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Address by the Honourable James M. Flaherty, P.C., MP, Minister of Finance, to the Toronto Board of Trade

It is good to see so many familiar faces. You’re right, I have been travelling a bit. We are a minority government so we don’t travel too much, too far from Ottawa, but I’ve been in, oh, exciting places like Nepean and Surrey and Markham and Calgary and Vancouver, and last week in Wall Street in New York of course, and I can tell you there’s a spirit of optimism, a spirit of enthusiasm about Canada, across Canada and abroad, that is refreshing. It’s a change. It’s a new leaf. It’s a new government. There’s a new attitude. It’s wonderful to travel across Canada. It’s wonderful to go to Wall Street.

I heard on Wall Street last week from one of the largest investment banks, where they were saying to me, for the first time they’re seeing a reverse brain drain in the investment business of expat Canadians back to mainly Toronto, and that is so encouraging to hear. You know, so much of this has to do with the right direction for our country that the Prime Minister has got us going in.

It is great to be back here again at the Toronto Board of Trade. It gives me a chance to hear from you, and it also gives me a chance to talk about our first budget and provide some insight into our new approach in Ottawa.

As I mentioned earlier last week, I carried a message of opportunity to the financial heart of the United States. I paid a visit to Wall Street and the New York Stock Exchange to spread the word that Canada is indeed open for business. Selling debt, which is what we used to do, has been replaced with discussions about private equity investment.

The response was overwhelmingly positive. The Americans were encouraged by our government and the disciplined, focused approach we are taking, a government that values action over words. They were impressed by our accomplishments over the first hundred days. They recognized the tremendous potential Canada has to offer and the solid economic foundation we have to build on in Canada. I told them that being Canadian today means being ambitious, innovative, confident, optimistic. It means seeing ourselves and the world with new eyes and a new will to achieve more than ever before. We certainly made a strong pitch last week but today, as I stand in the heart of Canada’s financial district, the numbers sell themselves.

Our economic foundation in Canada, our economic fundamentals are rock solid. We are the only G7 country not running a deficit. We’re reducing federal debt by $3 billion a year. Real GDP has increased for the 14th year in a row, the second longest run in post-war history. Core inflation has remained below 2 per cent for over two years. Our corporate profits are near record highs and unemployment is near its lowest level in 30 years. So that’s where we are.

Now looking forward, to help ensure Canada stays on a solid economic footing our government firmly believes steps must be taken to restore balance—not just balance between taxpayers and government but also between government and government. Certain core principles form the basis of the budget I had the privilege of presenting earlier this month. These principles are simple, direct and clear.

First of all, government has no absolute right to the hard-earned cash of working and investing Canadians. When government is too large, taxes are too high, surpluses are endemic and Canadians’ ability to compete and make economic and social progress in their homes, communities and families is hampered by all of those things. Secondly, there is only one taxpayer who carries the provincial, federal and municipal tax load—not three separate taxpayers unrelated to each other. And, finally, government must be respectful of the dollars it spends. Taxpayers expect and demand that spending is focused, transparent and accountable.

So our budget translates these principles into actions with almost $20 billion in tax relief for Canadians from all walks of life in every region of Canada. More than 90 per cent of the tax reductions go to individuals and families in Canada. We delivered the largest tax cut package in recent history, providing more tax relief than the last four federal budgets combined, including the fall fiscal update of the last government.

Whether it is the 1 percentage point GST reduction across the board, the new Canada Employment Credit, a permanent reduction in the lowest income tax rate as of July 1st, reductions in taxes for corporations, small businesses, the savings for Canadians are substantial. And in fact Ontarians will pay about $3.5 billion less in taxes in the next full year, 2007, as a result of this budget. What’s more, we’re providing the tax relief while maintaining our ironclad commitment to fiscal discipline including a balanced federal budget.

