The Hon. Paul Martin, Minister of Finance
Chairman: Isabel Bassett
President, The Canadian Club of Toronto
Head Table Guests
F. L. R. (Eric) Jackman, President, Invicta Investments Incorporated and President, The Empire Club of Canada; Gerald W. Schwartz, President and CEO, Onex Corporation; Kathryn Robinson, Partner, Goodman & Goodman; David Dodge, Deputy Minister of Finance; Keith Patterson, Partner, Deloitte & Touche and a Past Director, The Canadian Club of Toronto; Heather M. Reisman, President, Cott Corporation; Richard E. Venn, Chairman and CEO, Wood Gundy Inc.; Lyn McLeod, Leader of the Official Opposition and Leader, Ontario Liberal Party; John A. MacNaughton, President and CEO, Burns Fry Limited and Past President, The Empire Club of Canada; Father Paul McGill, Pastor, Holy Rosary Church; Marcia McClung, President, Applause Communications and a Director, The Empire Club of Canada.
First of all, I would like to thank you for the invitation to speak to you today.
Addressing a joint session of the Canadian and Empire Clubs has become almost a tradition for finance ministers who have tabled a new budget. I am delighted to continue in that tradition--although I have to tell you there are some other traditions involving what happens to used-up finance ministers that I would just as soon dispense with.
Four months ago, a new government was elected, with a very clear mandate from the Canadian people. That mandate simply put, is one of restoration and renewal.
• Restoration of fiscal responsibility for the public finances of our country.
• Renewal of the Canadian economy--a strategy for jobs and for growth.
Last week we put forward a budget which acts on that mandate. For years, here in Canada as elsewhere, as you know well, governments have been promising more than they can deliver--and they have been delivering more than they can afford. Our commitment to Canadians was to put an end to that practice--and let me tell you we're going to do just that.
Canada is now one of the lowest-inflation countries in the world. We're going to stay that way. As a country, we have also met the monetary challenge. With this budget, I believe that we begin to meet the fiscal challenge as well.
Let me be very clear. Our goal is to eliminate the deficit. Our interim target is to reduce it to three per cent of GDP by 1996-97. And this budget puts us on course to meet that target. We will reduce the deficit to $39.7 billion in 1994-95; to $32.7 billion in 1995-96; and, with the help of only moderate economic growth, to $25 billion in 1996-97.
Now, I understand full well that for a finance minister to stand up and say that these targets represent a great success is horrifying. And it is. It demonstrates the extent to which, as a country, we have allowed ourselves to become indebted. But it is important to establish realistic targets if we're going to attain the ultimate goal.
It is also important to understand that we will arrive at this $25 billion deficit as a direct result of the actions contained in this budget in and of themselves. Our basic premise when we started was we wanted the deficit ratio of three per cent of GDP to be secured by the cuts in this budget--not dependent on a subsequent budget. That's what we wanted, and that's what we have done.
There is more deficit reduction in this budget than in any but one in the last 10 years. And in that budget--the sole exception--80 per cent of the action involved raising taxes. In this budget, 80 per cent of the action involves cutting government spending. And that's what Canadians asked us to do!
Now some people have expressed disappointment that the deficit for the first year is not lower. My mother-in-law is one of those people. I understand her disappointment. And I share it. However, the reasons we cannot bring the deficit down faster are quite straightforward.
First of all, there is a lag time before the full effects of government spending cuts show up on the nation's books. For instance, if we decided--as we have done--to radically reduce subsidies to industry, we first announce that action in a budget. But consider an individual corporation that receives a million dollars a year over five years. The decision we announce today means the ultimate effect of the cut is only going to show up at the end of that period.
The same thing happens when changes--for example, in unemployment insurance--require formal legislation. Most of the spending cuts we are staking out will have to be legislated and go through the entire parliamentary process. This means they will not come into effect before late spring or early fall--and so the benefit of the cuts will be lost for a good portion of the fiscal year.
On the other hand, if we had decided to reduce the deficit by increasing taxes, the results would have been much more immediate. However, as you know, taxes in Canada are already too high. Indeed, it is our ultimate objective to bring them down. Our goal is not to increase the burden on taxpayers; our goal is to decrease the burden of government. Canadians are in a state of tax fatigue. To broadly raise taxes now, at this stage of the economic recovery, would do little else than deliver a broadside against jobs and against growth. That is not where this government is coming from. This is why in this budget, over the next three years, for every one dollar raised in new revenues, there will be five dollars in cuts of government spending.
There is a second reason as well why the deficit is not lower in the first year of our three-year strategy. And that is, we have carried through on all of our election commitments, including a $2 billion infrastructure programme. And every single initiative in the Red Book is fully funded up front.
There is a good reason that we have done this so very clearly. It is the only way, as a country, we're going to get rid of the terrible cynicism that exists about politicians and the political process. Politicians must deliver after their budgets and after their elections what they said they will do beforehand.
And then there is a third reason why the action of the first year does not lower the deficit immediately as it might. That is, we have scrapped many of the practices of the past.
