THE ECONOMY: 1984 - 1988
The Hon. Michael Wilson, P.C., M.P., Minister of Finance
February 15, 1988
At a joint meeting of The Empire Club of Canada and The Canadian Club of Toronto
Co-Chairmen: Sonja Sinclair, President, The Canadian Club of Toronto; Ronald Goodall, President The Empire Club of Canada
Some 40 years ago, when Winston Churchill was invited to Washington to address a joint session of the United States Congress, he pointed out that if his father had been American and his mother British, instead of the other way around, he most likely wouldn't have needed an invitation to speak because he would have made it to Capitol Hill on his own. I was reminded of this incident after I was looking over our guest speaker's many accomplishments, including the fact that he was at one time vice-president of The Canadian Club of Toronto.
It occurred to me that if 10 years ago Michael Wilson had decided to continue pursuing a business career instead of going into politics, he might be standing here today introducing the Minister of Finance.
Well, Mr. Minister, I know I can safely say that the job will be available to you whenever you want it, though I suspect that won't be for quite some time. According to conventional wisdom, ministers of finance don't win many marks in popularity contests, but conventional wisdom does not apply to our guest speaker. Indeed, in the 31/2 years he has occupied the finance portfolio, Mr. Wilson has come to be seen as a white knight among ... well, never mind among what. Certainly as far as the members of our two clubs are concerned, whenever he does something they like-which is often- they say, "Thank God for Michael Wilson;' or as one of our guests said to me before lunch, "He is the glue that holds things together." And on the odd occasion when he does something they don't like, they purse their lips and say, "Poor Michael. He didn't want to do it, but he had to give in to political pressures:"
Ladies and gentlemen, I could go on to tell you where Michael Wilson
was born, where he went to school and to university, or what a distinguished business career he had before he decided to run for Parliament, but I suspect that isn't what you want. So instead, I'll simply say that I feel happy and honoured to introduce to you the Hon. Michael Wilson, Minister of Finance in the Government of Canada.
It is always a pleasure for me to be at The Canadian Club and I do thank you, Sonja, for your very kind words of introduction. If your job is available to me, I can assure you that any time you want my job, you can have it, too.
I am delighted to see that Hal Jackman wrote his own introduction again. Be patient, Hal. I have his button in my pocket. It's the 17th he's given to me in the last two months and ...
I'm also delighted to see students from Michael Power here. This is one of the finest schools in Toronto. It happens to be in Etobicoke Centre as well. Welcome to the students here.
As I said, it's always a pleasure for me to be in Toronto at The Canadian Club meetings. I'm delighted my parents are here. They are my two strongest critics. I was just given an envelope ... a brown envelope from my father just before I came in, so I probably received some more advice from him. Thank you very much, Dad. I'll get back to you.
We have a very strong economy in this part of the country, and I think in Toronto we probably have an economy that's one of the fastest growing and most successful in North America today. When you look at the record in the Canadian economy and here particularly in Toronto, it's a record of achievement that is rightly inspired, a strong and growing sense of assurance that we can compete on equal terms with the world's best. It's a record that speaks well of our rising economic maturity and gives Canadians good reason for compliments on another score-it leaves us well-placed to seize the opportunities presented by a decade and a century ahead. It says that working together, Canadians have accomplished much and it challenges us to recognize that together, we still have much to do. When our government assumed office 31/2 years ago, we set out an orderly coordinated strategy for recovery-our agenda for economic renewal. It was a concerted strategy designed to recover lost ground and chart a new course toward a more resilient, dynamic, competitive Canadian economy. For too many years, previous governments of Canada had given a fair imitation of Stephen Leacock's celebrated horseman, who as you'll all remember jumped on his horse and rode off in all directions.
