The Hon. Ralph Goodale
Minister of Finance, Government of Canada
Chairman: Michael MacMillan
President, The Canadian Club of Toronto
Head Table Guests
Bart J. Mindszenthy, APR, FCPRS, Partner, Mindszenthy & Roberts Corp. and President, The Empire Club of Canada; Stan Pasternak, Senior Vice-President and Treasurer, Canadian Tire Corporation and Director, Association of Financial Professionals Canada; Catherine Swift, President and CEO, Canadian Federation of Independent Business and Director, The Empire Club of Canada; Dr. Sheldon Levy, Vice-President, Finance and Strategy, Durham College/University of Ontario Institute of Technology; John Duffy, Principal, StrategyCorp Inc. and Director, The Canadian Club of Toronto; Bob Weese, Vice-President, Government and External Relations, GE Canada; Sally M. Smedal, Chair, Association for Financial Professionals and Treasurer and Comptroller, Basic American Foods Ltd.; The Hon. Donald S. MacDonald, PC, CC, Former Minister of Finance (Canada) and Senior Advisor, Public Policy, Lang Michener LLP; Gary Singh, Vice-President, Investment Advisor, Canaccord Capital Corporation; Maurice Charbonneau, Principal, Denis Morris Catholic High School and Winner (Ontario) Canada's Outstanding Principals 2005; Dr. Victoria J. Sharpe, President and CEO, Sustainable Development Technology Canada; and Fred Gorbet, OC, CIT Chair in Financial Services, Schulich School of Business, York University and Director, The Empire Club of Canada.
Introduction by Michael MacMillan
The annual budget is quite possibly the most important document any government produces. It very much defines that government, laying out its direction, its intentions, and how it proposes to pay for the things it wants to do.
For that reason, drafting the budget is one of the most difficult jobs in government.
The Finance Minister, whose job it is, must walk a very challenging tightrope, weighed down by numerous and often conflicting expectations.
More money for social programs. Less money for programs; more to pay down the debt. Lower taxes. Spend the surplus. Guard the surplus. The environment, the military, health care--the demands for funding are matched only by the requirement not to overspend.
On top of that, there are provinces, like Ontario, demanding changes to equalization.
The pressures are immense, the demands too numerous to count, and the public scrutiny intense.
And as our guest today can testify, it all gets even trickier when you happen to be in a minority government.
The Honourable Ralph Goodale became Minister of Finance in December of 2003. Prior to that he served in various capacities, among them Minister of Natural Resources, Minister of Public Works and Minister Responsible for the Canadian Wheat Board.
Minister Goodale was raised in a farming family in Wilcox, Saskatchewan. He was first elected to the Parliament of Canada in 1974. During the 1980s he served provincially as leader of the Saskatchewan Liberal Party, and he returned to the House of Commons in 1993.
He delivered his first budget as Finance Minister in March 2004, three months before the election that would deprive the Liberals of their majority.
That, of course, placed him in the position he found himself on Wednesday, handing down his second budget--one that could conceivably lead to the downfall of the government.
He seems to have dodged that bullet quite nicely. Conservative Leader Stephen Harper even had some nice things to say about the budget, and that's not something you hear very often from an opposition leader.
I will leave specific details to Mr. Goodale, but will say that this was a wide-ranging budget that tries to reach out to friends and opponents of the government alike.
It breaks with precedent by laying out a five-year framework, in an attempt to give Canadians some certainty about the future.
There are tax cuts for business that will kick in three years from now, and by 2009 the basic personal deduction on income will rise to $10,000.
A national child program, the military, money for cities… there's lots to talk about.
Was it a minority government budget? A pre-election budget? Or was it simply a budget that, as its subtitle suggests, delivered on commitments.
The man who wrote it is here to tell us.
Ladies and gentlemen, please welcome to our podium today the Finance Minister of Canada, the Honourable Ralph Goodale.
Ladies and gentlemen, thank you for your invitation to be here today. Good afternoon and greetings and good wishes from the Government of Canada.
