The Rt. Hon. Joe Clark, Candidate for Leadership of The Progressive Conservative Party of Canada
NEW GOALS FOR CANADA
Chairman: George L. Cooke, President, The Empire Club of Canada
Head Table Guests
William D. Laidlaw, Director, Government Relations, Glaxo Wellcome Inc. and a Director, The Empire Club of Canada; Reverend Grant Kerr, Minister, St. Paul's United Church, Brampton; James Bunton, Student, Lawrence Park Collegiate Institute; Libby Burnham, Counsel, Borden & Elliot and a Past President, The Canadian Club of Toronto; Irving Gerstein, President, Glen Oak Capital; David H. Tsubouchi, Minister of Consumer and Commercial Relations for the Government of Ontario; Catherine Clark, Student, University of Toronto and Daughter of The Rt. Hon. Joe Clark; Maureen McTeer, Author, Lawyer and Wife of The Rt. Hon. Joe Clark; Walied Soliman, Student, Osgoode Hall, University of Toronto and President, Ontario P.C. Youth Association; Effie J. Triantafilopoulous, Partner, Miller Thomson; and Gareth Seltzer, Vice-President, Private Wealth Management, Guardian Capital Inc. and Immediate Past President, The Empire Club of Canada.
Introduction by George L. Cooke
We are privileged to have The Right Honourable Joe Clark as our guest today. As you know, he is seeking the leadership of the Progressive Conservative Party of Canada. Over lunch, I asked him why, not because this isn't a good thing to do, but rather "having been there before" so to speak and with the demands being put on politicians these days, one needs to be either a little off, or a lot committed to Canada and a particular way of leading the party. In your case, Mr. Clark, you've convinced me it's the latter.
In terms of having "been there, done that" Mr. Clark has spent more than 20 years as a Member of Parliament having been first elected from his home province of Alberta in 1972. During his 20 years in the House of Commons and clearly recognised as an international statesman, he served in the most senior positions in the Parliament of Canada, including Prime Minister of Canada, Leader of the Progressive Conservative Party of Canada, Leader of Her Majesty's Loyal Opposition, Secretary of State for External Affairs, President of the Privy Council and Minister Responsible for Constitutional Affairs, and Acting Minister of Justice and of Defence.
Mr. Clark participated in eight G-7 Economic Summits; participated as Minister in meetings of the United Nations, NATO, the OECD, the CSCE and the ASEAN Post-Ministerial Conferences; and chaired the Canadian Cabinet Committee which began negotiation of the Canada-U.S.A. Free Trade Agreement.
Since retiring from active public service in government in 1993, Mr. Clark has been a visiting scholar in the Department of Canadian Studies at the University of California at Berkeley; served as a Special Representative of the Secretary-General of the United Nations in Cyprus and served as an active member of the Council of Freely Elected Heads of Government.
Mr. Clark, welcome to our luncheon.
I am a Canadian optimist--which is to say a Canadian realist. If any country in the world has reasons to be optimistic, we are that country. Our material wealth, our human skills, our social standards, even our geographic location are the envy of the world. But we face an unusual challenge--a challenge of the lucky and the rich: the challenge to take advantage of our great good fortune and not to take it for granted. We need to celebrate and nurture the strengths of Canada and use them as a source of growth and pride and purpose.
I want to speak today of both goals and growth. They seem to me inseparable. We cannot achieve our goals as a community without an economy that is both strong and innovative. Yet wealth alone is not enough to sustain a community, particularly a complex national community like ours, that has always been drawn together and kept together by acts of will and purpose.
Strong communities have an idea of what they are, a sense of what sets them apart. That is also true of strong national communities. The United States of America, France, Japan, the United Kingdom, Israel and other nations have a clear sense of identity that helps them act together. That is harder in Canada for various reasons, including that many of our defining qualities, such as the fundamental respect for others that has made us such a model for the world, are not assertive qualities. I've always thought that this country would drive John Philip Sousa crazy. We have a proud military tradition, but our armies have always been launched to stop aggressions in Europe and Asia and the Gulf, and to keep peace. Imagine poor Sousa writing marches for peacekeepers.
