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Address by the Honourable Jim Flaherty, Minister of Finance, to the Canada-United Kingdom Chamber of Commerce

My lords, ladies and gentlemen, it’s a privilege to be here. I’m honoured to be at the Law Society. From my time as Attorney General of Ontario I’m an honorary life member of the Law Society of Upper Canada, and it’s wonderful to be in this surrounding, and thank you for the invitation to be here. I’m thrilled to hear that our prime minister from Canada has confirmed that he’ll be here a month from now, which is a wonderful opportunity for all of you to get to know him.

I do want to introduce a couple of my colleagues from the House of Commons in Canada who are here with me and were in St. Petersburg with me. I would like to introduce a member of the New Democratic Party, who is the finance critic, Judy Wasylycia-Leis, and the critic for the Official Opposition of the Minister of Finance, who is the Honourable John McCallum.

I want to talk this afternoon a bit about what we’ve been trying to do in the Government of Canada since we were elected on January 23rd, and I can’t say enough to you about what a difference it is in Canada, the way it feels in Canada, in Calgary and Vancouver, in Montréal, in Toronto, in the Atlantic provinces. I know the opposition critics are looking at me. You can get me next week in the House of Commons or Thursday, or whatever, at Question Period. But let me say this about the optimism that there is in Canada today about the reality of our sound economic fundamentals and the direction that the Government of Canada has now, and the priorities that the Government of Canada has now in terms of Canada knowing its way, of where it wants to go and what it wants to accomplish, and I think we’ve been successful in demonstrating that early on, that we have priorities and direction not just for the government but for all Canadians.

People in Canada had grown weary of federal governments that overtaxed and overspent and generally accepted the premise that the status quo was as good as it gets. People turned to Stephen Harper and the Conservative Party, insisting on action over rhetoric and, you know, in just over 100 days the progress of our government has been striking. We are lowering taxes, balancing the books, controlling spending, paying down debt, investing in education and research, rebuilding our infrastructure. Being Canadian today means being ambitious and innovative and confident and optimistic. It means seeing ourselves and the world with new eyes and a new will to achieve more than ever before.

From an ocean away here, it may be difficult to appreciate but there is a new momentum building in Canada. We are opening the doors to greater opportunity. We’re unleashing our country’s enormous potential and we are improving Canada’s ability to attract global investment.

And a bit of recent history, if I may. If you just look back 20 years in Canada, two decades ago, few would have believed that Canada could be deficit-free. In fact, some of the elite in our society would have been divided on the benefit of a deficit-free approach to fiscal policy. This zero tolerance on the deficit has become the policy preference. It certainly is heartfelt by Canadians. And the larger reality at the federal level, and even most of the provinces now in fact, eight out of 10 Canadian provinces have balanced budgets and small or more significant surpluses. Debt levels, which peaked in the early 1990s, have declined steadily as a percentage of our gross domestic product. They have contributed to an economy with fundamentals that are as solid as the Rock of Gibraltar.

That reduction in debt and deficit spending has not increased unemployment. Quite the opposite, and some of you may have seen the employment numbers for Canada on Friday, which are remarkably strong. Unemployment in fact is at its lowest level in more than 30 years. Last month the economy added 100,000 new full-time jobs despite the softness which we all see in our western industrialized societies with respect to manufacturing. Those folks who are losing their jobs in manufacturing are gaining jobs largely in the financial sector, which is strong in Canada.

As I talked to my colleagues of the G8 in St. Petersburg this weekend, we are the only G7 country to record a budget surplus in 2004 and 2005. The OECD projects we will be the only country to record a surplus this year and next year. Real GDP in Canada is currently in its 15th year of expansion, which is the second longest run in post-war history. Core inflation, which is a concern, has remained below 2 per cent for over two years now and our corporate profits are at record highs.

Now our government has some fairly definite views on priorities for the economic and social infrastructure of Canada. Simply put, we have a few objectives. We want to liberate the forces of investment, moderate the cost of government and enhance the depth and capacity of our capital markets. This will sustain not only an ever more sophisticated economic base in Canada but also an ever more outward-looking Canadian economy.

