The Federal Budget

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The Hon. Paul Martin, Minister of FinanceTHE FEDERAL BUDGETChairman: Libby BurnhamPresident, The Empire Club of Canada

Head Table Guests

Michael K. Edwards, President, Richardson Greenshields of Canada Ltd.; Rosemary Speirs, National Affairs Columnist, The Toronto Star; Erhard Buchholz, President and CEO, Canada Lands Company Limited; Catherine G. Barbaro, Corporate Commercial Lawyer, Cummings, Cooper, Schusheim & Berliner; Tom Rahilly, ViceChairman, Richardson Greenshields of Canada Ltd.; Lyn McLeod, MPP, Leader, Ontario Liberal Party; W. Thomas R. Wilson, Partner, Weir & Foulds; Julie Morris, Publisher, Beach Town Crier Community Newspaper; Beth Foulkes, Junior Clerk, Monenco AGRA Inc.; Reverend Dr. Lillian Perigoe, Minister, Lawrence Park Community Church; Bill Laidlaw, Director of Government Relations, Glaxo Wellcome and a Director, The Empire Club of Canada; and David Edmison, Investment Counsellor, Martin, Lucas & Seagram Ltd. and President, The Empire Club of Canada.

Paul Martin

Thank you very much Libby. Members of the head table, ladies and gentlemen:

First of all the budget clearly demonstrates that we will hit our three-per-cent interim target for 1996-97. It also shows that we will hit our new target–two per cent, in 1997-98 or $17 billion. In the budget we announced actions which will enable us to go beyond these targets to keep us moving towards budget balance. To that end we announced in the budget that we would be cutting departmental spending by a further $2 billion over and above the very substantial savings which were secured in our first two budgets to take effect in 1998-99. In 1993-94, government spending on everything but the interest on the debt stood at $120 billion. By 1998-99, we will have reduced that to $105.5 billion and that will mean six consecutive years of absolute decline in programme spending. Because we have focussed on spending cuts and not tax increases over the three budgets taken together, we have cut seven dollars in spending for every one dollar in new revenues. In fact in this budget we did not increase taxes at all. We have not relied on tax increases; we have not relied on rosy forecasts. Our economic assumptions are once again more prudent than the private sector and we have put in place substantial contingency reserves.

There are very clear payoffs in hitting these deficit targets. One of the most significant, perhaps not given enough attention, is the dramatic decline in the amount of new money that the government must borrow each year on financial markets. This measure of financial requirements is the way that most other major countries–the United States, the United Kingdom, Italy, France and Germany–calculate their deficits. In 1993-4, the year that we came into office, Canada’s financial requirements stood at 4.2 per cent of Gross Domestic Product or $30 billion. By 1997-98, our financial requirements will drop to 0.7 per cent of GDP or $6 billion and, relative to the size of the Canadian economy, our new borrowing requirements will be at their lowest level in almost 30 years. Measured on this basis Canada will have the lowest fiscal shortfall projected for any G-7 country. And let me assure you this is only the beginning. On the deficit we are keeping on course; we are not going to let up. The attack on the deficit is irrevocable and irreversible. We will balance the books. There should be no doubt about that but we will also go beyond that, because we have to put the debt-to-GDP ratio, that is to say what we owe as a percentage of what we produce, on a constant downward track.

It is important to note that today’s fiscal progress is much more than simply a federal effort. It is a national effort. It is one that is supported by Canadians across the country and no matter what their political stripe. Every single province and territory in the land now has as its primary goal the return to fiscal health and the results are striking. In 1993, Canadian business and governments borrowed $29 billion abroad. This was reduced to $13 billion in 1995 and it will be reduced again next year and the year after that and the year after that. In fact I was quite struck at the last meeting of finance ministers when we went around the table. Every single finance minister essentially talked about the extent to which they were either achieving budget balance or how close they were getting to it. That was the goal they sought. It is really quite a story for Canada because about a week earlier I had been at a meeting of OECD nations in Europe and there was no such common effort; there was no record of success comparable to that which we had in this country. This is a story that we really have to get out to the markets of the world. Not only the federal government but all of the provinces and territories have really come together and, I believe, in the next couple of years we will have one of the most attractive financial records of any industrial country. That is something of which Canadians can be very proud.

Now they’re the budget numbers. That’s not, however, the end of the budget story. We have always said that fiscal health is not an end in itself. It is simply a means to an end. It is to give us the strength to move on; to address problems before they arise; to manage ahead. Our goal is the goal that we share, I know, with each and every one of you–to prepare Canada for the new millennium, for a new economy and to cope and to succeed in an era of unprecedented change. What we have sought to do in our budgets is not simply reduce our spending but to restructure our spending to meet the needs of the nation. Clearly one of these needs is to preserve and to strengthen our social programmes–health care, post-secondary education, and assistance to the poor.