A sense of national identity can be overdone. Consider the list of countries I have just named. But there is no doubt that our country would be better served by a stronger sense of common identity, and one that reflected our sense of accomplishment as well as our sense of responsibility.
One acknowledged characteristic of the Canadian community is that we care about our neighbours and share our good fortune. That has been expressed historically in the Credit Union and Co-operative and Caisse Populaires movements, and in national programmes, like equalisation and health care, which most Canadians regard as primary attributes of the country. That instinct also expresses itself in our active voluntary sector and the intense involvement of Canadians in the lives of their local communities.
But there is more than compassion here. This is also a society of accomplishment. The Canadian story is full of individuals who started with nothing but an ambition or an idea and went on to change their world.
Just consider a partial list. Dr. John Polyani, the Nobel Prize winner in Physics; Laurent Beaudoin, who build Bombardier into the fourth-largest aerospace manufacturer in the world; Sara McLaughlin; Atom Egoyan; Robertson Davies; Louise Frechette, the first Deputy Secretary General of the United Nations Organization; Celine Dion; Mary Pratt; Elvis Stojko; Ron Southern, who built a worldwide industry from a back-yard garage; Margaret Atwood; George Cohon; our Olympic athletes; Antonine Maillet; Ron Debro of Algorithmics, who created world-leading financial risk management software. And the list goes on.
Much of that accomplishment is in the nature of those individuals but do not underestimate either the incalculable advantage of living in a genuinely free society, or the importance of an environment which encourages achievement.
All Canadians should be concerned about the slipping grip of our country on the imagination of our young people. It is evident in the brain drain to other countries. It is evident in voter turnout, where about half of first-time voters in the last federal election simply did not vote. Yet this is a country which should command the imagination and the creativity of the young in particular. That will obviously require initiative on jobs and training and other hard issues. But it also means that we must work harder to identify our country in our own minds as a society of achievement with an active sense of goals and accomplishments.
None of that can be done without a strong economy. So it is particularly important that we look at the long-term strength of the Canadian economy. Let me preface my next remarks with my view that, more than any national government in the last 40 years, the Chretien administration is characterised by a desire to duck hard issues. We saw that on free trade when they were in Opposition and on the GST We see it in his refusal to even meet the provinces to discuss their unanimous proposal (including premier Bouchard) for a social union. It was striking in the Prime Minister's Alfred E. Neuman response to the dollar. It is evident in the approach to the deficit, where so many of the costs were simply downloaded to the provinces. There's a memory I can't get out of my mind: in 1991, during the Gulf War, when Mr. Chretien's position was that he would send Canadian troops to the Gulf until the fighting started and then bring them back home. That's no way to run a government, yet it is the way this government is run.
That should cause us to examine very closely Paul Martin's assertion that the "fundamentals" of the Canadian economy are strong.
We are halfway through the fiscal year 1998-99. In his last budget, Paul Martin forecast a balanced budget after allowing $3 billion for a contingency fund. At the time, most commentators opined that would turn into a surplus, perhaps as high as $10 billion.
Then came the Asian financial crisis. The Canadian dollar plunged. The stock market went down. Interest rates went up. The economy slowed down. Mr. Martin's "prudent" forecast, i.e. lower than most private-sector forecasts, was for 3-per-cent real economic growth this year, and 2.5 per cent in 1999. Both of those forecasts are being substantially scaled down as we speak. There will be a balanced budget this year, by all accounts a surplus. But the budget looks like a tighter fit now than it did a very few months ago.
Rather more detailed scrutiny is required of the speech delivered a week ago Sunday by Prime Minister Chretien to the Canadian Chamber of Commerce. Mr. Chretien promised to hold the line on spending this year. He also promised to pay down more on the debt this year than was provided for in last February's budget, which means $3 billion plus. Then he turned to the fiscal year beginning next April 1st. Next year, according to the budget documents, the government should break even again. But that forecast was based on real economic growth of 2.5 per cent, which events have now made highly improbable. Even allowing for the deliberate low balling that is Mr. Martin's habit, it looks as if next year's surplus will be lower than many pundits had been forecasting.
