The Hon. Don Mazankowski Deputy Prime Minister and Minister of Finance
THE FEDERAL BUDGET: STAYING THE COURSE
Introduction: Roland Lutes
President, The Canadian Club of Toronto
The subject of today's address is known by all of us.
Our speaker today has built a political career that does credit both to himself and the democratic process of our country. A native of Viking, Alberta, he was a farmer and local businessman before becoming a Member of Parliament in 1968.
He has held a number of cabinet portfolios and very responsible jobs. He has been Minister of Transport, President of the Privy Council and Treasury Board and Deputy Prime Minister.
Just 11 months ago he was appointed Minister of Finance. He is known and respected throughout this land. Ladies and gentlemen, The Honourable Don Mazankowski.
Well thank you very much. Distinguished head table guests and members of The Empire Club and members of the Canadian Club, guests and ladies and gentlemen.
I'm delighted to be here, and very pleased to have this opportunity to discuss my very first budget with such a distinguished audience. I was going to say this was my very first speech outside the House of Commons on my budget. I made one this morning so this is the second, to a very distinguished group of Canadians, the membership of The Empire Club and the Canadian Club.
When I set out to prepare this budget, as you know, the background was one of uncertainty and a fair amount of difficulty and a lot of concern that prevailed across the country. So I decided to consult in a very broad manner, right across the country, with Canadians from every walk of life. And I tried to do it in a way that we could achieve some consensus.
I think, traditionally, it has been the practice of finance ministers to meet with some individuals on a bilateral basis. On this occasion we chose to bring people together from all walks of life. Farmers, fishermen, manufacturers, retailers, social groups, women's representative groups, disabled and anti-poverty groups--and it was really quite a fascinating experience.
I can remember one of the very first meetings we held here in Toronto. We had the chairman of the anti-poverty group squaring off in a very interesting dialogue and debate with a representative of the Canadian Manufacturers' Association. And it was disciplined, it was productive and, as we went through the process, we developed a clear consensus. I guess, in the eyes of some, we had the spenders and the wealth creators all in one room, and there wasn't a whole lot of difference when we got right down to the bottom line.
And so it was in that context that we set out to see if we could find some consensus emerging across the country and, indeed, that is precisely what happened. And some of you in this room may very well have participated in some of those sessions. I know that there was some degree of skepticism because it had broken with tradition; I think after it was all over we felt it was very worthwhile.
And one point came up, and that was this. They said: "Well you're out here consulting with us today, but how do we know that you're going to implement anything that we're suggesting?"
And I replied: "I'll come back and see you after I produce the budget and we'll talk again."
And that's what I'm going to do next week So I'm going to be held accountable to the people that made submissions to me and I'm going to go out across the country and meet with basically the same groups in the same manner that I did in the preparation of the budget.
I must say that I was inspired and very deeply impressed by a number of things. But particularly the understanding and the limited choices that we have available to us as well as the deep, deep concern. And the recognition that there really were no quick or easy fixes and there was a very deep and underlying concern over the burden of debt at all levels--the burden of debt at the Federal Government level, at the provincial government level, at the corporate level and the household level.
I noticed concern over those who were being laid off. There was concern and, indeed, a great deal of sympathy directed to those who were hurting. There was concern over the fact that what we were lacking was a matter of confidence at both the consumer and the business level and we had to do something to overcome that confidence problem.
There was concern expressed about the social safety net. And the fact that the cost of providing that social safety net and Medicare was indeed rising, and concern about finding ways and means of paying for it and ensuring that we are getting adequate value for the dollars being spent.
The disabled attended literally every meeting. And they said: We've made some progress but we want to be more fully integrated as productive members of Canadian society, so reduce the barriers and allow us to be more integrated in the thrust of the Canadian economy."
And then we heard a lot about government. Canadians across the country were telling us they had to restructure, had to downsize, had to adjust, had to get rid of the frills, had to reduce the cost of doing business. They said they hadn't seen government, we haven't seen government engaged in that downsizing and restructuring.
And you've got a window of opportunity and you better start doing it and you better start doing it fast, because we're sick and tired of paying for more and more and more government. We're sick and tired of more and more agencies, and boards and advisory groups and commissions, and you've got to start scaling it down. But throughout it all there was one common theme. And that was essentially to stay the course, cut the deficit, reduce the burden of debt.
You've got to bring down the cost of government, the size of government, and you've got to do it in a way that can bring some renewed confidence and some life back to the economy.
And so today I want to highlight the steps that we are taking in this budget to instil some hope, a new sense of direction, to restore consumer and business confidence in Canada's prospects for growth and increased prosperity and competitiveness.