In last year’s budget, the Canadian health and social transfer was created. It was designed to put our federal transfers for these areas on a sound footing and to give the provinces greater flexibility. The framework of the CHST is now in place and our challenge and commitment is clear. It is to do what the prime minister promised and that is to now set up a long-term funding arrangement for this transfer that is stable, predictable and sustainable. To that end the budget will be put in place–a firm funding commitment for the CHST to cover the five-year period beginning in 1998. For the first two years of that period we will maintain the overall CHST entitlement, that is to say tax points and cash, constant at $25.1 billion. For the remaining three years of the framework, total transfer entitlements will grow each and every year through an escalating formula at an increasing pace. At the same time we will provide a legislative guarantee that the cash component of that transfer will never be lower than $11 billion. This will put an end to the automatic decline that occurs as the tax points increase in value while the cash component declines. As a result of this, the provinces will not only benefit from the increasing tax points but from the cash guarantee. Canadians can have confidence that as we enter the next century the commitment of their national government to health care, to post-secondary education and to social assistance will be intact and will be strong.

We have also addressed the commitment to provide a new approach to allocating the CHST transfers among provinces (a particular concern in this province)–one that addresses the funding disparities resulting from the limits on transfers. This new allocation will be phased in during the course of a new five-year transfer arrangement and the current disparities in funding among the provinces will be reduced by half. We are willing to examine with the provinces further refinements to the allocation that may well be appropriate.

The next structural area we are looking at is our system of public pensions. There is widespread anxiety among the young in this country as to whether or not the public pension system will be there for them when they retire. Confidence in the public pension system must be restored. The challenge is very clear. It is one of sustainability.

First, the Canada Pension Plan must be put on a sound financial footing. This will occur. Our government does not share the view of those who believe that the CPP cannot be fixed; that it should be abandoned. We do not believe that the right to a secure retirement should only be the preserve of those who are well-off.

The second pillar of the pension system is Old Age Security and the GIS. This is funded from general government revenues and here too rising costs have led to concerns that these pensions are at risk. Our obligation is to put those concerns to rest. We are proposing a new seniors’ benefit to take effect in the year 2001. The new seniors’ benefit will be tax-free and it will be completely separated from the tax system. It will incorporate the OAS, the GIS, the pension income credit and the age credit. Under the new system it will be fully indexed to inflation–an improvement for all seniors who worry about eroding benefits. The partial indexing of a clawback threshold will therefore cease to be an issue. The new seniors’ benefit will be paid monthly and, in the case of couples, it will be divided equally between each spouse. Each will receive a separate cheque. It will be a fairer system. It will be based on total income as the GIS has always been. We believe that since the incomes of low-income couples are currently combined to determine eligibility for additional benefits it is also appropriate to combine the incomes of higher-income couples to determine their level of government support. The new benefit will be designed to protect low- and modest-income Canadians. Almost all of them will receive slightly more. In fact those currently receiving the supplement will receive $120 more a year. Seventy-five per cent of seniors will be as well or better off. In fact most will be better off. For instance nine out of 10 single women will be better off under the new system. High-income seniors will receive somewhat less; the more income they have from other sources the less they will receive and the very highest-income seniors, roughly nine per cent, will no longer receive government benefits.

The prime minister promised Canadians that no current seniors would have their OAS or GIS payments reduced. Our proposal in fact goes one step further: not only will the pension benefits of every single Canadian over age 65 today be protected, but so too will the pension benefits of every Canadian who reached age 60 before January 1 of this year and their spouses no matter what their age. The government will give these Canadians a choice of whatever system is more advantageous to them. We believe we have now set up a system that will be fair, certainly more sustainable and more secure. We believe that is the hallmark of the social policy reforms that government must bring into the era in which we live. These initiatives, whether it be deficit reduction, changes to the public pension system or transfers to the provinces, are really part of a far greater plan. They are part of the very necessary overhaul of the structure of government spending. As the evolution of the nation-state occurs, so too must the role of its national governments evolve. I would ask you to look at the cumulative effect of our three budgets in terms of the structural changes. We have transformed the role of the nation’s government in transportation. We have moved from ownership and operation where it is no longer needed to effective policy setting where the role of the government must remain. We are changing the support structure for agriculture so that our farmers in rural Canada will be better able to adjust to an open world market. We have brought defence spending and policy more in line with the reality of the post-Cold-War world. We are reforming the old system of unemployment insurance so that it becomes more effective and enables Canadians to get back to work. These structural changes furnish the country with programmes that it can afford not only for the short term but for the long term. They help insulate and protect those programmes from the pressures which are created by changes in the business cycle and they strengthen our society and our economy to meet the demands of the new millennium. They have been guided by certain key principles–one, the need to be fair, and the second, the requirement to provide time for planning and adjustment.

There is one structural problem that I have not talked about yet, however, and that is the question of jobs. This morning the February employment numbers came out and they’re quite good. The employment numbers grew by some 44,000 jobs in the month of February. Half those jobs were in areas dedicated to young people and what that really means is that since December over 135,000 new jobs have been created in this country. Those are pretty good numbers, but they are not good enough and, looking ahead, one of the challenges, the greatest challenge facing Canadians and their governments is the changing nature of work. Around the world on every continent we are facing a revolution whose scope, depth and magnitude rivals that of the industrial revolution itself. Some see this as a revolution about new opportunity, but others fear it as a revolution about lives lost. What we have to ensure is that Canada is on the vanguard of this revolution and not one of its victims. We have to work together to make sure that the new economy is also an economy that creates new jobs.