In previous years (and this goes back even before the past decade) governments would set targets based on rosy projections in order to look good initially--only to fail eventually. That did not help the credibility of the nation's finances. And one of the purposes of our exercise is to restore that credibility. We believe it is more important for us to hit a target than to declare an illusion and then fall far short. Therefore our budget is based on prudent economic assumptions.
For 1994, we project nominal growth in GDP of 3.9 per cent, rising to 5.2 per cent next year. We expect inflation to average below one per cent this year, rising to 1.3 per cent the next. And our assumptions on short-term interest rates are 4.5 per cent this year and five per cent the year after. In each case, these assumptions are in the pessimistic range of private-sector forecasters across the country. We believe that is a responsible way for government to act.
Next, this budget provides a full accounting for all programme costs. There is nothing hidden, nothing left out. If that sounds like a surprising statement, let me simply tell you a couple a things. We have provided in this budget for $1.7 billion in assistance for the Atlantic groundfish industry. This is not a new problem and the previous government had committed to support Newfoundland fishers through this difficult transition. But the fact is, in their last book of accounts, there is not one penny provided for the fisheries--even though everybody knew that the money had to come.
It was the same with the recently-concluded GATT negotiations. There was not one penny budgeted by the previous government to make up for the loss of government revenues resulting from the drop in tariffs following GATT. But our budget fully accounts for this. And we are going to set a new standard for accounting for the nation's finances.
Finally, we have not off-loaded onto the provinces by unilaterally changing the structure of federal-provincial transfers. We firmly believe that the two levels of government must approach their respective challenges through co-operation.
We are encouraged by the fact that, throughout the land, there is an unprecedented consensus today--both nationally and provincially--0n the need to bring deficits down. Strong action is being taken right across the country, and this will have a significant impact--not just on the federal deficit, but on the national deficit over all. And that, in the end. must be the ultimate goal of all governments. There are not two deficits in this country: There is not a federal deficit and a provincial deficit. There is one deficit. International money markets understand this, and it's about time that the government of this country begins to do so as well.
Now, some people have said that we should have simply cut spending by five per cent--Preston Manning says six per cent-across the board. Well, first of all, in a number of areas, we've gone well beyond that. But let me tell you, it doesn't take long after you've seen the books to realize that simplistic approaches like this may make good political speeches, but they don't deliver results.
First of all, that is what the previous government did--to no avail. The "death of a thousand knives" simply postpones the inevitable. What is required, given the condition that we're now in, is an in-depth calling into question of entire programmes to see if they are needed--to see if each is, in fact, the way we should be delivering services to Canadians.
Furthermore, we do not believe that sustained success lies in just treating symptoms. What is required is root and branch reform. We are closing military bases and reducing other elements of defence infrastructure, setting the stage for a more modern and effective Canadian Armed Forces. We are reforming our Unemployment Insurance system, in order to make it more effective, more fair, and more affordable. We're reforming it so that it becomes a programme that builds bridges to work--to independence, not dependence.
Our goal is not simply a deficit of three per cent of GDP. It is to eliminate it! Our goal is not simply a temporary blip in Ul numbers. It's to put Canadians back to work! And to meet these goals, simply "cutting at the margins" or "nibbling at the edges" just isn't good enough!
What we have to do as Canadians is to rethink the role of the state. And that's what we are doing. When our reform of Ul is in place, it will be the most in-depth change since 1972. The change in our military posture will be the most significant since the end of the Second World War. It's no coincidence that that's where we started. That's where we had to start if our goal was to be cost-effective government.
Nor is it any coincidence that we want to review this year the sustainability of the pension system. It's the sword of Damocles hanging over the heads of everybody in this room under the age of 45.
Nor is it any coincidence that we have given notice of the need to reform the federal-provincial social security system--to build in (as Lynn McLeod has said) more fairness. We believe that we cannot right the wrongs of the past, but we can design a new system that would be more effective and less costly.
We have given ourselves and the provinces two years to succeed. And have set out the minimum savings that must be achieved. These are not empty promises. This is reform that is going to happen. There are due dates. There are deadlines. There are firm fiscal targets.
We are doing this not simply to cut spending. We are doing it because Canada needs a new architecture for a new economy on the verge of a new century. But in the end the result is also going to be to get the financial monkey off our backs. And that is going to be one of the legacies of this government to its people.
Restoring fiscal responsibility and building responsible social programmes are two key aspects of our budget. And then there is a third area--that is, putting in place a strategy for economic growth and renewal.
In this budget we take a variety of steps to address the needs of small business--the vital vehicle for jobs today and in the future.
Small business does not want--and you know this as well as I do--another government programme. What they do really want is for government to get off their backs, and let them get on with creating jobs and making money. And we're doing that.
We are removing useless red tape. We are accelerating regulatory reform. We are going to make our federal sales tax easier for small business to administer. We are taking steps to improve the access of small business to capital. And we are going to reduce their tax burden!