And we also have to talk in terms of how we will be able to transform an essentially resource-based economy to a more value added and information based economy. And I want to describe, as well, how this action works within, and not against, our continuing commitment towards deficit reduction.
In this budget we chose to reduce the tax burden on Canadians and on an important segment of Canadian business, and we chose to do it by cutting government expenditures and by reducing the deficit. This balanced approach was what Canadians wanted and it is what I believe our economy needs.
It means taking concrete steps to give Canadians added reason for renewed confidence, but it also means making tough and difficult choices. And this is really what the budget is all about, making choices and sticking with them. And I can tell you. ladies and gentlemen, it's a heck of a lot tougher implementing the measures that are outlined in the budget, much more difficult than simply spelling them out.
And the painful process will be taking place over the next number of years. And I know that there are those who would have taken a different path and I respect their view, but that path would have cost the taxpayer more--both the corporate and the individual.
It would have been a path that would have driven up the deficit in an attempt to spend our way to prosperity and it would have been a path that might ease some of our problems today, but that cared nothing about the future.
That, ladies and gentlemen, is a path that I and my colleagues in government could not accept and a path the majority of Canadians would not accept because it is fundamentally wrong.
And so the budget I introduced on Tuesday, I believe, takes the realistic path. One that is prudent, one that is socially responsible and one that is economically sound. The budget gives Canadians concrete reason, I believe, for optimism in the coming year and beyond.
The personal income tax will be cut one per cent this July and another one per cent in January. This will put $500 million back into the pockets of Canada's nearly 15 million taxpayers this year and more than $1.2 billion next year. We announced the home buyers plan allowing Canadians to use funds in their RRSPs to purchase a home.
This one-year program will help Canadians take advantage of today's mortgage rates and ensure growth in the housing sector and that will complement the actions that we took earlier in reducing the down payment under CMI-IC-guaranteed mortgages to five per cent. Ten years ago today, the five-year mortgage rate was 19.5 per cent, today it's 9.75 per cent.
We're also introducing a series of measures to help Canadian manufacturing and processing firms and their employees to better meet the global forces of competition. This sector directly accounts for about one-fifth of the Canadian economy, one-fifth of Canadian jobs. Almost one-quarter of the economic output is here in the province of Ontario, and it is really the driving force behind the exports we rely on as one of the world's greatest trading nations.
Forty per cent of the production in manufacturing is exported.
And it is this sector that is most highly exposed to international competition and price pressures. So we are taking very carefully targeted action to help it meet the globalization challenge. The marginal tax rate for such companies will be reduced two percentage points to 21 per cent over the next few years.
The capital cost allowance rate for manufacturing and processing equipment has been increased from 25 per cent to 30 per cent effective the day of the budget, and this will make it more attractive to firms to invest in new equipment and to enhance productivity. Taken together these proposed changes will lower the marginal effective tax rate on an investment in machinery and equipment for a large Canadian manufacturer by nearly three percentage points, a full percentage point lower than the tax rates on the comparable new investment in the United States.
As well, we are prepared to reduce withholding tax on direct dividends to non residents to five per cent from the current level of 10 per cent. This step, combined with the drop in the manufacturing and processing tax rate, will end the competitive disadvantage that we face in attracting and keeping business operations here in Canada.
Overall these tax measures will place Canada in a much more competitive position as companies restructure and make their plans for future production. This will help preserve jobs and strengthen the private sector's ability to create new ones. And we hope and pray that provinces will not move in and take up this slack We hope and pray that if they do anything, they will act to complement the measures that we have introduced in this budget.
As well, we are establishing a short-term small business financing program to help firms with temporary financial difficulty. And the ceiling for loans under the Small Business Loans Act will be doubled permanently from $100,000 to $200,000.
We plan to streamline the administration of the scientific research and the tax credit system, already one of the most generous amongst the industrial nations of the world. This will have the effect of enriching our support for R and D by a further $230 million over the next five years.
We will revise the lifetime capital gains exemption to restrict its application regarding real estate. This will encourage Canadians to direct financial resources towards more productive investments that boost our ability to compete globally. But the $100,000 limit itself will not be changed, principal residences will continue to be exempt, and the $500,000 exemption for small business and farms continues to remain in effect.
As well, we propose to encourage larger pools of venture capital through labour-sponsored venture capital funds and, in this particular case, will be increasing the investment tax credit for these from $700 to $1,000.