We proposed instead to set our course according to a number of coherent, mutually reinforcing principles. We would, we said, restore fiscal responsibility in Ottawa by restoring and reversing the spiral of runaway deficits and by controlling the massive growth in the public debt. We accept that we would get the government out of doing things that it doesn't do well-allowing private initiative to get on with the business of creating durable growth and productive jobs. We said that we'd put in place a framework of government initiatives to encourage investment, foster innovation and increase the international competitiveness of Canadian enterprise. From the beginning, these policies were and still are rooted in a fundamental conviction-that the wellspring of economic growth is the creative energy of Canadians themselves, their capacity to innovate and produce, their desire to excel, their determination to build a more prosperous and secure future for themselves and for their families.
And how have we been doing as Canadians? Since 1984, Canada's growth has led that of all the major industrial nations. In 1987, our performance surpassed all expectations, buoyed by strong consumer spending, the highest levels of business investment in six years, and the most housing starts in the last 10 years. When the final numbers are in, the real gain in a national income is likely to be close to 4 per cent-far ahead of most expectations.
Since 1984, Canada's record in job creation has been second to none among the major industrial nations. When our government assumed office, there was no more important goal than reducing the human toll of unemployment. In my first budget as Finance Minister, I said, and I quote, "If I have a preoccupation with any one economic target, it's with the good, satisfying and durable jobs that Canadians, and particularly young Canadians, want and need:' By this measure, no aspect of a renewal offers more welcome evidence that we are on course and on the right course. Then the impressive increase in the number of jobs. Since 1984, more than 1,150,000 jobs have been created in Canada, 85 per cent of which are full-time jobs. Our unemployment rate has declined by nearly a third to its lowest level since 1981. In 1987, the unemployment rate fell in each and every province in Canada. In 1988, Canadians may look forward to a sixth consecutive year of expansion. Employment will continue to grow. And despite last October's decline in the stock market, business confidence remains high, corporate balance sheets continue to reflect good financial health.
On the inflation front, consumer prices increased 4.4 per cent in 1987. However, inflation was down from the levels over the first half of last year, and by the end of the year, inflation in Canada was increasing at a rate lower than that in the United States.
Interest rates are significantly lower than when the government took office and they're expected to remain relatively stable in 1988.
To maintain a positive climate for growth and job creation, it's essential that wage and price pressures continue to be restrained and that further progress be made over time in reducing inflation. Both monetary and fiscal policy have an important role to play in this regard.
But even without the stock market decline, the economy would not have been expected to sustain the exceptional rate of growth that was achieved in 1987. But there is no evidence of a recession on the horizon. Our own considered forecast is that growth will moderate to just under 3 per cent this year. It should then rebound in 1989 as a stimulus of tax reform comes on stream in the form of tax refunds and we begin to reap the benefit of lower consumer prices, higher investment spending, and more exports as a result of the Canada/U.S. free trade agreement.
Canadians could not have achieved these remarkable gains without resolute action by the government to put its fiscal affairs in order-itself a task of no small order. In 1984, the federal deficit and the national debt were, in plain language, out of control. To lend perspective to the gargantuan challenge that confronted us, consider the stark facts-the deficit was $38 billion and rising up from $14.9 billion in just three years. The national debt had doubled in the same period and was growing at an average rate of 26 per cent per annum. Clearly, we had to move urgently to restore fiscal stability and rebuild credibility in the government's competence to manage its finances with discipline and with restraint. To have ignored our fiscal responsibility, to have repeated the errors of the previous government, would have led to a drastic fall in confidence, an intolerable burden of debt, and an inability to maintain our social programs and cushion ourselves against the inevitable and unexpected shocks from abroad.
We undertook to bring government spending under control and we've done so. In the four years before we took office, government program spending grew at an average annual rate of 14 per cent. In the last three full years, we cut that figure to just 31/.s per cent. This is not only less than the rate of inflation, but the lowest rate of increase in program expenditures in two decades.
We are continuing to hold the line. In 1988-89, government program spending will increase by only 4.3 per cent. We undertook to reduce the deficit and have also done so. For the current fiscal year ending March 31st, we'll meet our target of a reduction to $29.3 billion. We're projecting a further reduction next year.