I'm very grateful to the Canadian Club and the Empire Club for this opportunity. For the past 40 hours or so, I've been doing non-stop interviews--I think 35 of them now--in a kind of disembodied way with various members of the media talking about the budget. I'm glad to be in a room with the opportunity to talk to some real people about the budget instead of through all of the marvels of technology. I mean no disrespect to journalists. I have a very healthy regard for what they do. Indeed, I used to be one of them.
Back in my early days in Regina when I was going to university, I was a news editor for the CBC, and I remember doing the early morning news run when the guy who read the news and I were about the only ones in the building. I was pounding away on an old Underwood typewriter; that's long before technology. I had a problem with getting letters in the wrong order and very often when I hit the "u" it would come out as an "o." And one day I was writing this rather lengthy story about the former Soviet Union and three times in about a 60-second news clip, when I meant to type "Soviet Union," it came out as "Soviet Onion." I put the news script together and rushed into the booth with about 30 seconds to air-time. I handed it to the announcer, went back to my desk and was flipping through the script when I noticed "Soviet Onion." "Should I dash back in there and explain this?" I thought. No, that was far too obvious; nobody would make that mistake. I flipped on the monitor and listened to the newscast. Three times in the space of 60 seconds the announcer duly intoned the "Soviet Onion." I went to the door of the news booth and said, "Why did you do that?"
And he said, "Boy,"--I was a lot younger then--"I am not paid to write the news. I am not paid to edit the news. I am paid to read the news. And I read it exactly the way you wrote it." And you know, some 35 years later on the other side of the microphone, I'm looking for some journalist, any journalist anywhere, who will read it exactly the way I wrote it.
I would concede that that would be pretty tough to do with a budget speech that went on for 75 minutes. But let me just summarize for you today a lot more briefly than that what this federal budget for 2005 was seeking to accomplish.
I had three primary goals. First, I wanted to spell out without a doubt that Canada's economic performance continues to be impressive by every national and international standard and that Canada's fiscal fundamentals are very, very robust. And why is that important? It's important because a strong economy and prudent, disciplined fiscal behaviour are the enablers. They make possible everything else that Canadians want to achieve.
Twelve to 15 years ago, this country was in some pretty deep fiscal difficulty. We were trapped in a vicious cycle of deficits and debt, high taxes and high interest rates, slow economic growth and sometimes no growth at all, jobs being shredded and social programs that were in very real jeopardy. And then Canadians decided that the course must change and they demanded a new plan.
Between 1993 and 1997, we ended the previous record of a quarter of a century of skyrocketing public debt. We balanced the government's books. We started to accumulate surpluses and we put the debt on a steady downward track. It took some tough decisions--some of them controversial decisions. But Canadians overall supported what had to be done.
And with what results now eight or nine years later? We now have eight consecutive balanced budgets and at least five more in the forecast, a debt ratio that's on its way down to 25 per cent from what used to be 68 per cent, a triple--A credit rating, the best job creation record, the fastest growth in living standards, and the only government surpluses in all of the G-7 group of world-leading economies. And we have the best fiscal performance of any Canadian government since 1867.
With this economic and fiscal strength, we have reinvested in the economic and the social priorities of Canadians. We have reduced the tax burden. We have helped to stimulate one million net new jobs since the year 2000, two million since 1997 and three million since 1993. We have coped with sudden unforeseen emergencies like the 9/11 tragedy, SARS, BSE and the Asian tsunami without getting pushed back into the red once again, despite the expense associated with those emergencies.
The key to this kind of fiscal resilience and fiscal freedom is prudent planning. First, in assessing the nation's economic outlook, we do not do it in-house with government economists only. Neither do we pick one or two of our favourite economists from outside government just to tell us what we want to hear. We regularly consult 15 to 20 of Canada's leading economic analysts in the private sector. Their forecasting data is then run through four different econometric modelling firms, again all from the private sector. We take the average of these results from the outside experts, and that is what sets the fiscal framework for budget-planning purposes.