We will also take the initiative to devote greater effort to developing Canada's greatest and most powerful resource, and that is our human resource, by continuing our support for labour market adjustment and for skills training. Such activity, we believe, is absolutely vital in helping Canadians meet the challenge and seize the opportunities of a changing global economy where knowledge and information are the keys to success.
That is why the federal funding here will exceed $3.4 billion in 1992-93, an increase of $300 million over the current fiscal year and nearly 50 per cent higher than provided in the 1990-91 fiscal year.
Ladies and gentlemen, the well being of Canadians and our national ability to assist those in need depends directly upon our building the competitive market-oriented economy for the private sector to succeed.
This also means that we must, as I said earlier, help Canadians adjust and adapt to a newly emerging economy, a global economy that promises every country new opportunities in filling consumer demands, in every corner of the world.
We've often heard that expression, think globally but act locally, and I think that really applies because it is a changing world. We really are going through an economic revolution. And so the 1992 budget adds to the foundations that are already in place in facilitating our ability to make that change and to adapt to that change.
It invests in private sector competitiveness in a way that will help preserve existing jobs and encourage the creation of new ones. The approach that we are taking will create some 500,000 new jobs by the end of 1993 and, by 1997, it will boost employment by 1.5 million. But we have always recognized that good economics and good social policy go hand in hand. We believe very firmly that you can't build long-term economic prosperity at the expense of today's children.
And it is in that connection that the Minister of National Health and Welfare has recommended a major reform of our existing system of child benefits. Under the proposal outlined by Mr. Bouchard, child benefits will be completely restructured, simplified, better targeted and enriched.
Now I know that there are some who will see in this the issue of universality. But the issue should be very clear. It's about putting an extra $400 million a year into the hands of families and children who need it, and doing it in a simpler more effective targeted way.
Mr. Chairman, altogether the budget actions which I have outlined, we believe, will improve the economic and social well-being of Canadians within a responsible and prudent plan. The fiscal challenge facing government has been a very difficult one.
The deficit has been under pressure, first from an inflationary environment and now from a weaker than expected economy. The recession and the slow rebound have meant substantially lower tax revenues.
But we also have to recognize that confidence is weak and there is widespread concern about Canada's competitiveness. That is why we have responded in this budget by achieving an effective balance between these two priorities--getting the deficit down sharply and providing a reduction in the burden of taxation.
We recognize that while we may have several layers of government, there is only one layer of taxpayer and they have expressed very clearly that they are tired of increased government spending that has squeezed family and business budgets to the limits of endurance. They want relief.
And to pay for the net reduction in the Canadian federal tax burden there will be substantial reductions in government spending and a streamlining of government operations. Over the next five years, there will be some $7.3 billion cut in Federal Government spending. Defence spending will be cut by $2.2 billion over the next five years.
The non-wage operating budgets of government departments will be cut by three per cent, which will save $150 million next year and $800 million over the next five years. Forty-six separate government agencies will be affected through streamlining, including 24 agencies, boards and commissions that will be wound up, merged, postponed or disintegrated.
First-class travel for MPs, Senators and senior public servants, which already has been restricted, will be eliminated entirely. Business-class travel will be tightly controlled. International travel and the size of delegations will be reduced.
The government will save $75 million annually or $375 million over five years by reducing communications budget. A no4rills publishing policy will substantially reduce the number of government publications.
Substantial savings will also be realized through the continued privatization of Crown corporations that no longer serve public policy objectives and we will step up our asset disposal. And the Prime Minister and all Ministers, who currently have their salaries frozen, will have their ministerial salaries cut by five per cent for one year beginning April 1st.
So as you can see, the equation is quite simple, we're cutting spending in order to cut taxes. And the bottom line results of that equation are equally clear to the federal deficit. Firm consistent policies have enabled us to maintain a tight control on federal spending and to make faster than expected progress in reducing inflation and interest rates and to respond quickly to the upward pressures on the deficit as a result of the recession.
We will hold the deficit to $31.4 billion in the current fiscal year and it will decline by $4 billion to $27.5 billion in 1992-93, one of the largest year over year declines in the history of Canada, and then it will decline by another $5 billion to $22.5 billion in 1993-94.
We expect that by 1995-96, financial requirements will be eliminated and we will then begin to reduce our outstanding debt in the financial markets for the first time since 1969-70.
Mr. Chairman, I know that there are some who will be disappointed that our fiscal progress is not coming faster. But I ask them to look at the fact that despite the size of our debt, the Canadian fiscal outlook today compares very favourably with other G7 countries.