This background is important in the context of what Mr. Chretien went on to say in his speech last week, and of what his officials and spin-doctors put out afterwards. So, why is the Prime Minister promising to lower taxes next year, and to increase spending on health care and several other areas? Why are his officials hinting about the possible elimination of the 3-per-cent income tax surtax, possibly some other tax cuts, and about $2 billion more for spending programmes?
These commitments, welcome as they are to many Canadians, desirable as they may be to the country, raise an issue about whether the Prime Minister is telling Canadians the whole truth.
Neither Mr. Chretien nor his officials said a word about the surplus in the Employment Insurance Fund, which will be near $20 billion by the end of 1998 and $25 billion by the end of next year. According to the law, the reserve in the Fund should be kept high enough over the business cycle to allow for any economic downturn. The Chief Actuary of the Fund said last year that "at the upper limit" a reserve of between $10 and $15 billion should meet all costs during a downturn.
There are rumours today that Mr. Martin wants to appropriate that money to pad his books. That is not his money. In effect, he holds it in trust for the contributors. If he takes that money, he breaks that trust, and he may well breach the law. The Minister of Finance is not a law unto himself.
This Fund is wholly funded by employers and workers. The government has a legal and moral obligation to give the added surplus back to them in the form of lower premiums. The Chief Actuary proposed a schedule of reductions. But the government countermanded this with premiums that will produce a surplus more than double what is needed for any reserve. Premiums in excess of insurance needs are a tax on jobs and are simply unacceptable with our unemployment rates.
Premier Harris has good reason to protest, as he has done. Forty per cent of Employment Insurance premiums are collected in the province of Ontario. Moreover, taxing jobs to pad Ottawa's books is wrong, wherever you pay your taxes.
The Employment Insurance Fund is not government money, any more than the money in the Canada Pension Plan is. Indeed the Auditor General of Canada last year underlined "the importance and special nature of the El Account" and called on the government to submit a distinct report to Parliament on the Fund. "As it stands now," said the Auditor General, "parliamentarians do not have available a single, comprehensive source of financial information on the Account's performance. Therefore, it is difficult to evaluate results."
The government may be tempted to use the surplus for its own purposes, tax reductions or new spending. Its political calculation is that most people don't really know how much they contribute in EI premiums, that most of the benefit from reducing them would go to employers anyway and that increased spending and broadly based tax cuts would be politically more popular. The political calculation may be accurate, but acting on it would be wrong. It would be perhaps illegal, and certainly immoral for the government to use that Fund to finance other spending or to pay for other tax reductions. They have a prior obligation to reduce those premiums--not a "token cut" as leaked to the media, but a substantial cut. If they try to raid the El Fund they should be stopped.
This is part of a larger issue I want to flag. Integrity in government is nowhere more important than in the management of the public finances. This government is getting a deserved reputation for sharp practices, which fall short of the standards of integrity Canadians have a right to expect.
In 1995-96, they booked almost a billion dollars for harmonising GST and provincial sales taxes even though the provinces concerned did not agree to harmonise until the following year.
In 1996-97 they recorded $800 million for the Canadian Foundation for Innovation which did not even exist at the end of the year.
This year, they booked $2.5 billion for the Millennium Scholarships, which don't begin until the year 2000.
The Auditor General of Canada has blown the whistle on these practices, without result. "The emerging practice of recording transfer payments before a recipient signs an agreement, or even before Parliament has created a recipient, runs against objective accounting standards and even against the government's own rules," he says. He emphasises that this is more than a technical disagreement between an accountant and an auditor. "It puts into question the credibility of the Government of Canada's reported financial results."
The Prime Minister and his Finance Minister are fond of saying that the "fundamentals" of the Canadian economy are in good shape. Some of them are, thanks to the policies they opposed so ferociously in Opposition and have followed so meticulously in Government. Some of the fundamentals, however, are in bad shape. There are problems that must be solved if we are to attain stable, long-term growth and prosperity.
