do not subscribe to the notion of a vertical fiscal
imbalance in Canada.
Disparities among provinces? Yes. But a structural unbalance between the
provinces and the Government of Canada? No.
Let me explain why this is my honestly held opinion.
First, in contrast to the reality in most other federations, both the
federal and the provincial orders of government in this country have full
access to all the same major revenue bases to finance their activities.
Indeed, provinces have some important and growing sources that are not
available to the Government of Canada—such as royalties from natural
resources and the proceeds of gaming.
Secondly, each order of government has full constitutional jurisdiction
within its own sphere of responsibilities and full autonomy in setting its
own fiscal policies—including its tax bases and tax rates, and its own
level of government spending.
Thirdly, notwithstanding the tremendous recent progress made by the
Government of Canada in reducing its debt, the federal debt in Canada is
still more than twice as big as all provincial and territorial debt
combined.
Fourth, as I mentioned earlier, while fully respecting distinctions in
jurisdiction, the federal government is already a major financial partner
with the provinces in large areas of shared priorities. Health care and
equalization are prime examples. But there are many more.
Post-secondary education. Social services. Immigration. Housing.
Infrastructure. Research and innovation. Agriculture. The environment. The
list is extensive. And for that list, the federal money flowing to Quebec
and all the other provinces and territories is getting larger.
All-in and after federal transfers are taken into account, total
provincial and territorial revenues have substantially exceeded federal
revenues for more than two decades now, and they are expected to continue to
do so.
At the same time, in its own areas of primary jurisdiction, the
Government of Canada is also facing large and growing demands.
For better employment insurance benefits. For higher federal pensions.
For national security and national defence. For foreign diplomacy and
international aid. For global trade and marketing. For more Aboriginal and
northern programs and services. And for backstopping all manner of national
emergencies and contingencies.
So it is not factually correct to suggest that the money is all in
Ottawa, while the needs are all in the provinces. The reality is that both
orders of government have serious responsibilities to discharge in the
public interest. Both are always facing financial pressures. And Canadians
expect all of their elected representatives to work constructively and
intelligently together.
We have endeavoured to do just that in dealing with equalization, for
example. In addition to providing more money year by year into the future,
with greater predictability than ever before, we have also demonstrated
ongoing federal flexibility in how intergovernmental accounts are reconciled
from year to year—from which Quebec has consistently benefited.
In 2004 alone, we have forgiven close to $1 billion in amounts owing to
the Government of Canada from Quebec, while we have deferred the repayment
of another $2.4 billion.
And there’s one final point.
The current fiscal strength of the Government of Canada—carefully
earned, step by step over the past decade—is an important asset which
helps to maintain Canada’s credibility in global financial markets and
keeps the national credit rating in good shape.
The benefit of Canada having that positive reputation flows to all orders
of government, as well as to businesses and consumers everywhere in the
country. It’s a reputation to be handled with care.
While sustained federal surpluses—no matter how well invested in the
well-being of all Canadians—are a topic of some political ridicule in
Canada (at least on the part of some in the Opposition in our minority
Parliament), I take considerable comfort in the evidence that that negative
view is not widely shared.
It is not shared by renowned international financial journalists. The
Economist magazine in Europe, for example, has referred to Canada’s
fiscal performance as that of an "economic virtuoso." And Business
Week in the United States has spoken of our "Maple Leaf
Miracle."
The negativity is not shared by the other Finance Ministers that I meet
in the G-8 and the G-20 countries who openly marvel at Canada’s
superlative economic and fiscal performance.
And the individual Canadians that I hear from every day—by a large
margin—strongly support fiscal responsibility, balanced budgets, sustained
surpluses and prudent management. They just want the assurance that we will
not squander the excellent record Canada has worked so hard to earn over
this past decade.
Canadians can have absolute confidence in that regard.
Similarly, Canadians in Quebec and across the country can be completely
confident that their government in Ottawa will utilize the nation’s
economic and fiscal strength—in a fair and balanced way—to keep Canada
succeeding against the odds, and to maintain our ranking among the world’s
very best.
Thank you.
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