Certainly the first budget I presented to the Parliament of Canada on behalf of Canada’s new government underlined clearly our focus on principles and priorities. On priorities, tax reductions across the board. Business taxes, consumption taxes, big business taxes, small business taxes, excise taxes, income taxes all were reduced—more tax relief than in the last four federal budgets combined by the previous government in Canada. Major long-term investments in our infrastructure including our trade gateway to Asia on the west coast of Canada and in the United States, new money for the infrastructure of civility like health care, public health care and post-secondary education.

It is these types of investments that will increase the allure, we hope, of what is already a monumental asset, which is Canada’s energy resources. We are an emerging energy powerhouse in Canada—we’ve surpassed Saudi Arabia as the largest supplier of oil to the United States. We also supply our big neighbour to the south, the United States, with more natural gas, more uranium, more electricity than any other country in the world. Canada’s potential in the energy field is substantial and poised for further acceleration in production and exploration. Approximately $45 billion in new projects and expansions are expected in the Alberta oil sands by 2010, with oil sands production to triple over the next 10 years. In fact, when one looks at the cumulative investment in energy in Canada over the course of the next nine years to 2015, it is projected to be about $400 billion, half of which will be in conventional oil and gas.

So although we’re looking forward to the prospect of energy investments, the real strength of the Canadian economy is diversification, and we want to encourage investment and we want to make it clear to the world that we’re a more attractive investment than to do business in the United States in terms of corporate taxes. And we’ve done that in the budget this year. We’ve made it clear that our tax advantage vis-à-vis the United States for corporations doing business will be 5 per cent, and that we will continue.

You know, you can do that in a particular budget and then another country can lower their taxes. The advantage in the Canadian reality now is because of our sound fiscal fundamentals, it’s sustainable for us over time, and we will sustain that 5 per cent differential in favour of Canada over the United States in terms of carrying on business in our country.

We’re seeing tremendous growth in a variety of areas in Canada—in mining, in forestry, in finance and insurance, the pharmaceuticals business, the plastics business and the auto sector, to name a few. As a result, a wide variety of Canadian-made products, as you know, are available here in London. The UK is Canada’s third largest export market worldwide and our most important commercial partner in Europe. On the investment side, the UK is Canada’s second largest source of foreign direct investment, and that makes sense. In fact, it makes perfect sense given the history between our countries. Our two countries have those historic ties and an international outlook and a similar geographic advantage.

Canada’s proximity to the United States and Mexico makes us the perfect launching pad for investors looking to expand into North America, given our free trade arrangements with both countries. An advantage that is attracting many to my home area in Toronto, where one out of two people were born outside Canada, we have one of the most diversified, multicultural, multilingual populations in the world in the Greater Toronto Area.

The UK is perfectly situated on its part as a launching pad into Europe, as you know, and London is often described accurately as the world’s most international centre. Clearly, the UK has become an important destination for a contingent of Canadian banks, insurance companies, securities dealers, law firms—some of you are here today. I encourage investors in the UK to avail themselves of the possibilities that await them across the Atlantic and to recognize that Canada is a country on the move. We are increasing opportunities. We’re promoting enterprise. We are seeding a culture of innovation that investors will not be able to ignore.

We are committed to encouraging global investment, as we are committed to investing in Canada’s capacity to meet its obligations internationally as part of our military alliances, our North American obligations and partnerships and our international humanitarian commitments. We are determined to be a government of practical progress on the crucial economic, geopolitical and social infrastructure priorities that reflect our values and principles as Canadians.

Now some people say that, you know, this transition in the Government of Canada is a radical shift along the left-right spectrum. That is an exaggeration, I dare say. It is rather, I think, a shift along a spectrum of practicality, one that is both well-financed and effectively implemented. And, with the greatest of respect to my opposition colleagues who are with me today, what we had in Canada over the course of the past several years was an undisciplined approach to governing with many, many, many priorities, which meant there were no priorities at all. And what Canadians have welcomed is the change to a directed, disciplined government with limited priorities and a moderate horizon so that we can accomplish what we say we are going to do.