The main weakness in our economy today is poor productivity. It is poor by Canada's own past standards and poor by comparison with our international competitors.
Since 1973, productivity growth in Canada has averaged a mere 0.3 per cent per year. At this rate our standard of living will take 231 years to double. Compare this with productivity growth between 1960 and 1973, allowing Canadians' standard of living to double in only 35 years.
We are failing to attract foreign investment into our economy. In 1985 Canada's share of foreign direct investment was 8.9 per cent of the world total. By 1996 our share had declined to 4 per cent. A one-billion-dollar increase in FDI creates some 45,000 new full-time jobs and generates $4.5 billion in GDP in a five-year period.
We must begin with a commitment to long-term fiscal responsibility. That means a commitment to balanced budgets.
Second, we must commit to a comprehensive programme for debt reduction, with clear and achievable targets. While specific targets would need to be worked out with great care, it would be reasonable to aim for a debt-to-GDP ratio that was equal to the average of the economic summit nations, set over a period of, say, five years. Such a commitment would lessen Canada's exposure to international events and address directly any concerns about Canada's future fiscal course.
Third, within the context of balanced budgets and a debt reduction schedule, Canada must embark decisively and irrevocably on a policy of lightening the tax burden on our people. That burden is heavy. In 1973, tax revenues at all levels of government took 36 per cent of our Gross National Product. It is now more than 44 per cent. Meanwhile real incomes in Canada have been stagnant or in decline. All this increased taxation has not been directed to new or better programmes and services. Instead, Canadians have had to accept reduction or elimination of programmes, and/or are paying user fees and the like to finance them. We are paying more to government and getting less for it, and we are certainly paying for past excesses, as witness the annual interest payments in the $45-billion range.
Taxation that is dramatically out of line with levels in the United States is a drag on investment and growth. Sales taxes are heavier here, and so is income tax on middle and higher earners. Families earning $30,000 a year are paying a marginal tax rate of 40 per cent. In nine of the 10 provinces, the top marginal rate last year was more than 50 per cent, and it starts at an income of $60,000. In the United States, the top rate, federal and state combined, is in the mid- to upper-40-per-cent range. You would hit such a rate only when your income reached US$271,000 (C$410,000 this week!).
I propose that my party also commit itself to targets for national productivity improvement in the context of a growing economy. The tax system can and should be used to bring about increased investment in new technologies and in research and development. It can be used more creatively to encourage Canadians to invest in Canada. The rates of domestic investment, and of savings, have fallen well below that of other industrial economies.
We will continue to fall short of our economic potential as long as the Canadian economic union remains divided and fragmented. Overcoming those divisions and reinforcing that economic union must be high on our list of priorities now and in the decade just ahead.
I understand the frustration and impatience of those who believe that this problem could be solved if Ottawa would just exercise its constitutional power and bring down the hammer on the provinces. However, I have to say that the federal hammer would be a hollow instrument if it just created more legal and political chaos. It is a foolish federal government that tries to act in a vacuum. When we began the negotiations for the Free Trade Agreement we knew that we could use our power for international trade negotiations only if we worked with the provinces who controlled so many of the means to give effect to any agreement. Canada's economic future depended on a trade treaty. The practical reality was that the provinces couldn't start a negotiation without us, and we couldn't conclude a negotiation without them.
So it is with inter-provincial trade barriers. We will have to knock them down together, Ottawa and the provinces. Fortunately, there is at hand an opportunity to do so. The 10 provincial premiers, meeting in Saskatoon last month, proposed a federal-provincial pact on the Canadian social union. Among other things, they call for an impartial dispute settlement mechanism to resolve conflicts between Ottawa and the provinces on the administration of social programmes. In my opinion the federal government should respond positively to this initiative. But Ottawa should propose a wider agreement. The federal government should call for a pact on the economic, as well as the social, union. Ottawa should accept the principle of a binding dispute settlement mechanism for the social union, on condition the provinces apply that same principle to inter-provincial trade. It is well known that one of the major weaknesses of the Agreement on Internal Trade negotiated several years ago is an unworkable dispute resolution process.