Secondly, we consciously do not use up all the available fiscal space with either spending initiatives or tax cuts. Instead, we explicitly build in some fiscal shock absorbers to give us the capacity each year to deal with the unexpected. Altogether, over the coming five years, this cushion, to ensure that we will stay in balance, amounts to more than $25 billion. If it proves not to be needed to cope with those contingencies, then $15 billion out of that cushion over five years or $3 billion per year is earmarked for further debt reduction. The rest can be invested in priority programs and services if it too is not needed to safeguard against any risk of a deficit.
Now I mention all of this as my point number-one today to reinforce as emphatically as I can that all the government's fiscal anchors are fully in place and fully in force in this budget and over the coming five years. The same prudent practices and disciplined behaviours that brought us so successfully from 1993 to 2005 continue to apply.
Based on the best private-sector advice, we are expecting annual economic growth rates in the 3-per-cent range going forward. But there are downside risks. We are a trading nation. Eighty per cent of our exports go to the United States. The so-called twin deficits in the U.S.--their current account deficit and their budgetary deficit--could lead to higher interest rates or slower growth or a further depreciation in the American dollar--any of which could negatively affect us here in Canada. So we need to remain vigilant and prudent, and we are.
My second main budget objective was to deliver on the specific promises that we made to Canadians during the federal election campaign in the summer of 2004. Promises made must be promises kept and my budget delivered on those commitments. On new funding for the provinces and the territories, especially for health care, we have negotiated new agreements with all of the premiers. We have put the legislation before Parliament and it's well along in the parliamentary process, and the budget booked the promised money through the Canada Health Transfer and through equalization. Over 10 years it will total an incremental $75 billion.
On cities and communities, we promised to share with local governments up to 50 per cent of the federal gas tax revenues and the budget delivered exactly that. In the coming year we will actually start at $600 million in revenue sharing and ramp up from there to reach an annual federal transfer to cities and communities of $2 billion per year. It will be ongoing and it will be in addition to our regular federal infrastructure programs, not instead of them.
On the well-being of children, my budget delivered on our commitment to provide $5 billion over five years for a new national Early Learning and Child Care initiative--one rooted in the principles of high quality, universality, accessibility and developmental content. And we signalled our intent to be in for the long haul with our provincial and territorial partners.
On senior citizens, people with disabilities and their caregivers, the budget delivered on a full range of commitments, including $2.7 billion to enrich the Guaranteed Income Supplement and the doubling of a tax credit for caregivers.
On the huge needs of Aboriginal people, we promised an inclusive process involving Aboriginal leaders with the Prime Minister, the premiers, federal ministers, provinces and territories to build a compelling national action plan on Aboriginal health, education, housing, economic development, land claims and accountability. That process in the last year has become well advanced. There'll be further meetings this spring and summer, and the process will culminate in a formal federal-provincial-territorial First Ministers' meeting with Aboriginal leaders in the fall of this year. But in the meantime, the budget delivered about $1.4 billion for downpayments on better health, education, children's services and housing.
On all these and other fronts, I'm very pleased to say that we have done in this budget exactly what we promised to do last summer.
My third objective in the budget was to describe the path forward for Canada--where we want to go and how we plan to get there over the next five years. We intend to build around greater productivity, enhanced environmental sustainability and an influential respected role for Canada in global affairs.
The productivity agenda is always important, but especially in light of that higher-valued Canadian dollar and the huge demographic changes that are coming just around the corner as the big baby boomer generation begins to retire. So the budget laid out measures for a more inclusive work force--more inclusive of Aboriginal people, new immigrants, people with disabilities and young parents who want to pursue their careers while also caring properly for their young families. The budget also put more money into workplace skills and literacy and into our highly successful innovation agenda to promote higher learning, science and new technology development, particularly at institutions of post-secondary education.
We're investing heavily in high-quality public infrastructure. We're promoting more open internal and external trade and smarter regulatory systems including those in financial services and securities.