The global economy, if I may turn to the international scene for a moment, has proven remarkably resistant in recent years, and my colleagues and I in the G8 Finance Ministers were talking about this this weekend. The last few years in particular have been especially strong in the global sense. With the world economy becoming increasingly integrated, difficulties in our own economies can have a ripple effect throughout the world. Canada is working in concert with Britain and the U.S. to reform the IMF to ensure it plays a key role in promoting global action through enhanced multilateral surveillance, especially exchange rates. Over the years, key elements of the IMF governance structure have gone awry due in part to the spectacular growth of some emerging nations. This growth on the beneficial side has lifted millions of people out of poverty and is clearly the dividend of globalization.

These emerging markets have a valid complaint. For some, their position in the IMF is inconsistent with their role in the global economy, and this must be addressed. Having said that, our emerging market partners must also recognize that the enormous benefits they receive from being a member in the international trade and financial system entail obligations of their own. With membership comes responsibility.

Canada, Britain and the United States are working together to encourage the governance reforms that will give these countries their proper role in the International Monetary Fund. We made substantial progress on this issue at the meetings of the IMF and the World Bank in Washington in April, and our goal is to get an agreement on a first round of reforms by the IMF annual meetings in Singapore in September.

So in a world of potential global pandemics, terrorist threats and changing economic relationships, the multilateral process is arguably more important than ever, and meetings like we had this weekend in St. Petersburg are very important. Yet the simple reality is that our bilateral relationships with economic and geopolitical partners like the United Kingdom and the United States will remain the foundation of our international relations. Already, our prime minister has moved decisively to improve our working relationship with the Americans, our largest trading partner, which was vitally important to the economic health of Canada to remove some of these unpleasant irritants with our American neighbours. One of those was the softwood lumber dispute, about which there’s been way too much written, and it became rather boring to everybody, but within 90 days we were able to arrive at an agreement in principle with respect to resolution of that irritant, that trade irritant with the United States.

We are playing a leading role internationally, at the same time making progress on our domestic agenda. Canada has decided to step up to the plate in terms of its own fiscal and economic policy challenges. Our standing in the G8 around issues of debt, employment, inflation, fiscal imbalance is largely unparalleled, something I re-emphasized during the meetings this weekend at St. Petersburg. Our commitment to a strategy focused on investment and growth is deep and pervasive. By engaging on issues as diverse as fighting terrorism and encouraging democracy, economic reconstruction in Afghanistan, a new fiscal framework for our federal-provincial relationships at home, supporting Canadian agriculture in transition during the present trade imbalances, especially in grains and oilseeds, reaching an agreement, as I mentioned, with the United States on that irritant of softwood lumber, we are tending to business as government.

And may I say that the kind of conservatives with whom I am working and serving in Ottawa are the kind that believe in the organic linkage between all aspects of a free economy—sound and moderate government, robust and confident markets and an engaged and hard-working citizenry who benefit from equality of opportunity and a fair regulatory and fiscal context. Public health care is a key part of that and also lower taxes, moderate and modest government that knows its place and discharges its obligations honestly, in an accountable and direct way.

So the Canada that emerges from this is one that is confident and prudent, idealistic and practical, impressive without being self-obsessed. As a trading nation, with the longest coastline on three oceans in the world, from coast to coast to coast, our perspective must be global and our context deeply international. Being a trustworthy ally, dynamic trading partner and fiscal example will require both discipline and focus as we go forward, but that is the core of what Canadians voted for in January and is what we are determined to deliver as a new Government of Canada.

Now we are in a minority Parliament so the ideas of other parties are important, not that they aren’t always important, but they’re even more pressing in a minority government. And we take all of that into consideration as we go forward. Our prime minister is working hard to provide Canadians with stable, balanced and effective government that is focused and straightforward.

If I have one message to leave with you today, it is that the new government is serving Canadians in a dramatically different way. Our priorities are more focused and less numerous than the government that went before us. Our fiscal stance is more precise and disciplined, and our approach to attracting global investment is more open and determined. Our desire to maximize our relationships on security, trade, economic and environmental issues has never been stronger, and our stance as a reliable international interlocutor and ally is clear. It is a different balance, a different government and a more precise reflection of core Canadian values about freedom, choice, stability, democracy and the virtues of community, family and the values of a pluralist but grounded society. And that is a good thing for Canada and for Canadians, and for all with whom we are fortunate to be partners and collaborators worldwide, like people here in the United Kingdom.

Thank you very much.