Now part of the why that we’re able to do this is because we are determined to control spending. We’re determined to reduce waste and redundancy and overlap in the federal government’s own spending. Over the last five years—just to put this in some kind of context for you—over the past five years federal spending has grown on average by 8.2 per cent annually. In 2004–05 spending grew by 14.4 per cent in one year. Now this growth is neither sustainable nor desirable. Our budget, we only had 90 days or so to do this budget but we did, quite frankly, more than we thought we could do at the beginning in this budget and fulfill more commitments than we thought we could, but what we did do is bring spending into line with the growth of the economy, nominal GDP. So we’re down to a 5.4 per cent increase in spending this year, which is still quite substantial spending, as I’m sure you’ll appreciate given the size of the federal budget. Down next year—we’re planning for 4.1 per cent but to make sure that the growth in spending in the Government of Canada does not exceed the growth in the economy.

We also are going to be moving ahead with an ongoing review of all programs and departments—and there sure are a lot of them—in the federal government, again taking a principled approach. So the principles that we’re going to be using in order to analyze how we control spending in the Government of Canada is first of all, government programs must be focused on results like our government—measurable results and value for money. Secondly, that programs are consistent with federal responsibilities—and a little more on that in a moment when I speak a little bit about our relationship with the other governments of Canada. And when programs are no longer serving the purpose for which they were created, they must be ended. They must be terminated. As part of that, we’ll identify $1 billion in savings over this year and next and report back by the autumn of this year.

Our government will also be open and straightforward with Canadians regarding the finances of Canada and I can tell you, in my first few months at Finance—I see Don Drummond here, you remember Finance, Don, from lots of years there—I’ve had the opportunity to look at the way budgeting has been done in the past in the Government of Canada. We got rid of this line in the budget called "prudence" which was oxymoronic itself. It was a line used to create cushions in the budget of Canada. And I could use another word but I’ll use the word cushions. And we’re not doing that anymore. We have started now to provide fiscal forecasts for the people of Canada on a quarterly basis. Economic and fiscal projections of the budget will be presented over a more realistic two-year time horizon. We had this hockey stick way of budgeting in Canada with the previous government. You get big, long tails. It goes like this, not much spending here and then whoa, there goes the hockey stick. We’re not doing that anymore. We’re being more realistic. Budget projections will be based on the average forecast of private sector economists, and if there are extra surpluses in excess of $3 billion to pay down debt, we are proposing to discuss with the provinces and territories the possibility of allocating a portion of surpluses to the Canada Pension Plan and the Quebec Pension Plan going forward. You can read about that, if you’re interested, in the paper on the fiscal balance, which is part of the budget papers on the ministry website, which is www.fin.gc.ca.

A few words on restoring fiscal balance—lots of discussion in the last couple of weeks about that. We are committed to restoring balance between taxpayers and government, and I can assure you we are equally as committed to restoring fiscal balance between the three orders of government in Canada. Stephen Harper is the first prime minister to acknowledge the issue, which is a major step forward. And now we’ll move to take action to correct it. In fact, discussions are already underway at various levels of government. The federal O’Brien Report is expected very soon. I know that I will be reviewing that carefully with Michael Chong, who’s here, the Minister of Intergovernmental Affairs of the Government of Canada, and I’m cautiously optimistic that we’ll make some significant progress this year.

You know we have a unique opportunity in Canada this year with a new government, with a prime minister that acknowledges that we have to move toward fiscal balance. And if we can develop the goodwill and the sustainability, especially with Ontario and the Government of British Columbia, the Government of Alberta, the other provinces and territories, the Government of Saskatchewan, if we can develop that will this year we can accomplish the goal of achieving fiscal balance in the federation and make sense of our economic federation in Canada for the benefit of all Canadians.

A couple of words about Equalization because it’s topical right now. Equalization is a federal program. Provinces do not cut cheques to other provinces in Canada. Canadians pay their federal taxes to the Government of Canada and the federal government uses that funding for federal programs, one of which is the Equalization program, which distributes funding to ensure residents in all parts of the country have access to comparable levels of social services. Equalization reflects the values we all hold as Canadians to share and support each other. And, as you all know, we have a progressive tax system in Canada, which means provinces with a greater number of high-income earners will pay more in tax than they get back in federal programs and services due to their greater prosperity. Again, this reflects the values we all hold as Canadians to share and to support each other in Canada. We must not lose sight of that fact as we move forward, and move forward we will.