Some people, in politics, journalism and academe, are still hung up on the metaphysics of federalism. I propose we focus on the economic and social interdependence of all parts of the federation, and start from there.
In social as well as economic matters today's realities do not fit neatly into watertight jurisdictional categories. The Constitution must be respected, but if the Canadian economic and social union is to be managed successfully, it must be managed jointly. The key to this partnership must be a co-operative mechanism such as a "First Ministers' Council" whose decision-making rules will have to be agreed in advance, and unanimously. The federal government and the provinces, each responsible to its elected legislature, must address these issues together. I propose that Ottawa and the provinces work on a pact that would govern the economic and social union for a period of five or six years. Then there would be an opportunity for review, for necessary changes, for renewal and, if the pact has worked successfully, to give it the force and permanency of a constitutional agreement. I believe that such an approach may in time also help us find the way out of the present constitutional stalemate between Quebec and the rest of Canada.
Over the past few weeks, I have been discussing with Progressive Conservatives the agenda we should place before the Canadian people in the 30 months between now and the calling of a general election.
First, the revival of parliamentary democracy and responsible government. In particular, the accountability of the government to the House of Commons must be restored, beginning with parliamentary control over public spending.
Second, a commitment to long-term fiscal stability, reduced taxation, and to targets for productivity improvement as the source of jobs and a return to a rising standard of living.
Third, reinforcement of the Canadian economic union; and renegotiation of the Canadian social union to secure the planning, financing and delivery of major programmes such as health care and post-secondary education in the 21st century.
Fourth, a national programme committing governments and industry to make Canada a world leader, not just in cleaning up environmental problems but in preventing them.
Fifth, a commitment to promote cultural excellence through new federal policies based on incentives and opportunities and renewed support for national cultural institutions.
This agenda will require a common commitment, a collective effort on the part of Canadians as we move towards a new century. It will require that a vision of Canada's future and a sense of mission replace the inertia and complacency now so prevalent in Ottawa. The party I would lead, the Progressive Conservative Party, would be imbued with that vision and that sense of mission. I am inviting Canadians to join with us in this vision and in its realisation in the Canada of the 21st century.
A few hours ago President Nelson Mandela of South Africa addressed a joint sitting of the Senate and House of Commons in Ottawa. His presence among us is a tribute to Canada's leadership in the international fight against apartheid. We came up against some hostility, much foot-dragging and great indifference among some of our traditional friends and allies. We pressed the sanctions issue relentlessly in the Commonwealth. And we moved it to another forum, the annual G-7 summit meetings. Ultimately, apartheid was ended. Score a win for equality and human dignity over the forces of segregation and racism. It was a long fight. In its history there is a place of honour for Canada and Canadians.
There have been other reminders in the news lately of old debates on policies whose merits we can now judge in light of experience. This month marks the tenth anniversary of the conclusion of the Canada-U.S. Free Trade Agreement. Afterwards, we created NAFTA with the U.S. and Mexico and in the meantime conducted the multilateral negotiations under the Uruguay Round. These trade agreements formed one part, an important one, of an agenda of radical change implemented during those years. Tax reform. The GST Deregulation. Privatisation. To read a list of those policies, and to include a mention of the social and constitutional issues we tried to address is to evoke memories of turbulent times in Canada's political history. No politician enjoys turbulence. But to avoid the turbulence, we would have had to avoid the issues, and those issues had been avoided for too long.
Hard issues are being avoided again today. The debt needs to be worked down. The books should stop being cooked. Our tax system must become competitive. We need to improve our productivity and investment performance. We need to generate a sense of Canada as a country of accomplishment and will. That is what has brought me back to public life, and I hope that many of you will join with me.
The appreciation of the meeting was expressed by William D. Laidlaw, Director, Government Relations, Glaxo Wellcome Inc. and a Director, The Empire Club of Canada.