It's noteworthy, however, that by far the large part of this progress has come not from tax increases, but from reducing spending as a share in the economy and discipline management of the country's fiscal affairs. We undertook to limit and ultimately stabilize the growth of the national debt and are doing so. If we had allowed the debt to mushroom unchecked, it would have by now grown to more than $100 billion larger than it has and that amounts to some $16,000 more for a family of four. By 1990-91, we will have reduced its growth rate to no more than that of the economy, and again I remind you that that's down from 26 per cent.
We set a clear and realistic course to restore sound financial management and we're holding to that course. But economic renewal required more than just restoring fiscal integrity to government. It required a revitalized private sector and a government that could respond to the priority needs of Canadians while still holding to the fiscal targets.
We set out to create a climate in which the private sector could play its role as the driving force behind productive growth and job creation. We have done so among other things by deregulating the energy and transportation sectors, by opening financial markets and services to greater competition and by privatizing some Crown corporations.
We can see from the dramatic returns that our policies have worked and will work in the future, but we cannot be and are not complacent. To build our prosperity into the 1990s, we will continue to need a dynamic private sector free to proceed with creating new markets for Canadian enterprise at home and abroad and we will continue to need government policies that welcome investment, encourage growth, and strengthen our capacity to excel.
As a trading nation, we face no more paramount challenge than securing improved access to world markets. That is why we're in the forefront of nations, working for more liberalized trade rules in the current round of negotiations in Geneva under the General Agreement on Tariffs and Trade. And that is why we've concluded the United States/Canada free trade agreement which sends a resounding signal internationally of our openness to freer trade. More specifically, its pioneering provisions covering trade and services set an example for the rest of the world.
Beginning next January 1, the free trade agreement will lower consumer prices and increase investment in jobs as Canadian firms take advantage of their improved access to the vast U.S. market. The agreement will provide new opportunities for economies of scale and Canadian production and marketing and so stimulate innovation and encourage improved productivity. It will, in short, lead to a more efficient, lower cost Canadian economy with more jobs, higher real incomes and greater confidence and security.
The government's detailed studies show that the permanent gains will be significant. By the time the agreement is fully implemented, Canadians' real incomes will have increased by $12 billion or about $1,800 for a family of four. Production should expand by 3'/per cent and we estimate a net increase of at least 120,000 jobs by 1993.
The elimination of tariffs and carefully staged phases should reduce the cost of U.S. goods imported into Canada by about 5 per cent. Businesses will have gained from the lower prices of intermediate goods that go into their own production helping to reduce production costs and so make Canadian industries more competitive-not only in the United States, but in overseas markets as well.
As Canadian firms restructure and retool their factories, the government studies show that business investment in plant and equipment will likely rise by more than 4 per cent in real terms by 1993. By that time, too, the combination of all of these factors should increase Canadian exports in terms of volume by about 31/z per cent.
It should be borne in mind that these figures undoubtedly understate the case since they do not attempt to take account of intangible benefits that cannot be estimated in advance, but are just as important. Such intangible benefits are a reduction in uncertainty once businesses know they can count on more secure markets and the confidence built by broader horizons and opportunities.
We should also bear in mind that just as freer trade expands production and growth, it will also give us the means to preserve and strengthen the distinctive social and cultural programs that go to the heart of our Canadian identity. And to those who feel that our sovereignty and culture will be undermined by the trade agreement, consider how much stronger our culture institutions have grown in the last 20 years and how much more Canadian we feel. This has been at a time when our trade with the United States has increased many ways. The free trade agreement is thus a symbol of our new maturity-a declaration of new confidence in our ability to compete and to excel.
Our competitive position will also be strengthened by tax reform which went into effect on January 1, a major restructuring of our personal and corporate income tax system. Tax reform will provide an incentive for growth in the most effective way possible-by lowering tax rates.
Personal income taxes have been reduced for more than eight out of 10 households, for nine out of 10 Canadians age 65 or older, and for the vast majority of families with children. Our new tax system is also demonstrably fair for individual Canadians-removing tax breaks that have worked in favour of some, while discriminating against others.