Our budget established, again, a principles-based framework for addressing provincial concerns about fiscal imbalance, moving toward fiscal balance, and takes the necessary first step towards a long-term solution. So the principles that will guide our efforts are these: accountability through clearer roles and responsibilities; fiscal responsibility; predictable, long-term fiscal arrangements; a competitive and efficient economic union; and effective, collaborative management of the federation.

Just a few words on each of these. On accountability, to promote greater accountability through clearer roles and responsibilities. The federal budget reinvests in core federal priorities like national defence, border infrastructure and security. Clearer roles will not only build a stronger Canada if governments are held accountable for their tax and spending decisions, but also acknowledge the fact—and things have in Canada, thank goodness, over the course of the past number of years, most governments in Canada, including the Government of Saskatchewan, the Government of Canada, have balanced budgets and most are in surplus, a little bit over the balanced budget line. That’s a major change. There are only two governments in Canada now not showing balanced budgets.

On fiscal responsibility, greater accountability and clearly defined roles will also mean that governments will no longer be able to blame other governments, and I think Canadians are tired of that, quite frankly, to blame other governments for the consequences of their own fiscal decisions—good, bad or indifferent. We must go forward on the assumption that no government anywhere should be allowed to foist the political costs associated with raising revenue onto another government.

On predictable, long-term fiscal arrangements, this is also key to restoring fiscal balance, and we have narrowed the gap considerably in Canada in the past while. For example, in health care we have the 10-year plan to strengthen health care systems in Canada. It provides an additional $1.1 billion in 2006–07 to provinces and territories for health, an additional $1.2 billion on the top of that next year and continuing growing at that 6 per cent fixed increment. This is about the rate of increase in health care spending across Canada, so this is an important point on the health care side that tremendous progress has been made there, and the 6 per cent per year gets built into the base, so the 6 per cent grows on that as we go forward during the course of that 10-year cycle.

In addition, the health plan specifically provides $1.2 billion this year in targeted funding to help reduce wait times which, as you know, is one of our five main priorities. On infrastructure, as a result of our budget, funding for infrastructure will total $16.5 billion over the next four years. And Ontario benefits extraordinarily on this. More than any other province, Ontario gets an additional $300 million which was confirmed in the budget on May 2nd. Going forward, we will meet with the provinces and territories to develop proposals for long-term federal support for post-secondary education, which is an important item to be discussed in our fiscal balance discussions.

On a competitive and efficient union, over the course of these discussions we must bear in mind that our efforts are not only a means to an end and that they are only worthwhile if we make a more prosperous Canada. We will continue to do our part at the federal level by easing the tax burden for families and businesses, investing in the skilled trades and making it easier for immigrants to get established in Canada. We will also work with the provinces to encourage them to reduce barriers to internal trade, to establish a common securities regulator for Canada and to achieve greater harmonization of federal and provincial taxes. In broader terms, effective, collaborative management of the federation may mean proposing practical mechanisms to allow for provincial participation in negotiating international agreements, where appropriate. It could also mean involving provinces and territories in the development of a Made-in-Canada approach to climate change, improving the coordination of federal and provincial policies in relation to criminal law and justice. The Prime Minister just made the announcement about cracking down in the Criminal Code amendment with respect to street racing. Improving the timeliness, certainty and predictability of environmental assessments for projects subject to both federal and provincial review, which is so important to us in southern Ontario and the Greater Toronto Area in our border crossings, because we have to move forward with these projects with a certain degree of urgency, as I’m sure you appreciate here.

In fact, I had the discussion with Allan Rock, our Ambassador to the United Nations the other day in New York and Allan said to me afterwards, he said, "Didn’t we fix that border thing?" when he was the federal Minister of Industry. And I said, "There’s still work to be done, Allan, there." So you know we have to be—we have to develop a sense of urgency about infrastructure needs in Canada. I know the Toronto Board of Trade will be supportive on that.