As a matter of fact, we have cut the deficit to GDT ratio in half over the last six or seven years, 8.7 per cent to 4.6 per cent. When we look at what has happened in the United States we find that their deficit to GDT ratio is going up and ours is coming down.
There's another point that I would like to make, and that is the fact that there are still a lot of Canadians who want to have it both ways. They want government to cut spending, just as long as it doesn't affect them. It happens day after day after day, and I ask all Canadians to recognize that cutting government spending is not an easy task. We are human and we don't like being unpopular.
But the fact of the matter is that we must because Canadians, by and large, are demanding it. And there are no easy or painless options. If we want to get the deficit down, then tough decisions need to be taken and we've made them and we're going to continue to make them. And we need your support.
As we continue to make progress against the deficit and the debt, we will achieve a crucial objective and that is to increase our capacity to cut taxes further and to make strategic investments in the economic and social development of Canada and its people.
Now the budget is a bit more than just the specific actions that I've outlined. It's about charting a course for our future, a renewed prosperity. As I told Parliament on Tuesday, in consultations leading up to the budget I was inspired by the realism of Canadians and their willingness to contribute to the building of a stronger and more productive economy.
They understand the need to increase our competitive ability, they understand the need to reduce our barriers to trade and growth, and they understand the need to become more creative, to encourage integration and risk taking to unleash the entrepreneurial spirit. They firmly agree that we need greater cooperation and co-ordination between the different sectors of the economy and society and between the different levels of government.
The challenges ahead are complex, far from certain but full of opportunity. By working together on all our national challenges, I believe that we can harness our skills, our knowledge, our initiative and our resources and I believe that we can achieve the model of excellence that will put us in the forefront of our competitors.
And it will be the human initiative, that human drive that will make it happen. I believe that this can occur only if governments create a positive and competitive environment within which to function. A less burdensome environment, a less regulated environment.
My friends that's what we're trying to do in this budget and that's what we're going to continue to do. We're going to try to continue to improve that climate of opportunity and I believe that with that combination we will indeed produce the goods and services that will allow us to compete with the best in the world. This will instil not only a sense of hope, but indeed a sense of pride. Pride in being citizens in the best country in the world. And pride and satisfaction in the fact that you will build for our children a better Canada than that which we inherited. Thank you all very much.
The appreciation of the meeting was expressed by John F. Bankes, President of The Empire Club of Canada.
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: 'If you don't work, you die.'
When Harold Holt was named Finance Minister of Australia in 1959, the Canadian Minister of Finance at the time, Donald Fleming, sent him a note, welcoming him to the Finance Ministers' club. The note said:
You have now joined a very select company indeed--men with worried looks, struggling with budgets, resisting plans for more expenditures, their shoulders daily sagging further under the load.
Minister, on the occasion of your first budget, you seem to be bearing up extremely well!
Following the example of your predecessor, you have ignored calls to increase spending as a means of easing the recession. Instead, according to your message to us today, you have concentrated on reduced spending and modest tax breaks (both personal and corporate), along with plans for more privatization, less government and better public service.
It has been said that: "A budget is a mathematical confirmation of your suspicions." Human nature does not relish having our suspicions confirmed and being told the harsh realities of life.
Minister, we Canadians nevertheless respect your sense of direction and your firm hand at the helm. Emphasizing the need for realistic solutions and the necessity of avoiding "quick fixes," you have presented an approach described in the budget documents as "responding with leadership and action."
The audience reaction today to your message speaks loud and clear. Your focus on three overriding objectives:
• rebuilding consumer confidence
• maintaining the confidence of financial market participants, and
• facilitating the ongoing restructuring of the economy has been acknowledged and warmly received.
Looking beyond the present budget debate, Canadians having confidence in our economic future is an essential condition precedent before we can achieve stability in our political future. As pointed out in a recent publication by Ernst & Young, there is reason to be optimistic. Canada continues to prosper as one of the world's recognized centres of political and economic stability.
This does not have to be our winter of discontent. If Canada looks dark in the nighttime of its political troubles, it will be ever so much brighter at dawn! Our country has been embroiled in a crisis of confidence for too long. It is time to say "yes" to Canada!
Sir, it is customary for the Minister of Finance to address a joint meeting of the Canadian and Empire Clubs following the tabling of the budget in the House. The tradition was started two decades ago by the Hon. Donald Fleming. The Canadian and Empire Clubs are honoured to have our platform as your podium for this important meeting. And please accept our thanks for responding to questions from the audience.
Minister, we invite you to join with us again next year on the occasion of your second budget. By then, we hope that the Canadian economy will have recovered and that you will have been able to afford a new pair of shoes!