And we are reducing the tax burden. Personal taxes will come down through an increase in the basic tax-free personal amount. Over five years, Canadians will save more than $7 billion from this tax cut. Nearly 900,000 low-income people will be taken off the tax rolls altogether including about a quarter of a million senior citizens. For those in a higher tax bracket, RRSP limits are being raised and we are removing the restrictions on investments in foreign properties.
On the corporate side, we are eliminating the 1987 surtax and we're gradually bringing the income tax rate down by two points to preserve our competitive advantage vis-à-vis the United States and to keep investment and jobs in Canada. We'll also be improving capital cost allowances--not just this year, but I think every year going forward to better reflect the useful life of capital assets.
On the environment and sustainability, our investments will total at least $7.5 billion. To better deal with the challenge of climate change, we are introducing a full suite of actions, new market-based mechanisms to harness the power of competition in the private sector, new tax measures, new incentives for both consumers and for business, new investment in innovation and new scope for both regulatory and voluntary action.
To provide just a few examples, we are creating a new Clean Climate Fund to invest in some exciting new fields of activity like carbon capture and storage, clean coal and a possible east-west power grid, while also facilitating a liquid market for domestic emissions trading. We are quadrupling our investment in wind power. We are quadrupling our investment in residential energy retrofits and we're providing an accelerated capital cost allowance on certain environmental investments of a full 50 per cent.
Beyond climate change, my budget also makes major environmental investments in brownfields remediation, protecting the integrity of our national parks and extending the Great Lakes Action Plan. All in all, environmental groups have described this as probably the greenest budget in Canadian history.
To better position Canada in global affairs as a strong and respected citizen of the world, our government has undertaken a comprehensive international policy review, which will be forthcoming in the next few weeks. In the meantime, the budget took some major steps forward.
For new troops and reserves, for better infrastructure and operational sustainability, and for new equipment and material, we are investing on a cash basis $13 billion in the Canadian Armed Forces over the next five years, and that will be the biggest contribution in some 20 years.
For air and marine security, border security, police and emergency preparedness, we are investing another $1.2 billion.
For greater foreign aid and international assistance, we are booking $3.4 billion over the next five years. Among many other things, this will position Canada as a global leader in the fight against AIDS, malaria, tuberculosis and polio.
We all recall the outpouring of human emotion and human generosity in response to that terrible tragedy of the tsunami in South Asia. And the response from Canadians and from governments around the world was entirely necessary and entirely appropriate as the world tried to come to the rescue insofar as that was humanly possible. In Africa, the effect of the tsunami was relatively small. In Africa, people die of AIDS, malaria, tuberculosis and polio at a rate equivalent to a tsunami every single month. So that's why we're putting some money in that direction.
The budget also seeks to confirm our leadership in reducing the crushing burden of debt on some of the world's poorest countries. Canada has always been a world leader in that regard and we are going to maintain that leadership role. It is for reasons like these that people as diverse as the rock star Bono and the Secretary General of the United Nations Kofi Annan have said with a common voice that what the world truly needs is more Canada. And as we build upon that for the future, Canada will indeed have a vigorous role to play in global affairs.
The purpose of this budget, therefore, was to reinforce a number of points. We want to build a competitive, productive, 21st century Canadian economy--one that is knowledge-based, technology-driven, highly skilled and excellent by every possible measure.
We want to build an inclusive and caring society--a society in which fairness and equality of opportunity are the measures of our progress.
We want a country that is clean and green, which prizes a natural heritage of extraordinary richness and preserves it with great care.
And we want to be a confident people, respected and trusted not just within our borders but indeed as model citizens of the world.
Those are the objectives to which the budget spoke, and I hope that we've moved ourselves along the way toward the future.
Thank you very much.
The appreciation of the meeting was expressed by Bart J. Mindszenthy, APR, FCPRS, Partner, Mindszenthy & Roberts Corp. and President, The Empire Club of Canada.