Restoring fiscal balance will involve working closely with our partners in Confederation, it goes without saying. It will mean doing so in a spirit of openness, with the understanding that we all benefit from a more effective economic federation.

A few words, if I may, about the Ontario-Canada Agreement while I’m on the subject of relationships between governments. I would like to dispel any lingering doubts about our government’s commitment to the Canada-Ontario deal struck by the previous federal government. Despite what you may have read recently, we will fully meet and even exceed the original financial commitments in the May 2005 Canada-Ontario Agreement. This is a great deal for the people of Ontario. This means the people of Ontario will benefit from $6.9 billion over the next six years. Budget 2006 identified specific mechanisms for disbursing $4 billion of these funds including funding for post-secondary education and labour market training, affordable housing, immigration, infrastructure, climate change and public transit.

As the minister responsible for the Greater Toronto Area, I’m proud to say we are keeping our word and honouring our commitments to Toronto, to the Greater Toronto Area and to the people of Ontario, and there are more recent examples. Last week we made the announcement at Harbourfront of five-year funding, $25 million for the 10-acre Harbourfront site. What’s different about that? What’s different about that is that Harbourfront doesn’t have to come hat in hand to the Government of Canada every year and say "Gee, I hope we get our funding for this year." We’ve committed five-year funding so they can do some planning at Harbourfront, which is an important step similarly with the Toronto Film Festival. The announcement was made on Friday of substantial financial support there. Again, the word from them is they’re so happy that they can do some planning going forward. This is consistent with the results-oriented federal government which we have now. They’re also both very pleased, as are many other charitable groups in Canada, about the fact that we got rid of the capital gains tax on the transfer of publicly traded securities to public charities in Canada. It’s already resulted—I know myself now from travelling in Canada—more than $70 million committed now, assuming we get this budget bill passed in Ottawa, to various charities, hospitals, educational foundations and so on in Canada as a result of that tax change, which the previous government talked about and talked about and talked about and didn’t do and we did in 90 days. And I’m proud of the fact that we made that step forward for Canada.

Last week we also made the announcement with respect to the subway platform at Union Station, which is very important for all of us who take the GO Train and so on will appreciate that step forward at Union Station. In the budget we committed also to investing in the—and this was the only specific project I actually mentioned in the budget—the Evergreen Commons at the Don Valley Brick Works. I get to do that because I’m the minister responsible for the GTA and I’m also the Finance Minister—so I got one thing that I put in there specifically about Toronto. This is the environmental project at the Brick Works that you all know about on the Don Valley Parkway there. You see it as you go down. Done in concert with the YMCA. I happened to speak on Friday night at Lake Couchiching to the people from the Y across Canada, and we talked about this project and they reminded me that they’re doing the youth-at-risk part of that, using young people who are at risk of getting in trouble with the law to make that project happen. So you’ll see that happen off the Don Valley Parkway as we go forward.

Now I’ve gone on almost as long as it seems, I know, and I want to give you a chance to ask at least a few questions. I do want to say before I close that I invite the Toronto Board of Trade to keep working as it always has in the knowledge that economic debate in this country must go beyond rhetoric and be results-oriented. We’re aiming at, you know, a higher quality of life and a higher standard of living for Canadians, which has been the Canadian dream that each generation has a better quality of life and a higher standard of living, and we’re all on the same page about that. I read the publications of the Toronto Board of Trade. I welcome them. I read what you said about the budget. I welcomed that as well. And I look forward to continuing that relationship.

The bottom line for the Prime Minister, as I mentioned earlier, our government is action-oriented and determined. We are determined to fulfill our commitments. We are determined to promote Canada’s outstanding, extraordinary potential and to encourage investment in Canada. Our government is determined to focus on priorities and not over-promise. Canadians entrusted us to make Canada a better place for themselves and their families and their businesses. In just over about a hundred days we have made significant progress, and clearly there is much more to do.

But you know this is a time of renewed opportunity in Canada. It’s a great time to be a Canadian. On behalf of Canada’s new government, I look forward to working with the Toronto Board of Trade for the benefit not only of the City of Toronto, of the Greater Toronto Area, but of our great country of Canada. Thank you.