For the corporate sector, tax rates are also being lowered, bringing them more closely into line with the tax system of other countries, particularly the United States. The new structure will ensure that business and investment decisions in the future are based more on economic merit than on tax considerations. At the same time, many more profitable corporations will pay tax, raising that share that corporations contribute to total tax revenues.
Now, this is the first phase of tax reform. The second phase still lies ahead. It'll replace the archaic and distorting federal sales tax system that we now have with a multistage system that will be effective in supporting growth and job creation. We have been working with the provinces and others to develop the most effective means of implementing this new system, particularly the opportunity of an integrated national sales tax.
While the progress so far has been good, we have more work to do. But let me emphasize that there is no hidden message in tax reform. It is not a "cut now, pay later" proposition. It should clearly be understood that the second phase of tax reform-like the first-will neither raise nor decrease the deficit. It will simply, but importantly, bring greater equity and efficiency to our tax system.
Building on the strength of our economic renewal, we must seize the opportunities that are open to us in an increasingly competitive world. A dynamic, competitive, and growing economy provides the means for government to maintain the social services that are an integral part of the Canadian way of life. Strong economic growth, coupled with our fiscal progress, has enabled us to move forward in a number of priority initiatives important to the well-being of Canadians.
We're introducing a national child-care program which will offer parents greater choices in caring for their children and will make available more good quality and affordable childcare facilities.
We're implementing a new approach to regional development that is more responsive to regional needs and priorities and that draws fully on the ideas and the initiative of people living in the various regions.
We've begun to implement proposals to strengthen and modernize the Canadian Armed Forces in order to protect Canada's sovereignty and meet commitments to our allies.
We're providing substantial support to Canada's farm community in the face of severe international conditions, both through existing programs as well as supplementary assistance.
We provided wide-ranging support for the development of Canada's vital energy industry through energy accords with the producing provinces and additional assistance following the collapse of world oil prices.
We're embarking on a long-term strategy to apply science, technology, and innovation in strengthening economic growth and development.
And we've done all of these things within the fiscal frame-work that will see the national debt growing more slowly than the economy in 1991-92-the first time that that will have happened in over 13 years.
In these ways, the government is meeting its responsibility to ensure that the country can continue to meet the challenge of producing growth, jobs, opportunities, and greater security for all Canadians.
But my friends, we live in a fast-changing, volatile world. It is difficult to predict the future and even more difficult to make specific plans to anticipate future conditions. The key to our success, whether as individuals, as companies, or as governments, is to be able to respond quickly and flexibly to change when it happens. The policy of our government is designed for just that. Whether it is reducing the deficit, reducing the burden of government intervention through reduced regulation, a more flexible competition policy, privatization of government-owned commercial enterprise or increased training programs in R and D spending-all of these initiatives are directed to helping our economy adjust to change and benefit from these new opportunities. More must be done, but we've made a very good start, and working together, our collective success has proven that we're on the right track. Thank you very much.
Thirty or 40 years hence, the student or the historian will examine the records of The Canadian Club or will read the yearbooks of The Empire Club and will note that in each of their 1986-87 and 1987-88 seasons the two clubs were addressed on two occasions by the Hon. Michael Wilson, then Minister of Finance.
The student and the historian may be intrigued by the apparent parental fascination with income taxes, budgets, and tax reform and by the obvious popularity of the minister. The reason for this fascination could well be that there are two methods of legally minimizing the impecunious effect of proposals to increase taxation while readily accepting proposals to decrease taxation. One method is to attend these luncheons where over a thousand productive minds are at work! The other method, of course, is to follow the example of Lady Godiva who successfully persuaded her husband to decrease taxes by that historic ride through Coventry! Mr. Minister, be careful what you say at these luncheons and keep an eye on Bay Street parades.
However, the pain of this budget appears slight at first glance, but as Jerome K. Jerome wrote: "Everything has its drawbacks as the man said when his mother-in-law died, and they came down on him for the funeral expenses."
I wish you well in the battle you must wage against the many who would encumber the future for the votes of today. On behalf of The Canadian and Empire clubs, l thank you indeed for your most interesting address today.