Clearly, despite all of our problems, the economic climate in the country is getting better. Balance sheets are improving, interest rates have come down over three percentage points in the past year, inflation is at one of its lowest levels in over 30 years and we are more competitive; in fact we are more competitive with the United States than we have ever been since records were kept. The point is, however, that in this era of globalisation, of competition and of rapid change, each and every one of you know so very very well, focussing on the fundamentals is absolutely necessary. In addition to consolidating our fiscal position in the last budget we announced that we would be strengthening three areas of government emphasis to enable Canadians to manage for the future. They are not being funded by new money. They are being funded by reallocated existing resources, whether they are on the tax side or on the spending side.

First, we are investing in our youth, in learning and in the transition from school to work. The success of our economy depends on them but at the same time their success will depend totally on how much they are able to participate in the new economy as it develops.

Second, we are investing in technology, because one of the greatest challenges that we face is to make Canada one of the most innovative countries in the world. What we really have to do is to change the economic culture of the land.

And third we are investing in trade, because for a country like Canada, one that trades as much as we do, trade policy is effectively industrial policy.

That summarises the budget: a framework for a more productive economy in society, one based on fiscal health, one based on successful social programmes and a government focussed on the key national priorities, the most important of which we believe to be the framework for jobs.

Budgets are only a very small part of the answer to the very deep anxieties that grip our nation. The fact is success for countries is no different than success for families, communities, individual citizens or businesses. It is based, above all, on one thing–the constant setting of goals and the meeting of new challenges.

Successful countries do a lot more than simply occupy a place on a map. They live in the souls of their people because they are relevant to the betterment of their lives. I believe that the real problem is not that we have failed to meet the goals that we must set. It is that too often we have failed to set the goals that we must meet. With that in mind, I would ask you now: “Is it beyond this country to decide that in 10 years our medicare system will not simply survive but that it will be the most successful in the world, with a record in cure and prevention that is second to none?” I would ask you: “Can we not decide together as a nation that in 10 years from now our streets will be the safest as they can possibly be–not because we have more prisons or more police but because we have addressed directly the sources of crime?” I would ask you: “Can we not decide that in 10 years Canada will be regarded as the world leader in bio-technology, in environmental technology or in the cultural industries of the multi-channel universe? Can we not decide that 10 years from now increasing child poverty rates will be a thing of the past, that illiteracy will be erased from our communities and that when it comes to international tests our students will not only do fine work but they will be among the finest in the world?”

You may ask me: “Why ask these questions in a budget speech which is supposed to deal with numbers and the hard realities of life?” Well the answer is that we will restore this nation to fiscal health but a nation is a great deal more than a balance sheet. It is the shared aspirations of all of its people. It is excellence in all of its forms and our challenge today for the sake of our young is to make Canada once again a place of great expectations–a country where once again our children will believe that they have the opportunity to do better than their parents. The history of Canada is that we have done that in the days when we dared to speak of a national dream and then we went out and built it and the days when we aspired to a kinder society and we went out and created it.

What I would say to you is that it is now time to move forward again–to arrive not simply at a common understanding of what we are but what Canada can be. We have to set large national challenges, not small ones, because it is only by reaching as high as we can that we will be able to tell our children how far they can go.

That I believe is the challenge all of us must meet. It does not belong to any one of us alone. It does not belong simply to a budget. It belongs to everyone in this country together.

Thank you.

The appreciation of the meeting was expressed by David Edmison, President, The Empire Club of Canada.

Madam Chair, honoured guest, Reverend Perigoe, distinguished head table guests, members and friends of The Canadian and Empire Clubs:

Sophocles wrote many years ago: “Show me the man who keeps his house in hand; he is fit for public authority.” I think if our guest was living in those times he would get full marks from Sophocles for his efforts to keep our fiscal house in order. Which is a good thing for you, Minister, because if they didn’t like what you said or did in those days they politely asked you to drink poison hemlock! Today, of course we are far more civilised; we leave this task up to editorial boards and their sometimes poison pens!

Minister, clearly you have one of the most difficult jobs in government. You are charged with the stewardship of our financial well-being. Its importance cannot be understated and it truly requires someone “fit” for public authority. In your budget presentation on Wednesday you closed with the words: “We are stewards of the national interest.” The word steward comes from the ancient biblical word “sty word” which meant keeper of the barnyard. In ancient times the barnyard was the very essence of survival. If it was not well maintained, one did not survive.

We would, of course, never refer to a beautiful country like Canada as a barnyard, but there are some who feel that there have been too many feeding from the public trough. We clearly have to make changes and sacrifices to maintain our fiscal integrity.

Minister, you have set a course which will reduce our dependence on debt and lead us towards a balanced budget by the end of this century. You have said in the strongest words possible that your government will never let up on this course. I know I speak for all of us when I wish you the very best in the task ahead so that we may, and I use your words “open the doors for our children.” On behalf of The Empire Club and Canadian Club, I thank you for addressing us today and the stewardship you are exercising on our behalf.

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