One of the major initiatives of this budget was to lower payroll taxes for business--rolling them back now, with the prospect of even further reductions in the future. Payroll taxes are a cancer on job creation. Our reduction in unemployment insurance rates this year will result in business saving over $300 million per year, money we would expect businesses to re-invest in job creation.
Finally, we are overhauling our entire effort at research and development. The Canadian government spends over $6 billion a year on R and D. Yet the payback is infinitesimal. The problem is, we don't have clear priorities. We haven't focussed on areas of Canadian advantage--areas where the markets and the jobs will be found.
We're going to change this--through a new long-term space plan that we announced in the budget; through a strategy for the information highway; and, most importantly this year, through a comprehensive study of science and technology to set up the priorities, purpose and the vision.
Now some people have pointed out that at the same time as we are taking these actions, we've also had to cut a number of projects: the KAON Accelerator in British Columbia and the International Space Station (which affects some here in Ontario). And I know there are people in this room who regard this decision as a bitter blow. But the simple fact of the matter is, projects like the Space Station and KAON are too expensive for us to pursue.
This does not contradict our deep commitment to science and technology. Quite the opposite. Given our country's fiscal condition, we have to make sure that investments by government represent the most effective
use of public funds. And tough choices have had to be made.
These are the motivations behind the budget numbers. Our budget looks at the long-term, not just the short-term. We are addressing the whole, not simply focussing on the pieces.
And we're moving forward on all fronts--on deficit reduction, on social reform, on economic renewal. And we're doing so because we believe that success on any one front really requires success on all fronts. In other words, each is inter-related.
The responsibility that you and I share today is to build the kind of Canada Canadians want.
• A Canada where government facilitates adjustment to change rather than blocking it.
• A Canada that leads in technology rather than leaning on the technology of others.
• A Canada where our financial house is in order, not in ruin.
• A Canada where every Canadian who wants a job can find one.
That in essence is the kind of Canada this budget seeks to build.
We are now about to begin the discussion period and I look forward to it--not only discussing the budget that we just sent out, but I also hope that we can discuss the budget that will be coming down in a year. If somebody had followed all the pre-budget consultation conferences this January, I think that probably they could have written 75 per cent of this budget. My goal is that for the coming budget, somebody who did the same thing could sit down and write 100 per cent of that one.
I think budget secrecy is nuts! It is archaic and bad public policy. I do not believe, and a just government should not believe, that the budget should be the beginning of debate. Rather, it should be the culmination of debate over the course of a year, in which the country says the kind of things it wants to do.
In the discussion we're about to have, there are people in this room who may say that we have not done enough, and those who will say we have done too much.
But for those who think we should be spending more money, the thing I ask of them is to tell me where that money should come from.
To those who demand more cuts, I ask them to tell me the extent to which that action will affect growth, will affect jobs and the most vulnerable in our society. I also ask them to tell me exactly where cuts should be made--because the debate in this country has now progressed too far for us to be any longer content with vague generalities.
I feel very confident about our future as a country. You don't have to spend much time at a G-7 meeting with other finance ministers to realize just how good our numbers are--how lucky we are.
Reaching our destination is not going to be easy, but the journey has just begun. The game plan is in place, the goals are clear and, let there be no doubt about it, we are going to succeed!
Thank you very much.
The appreciation of the meeting was expressed by Frederic L. R. Jackman, President, Invicta Investments Incorporated and President, The Empire Club of Canada.
Mr. Minister, Paul Martin, honoured head table guests, ladies and gentlemen:
First, Mr. Martin, we all appreciate your sincerity and openness in the earnest way you have presented this address and question-and-answer period. We are also grateful that you are continuing the long tradition of presenting the post-budget address to the members and friends of our two great public-speaking forums.
As a token of appreciation from The Empire Club of Canada, Iwould like to present you with last year's edition of all of our distinguished speakers. You will note that your address today will appear in the space that was formerly reserved for Michael Wilson or Don Mazankowski and other finance ministers before them.
We all commend you for offering yourself to provide leadership to Canadians. Too often politicians are criticized and rebuked. The Globe and Mail editorial (February 25, 1994) accused you of "cheap tricks for tawdry ends" in your calculation of the $45.7 billion deficit for 1993-94. Bob Rae called the budget "crummy" and Canada's No. 1 deficit buster out in Alberta--Ralph Klein--says your budget is "mostly words."
Well, we now place our hope in you--we have to. We hope that you may provide the judgment and direction that earns the confidence of Canadians in the leadership of our government. We wish you good luck.
On budget night last Tuesday, we also saw the winning of two Olympic medals for Canada--a silver for the women's 3,000 metre speed skating and a bronze for Marc Gagnon in the 1,000 metre.
At the same time, two economists (Warren Jetsin and Aaron Gampel) over at the Bank of Nova Scotia awarded your budget a gold medal for reasonable economic assumptions, a silver for spending control and a bronze for raising so few taxes.
In appreciation for your address today, we would like to give you a large round of applause.