Waltzing into the 21st Century: Let the Provinces Lead

The Hon. Stockwell Day Provincial Treasurer for the Province of Alberta WALTZING INTO THE 21ST CENTURY: LET THE PROVINCES LEAD Chairman: Robert J. Dechert President, The Empire Club of Canada

Head Table Guests

Reverend Vic Reigel, Christ Church, Brampton; Kevin Warriner, Student, R.H. Academy and Secretary, Toronto District School Board Student Council; Andrew Coyne, Editorial Columnist, The National Post; Monsiour Hughes Goisbault, Consul General of France in Toronto; Professor Douglas Reid, Associate Professor, Queen's School of Business, Queen's University; Gareth S. Seltzer, Private Wealth Management Professional and a Past President, The Empire Club of Canada; and Peter Lukasiewicz, Partner, Toronto Office and Toronto Managing Partner, Gowling Strathy & Henderson.

Introduction by Robert J. Dechert

Mark Twain once said: "The difference between a taxidermist and a tax collector is that the taxidermist takes only your skin."

And Andrew Coyne's colleague Conrad Black has said: "We can't spend ourselves rich; we can't drink ourselves sober; and we will pay an unbearable price if we don't remember that the power to tax is the power to destroy."

The good news is that the chief tax collector for the Province of Alberta, Stockwell Day, understands well the sentiments of Mark Twain and Conrad Black and has made profound changes to the taxation system in his province.

The Government of Canada would do well to learn by his example.

In the past few years the forces of change in Canada have primarily been emanating from the provinces.

Even before Premier Harris's Common Sense Revolution captured the voters' imaginations here in Ontario, the government of Premier Ralph Klein of Alberta was blazing the trail of balanced budgets, lower taxes and privatisation.

The Honourable Stockwell Day is one of the chief architects of the Klein government's reforms.

Few politicians are willing to speak as honestly and frankly as Stockwell Day. He may sometimes be controversial but I can assure you he is never dull. He calls it exactly as he sees it.

But Stock Day isn't only unafraid to take controversial positions. He has proven himself willing to embrace and champion bold new ideas about government. He has been consistently willing to challenge the status quo and the paradigms of the opinion elite of the Canadian media and his challenges have been successful more often than the CBC would like to admit.

In the 1999 Alberta budget, he made Canadian history by unhooking personal provincial income taxes from federal taxes and introducing a single or "flat" tax rate of 11 per cent based on taxable income. Basic personal and spousal exemptions will increase substantially. Bracket creep will be eliminated and the new tax system will result in annual tax savings of $600 million for Albertans, with an additional 78,000 low-income Albertans being removed from the tax roles.

The Alberta budget has been balanced for each of the last five years and substantial payments have been made to reduce the province's net debt.

The market has responded to these successes and last year Standard & Poor's upgraded Alberta's credit rating to double a plus (aa+), the highest rating of any Canadian province.

Stockwell Day does not shy away from national issues. Recently, his strong leadership on Canada pension plan investment issues resulted in a significant easing of investment restraints on the CPP Investment Fund. This will allow the fund to invest in higher-return securities and ensure, we hope, that there will be sufficient assets in the fund to meet future demand. In addition, it will likely result in lower CPP contributions over time.

And just last week Stockwell Day was one of the first political leaders to speak out against the federal government's ill-conceived plan to bail out Canadian NHL teams with inflated payrolls, two of which are in his province.

It is this leadership and integrity that have won Stockwell Day the respect of millions of taxpayers across Canada even if his induction into the Hockey Hall of Fame may now be in some doubt.

His commitment to Canada is illustrated by his unflinching support for the federal United Alternative process. As you know, he will be making a keynote address at the United Alternative convention on its opening night tomorrow in Ottawa.

He has represented the people of Red Deer in the Alberta Legislative Assembly since 1986 and is currently in his fourth term. Prior to being appointed provincial Treasurer in 1997, Mr. Day served as Minister of Family and Social Services, Minister of Labour, government House Leader and Chief Government Whip.

Mr. Day graduated from high school in Montreal where he learned to speak French and later attended the University of Victoria in British Columbia.

Prior to his election in 1986, he operated an auction sales company and carried on business as a commercial interiors contractor. He also served as administrator and assistant pastor at the Bentley Christian School for seven years. He and his wife Valerie have three sons, Logan, Luke and Ben.

Ladies and gentlemen, please welcome The Honourable Stockwell Day to the podium of The Empire Club of Canada.

Stockwell Day

Thank you Bob for those overly kind remarks.

It's truly an honour for me to speak to you today. I understand there's a time restraint as there always should be when an elected person says they are going to give a short speech. It is like saying they're going to give you a temporary tax. I was giving a speech last week starting at 8:30 p.m. A full lunar eclipse was to take place at 9:00 p.m. and it was made clear to me in no uncertain terms that nobody wanted to miss the eclipse. I almost got eclipsed by the eclipse.

I'd like to share with you some thoughts relating to provinces taking the lead in terms of determining and establishing the strength of a nation. I'm one of those people who believe that strong provinces will result in a strong nation. If we look at history we can come up with some examples. Sir John A. Macdonald is recorded as actually advocating for a unitary state without the hindrance of provincial governments. He eloquently spoke of that issue in 1865 and two days later George-Etienne Cartier spoke on the other side of the issue. He maintained that local interests were of prime importance and had to be taken into consideration. A reformer of the day, George Brown, two days after Sir John A. made his remarks, very strongly endorsed provincial autonomy. As people were reflecting on the possibilities of some kind of a coming together, Francis Kelly from PEI spoke again very strongly endorsing provincial autonomy and a month or so after that John Robinson from New Brunswick said he would not want to see his province under the control of Ottawa. Some of these discussions have strangely resonating tones even today. As Sir John reviewed those many arguments he compromised his view and pulled together what is now our country. I'd like to think he came up with sort of a united alternative to the way that he thought things should go.

I maintain that because of the balance that was put in place in those days we have certain strengths in this country that would not be in place if Confederation had not happened. Some of us could argue for a little more central power and some less but I'm sure you have heard what Alberta is talking about in terms of health care. Our premier has been discussing that issue and is getting some reaction at the federal level with the federal government wanting to provide the overall fix for each province. The health-care system had its origins not as an idea of the federal government but the idea of a socialist government in Saskatchewan under Tommy Douglas. He took the idea to an election and won the election on it. He then launched another campaign to see if his citizens would embrace it and it was quite a debate in that province in the early 1960s. There was a doctor's strike. The Liberals opposed it; just an historic note that might be of interest to some. What began in one province was then followed by other provinces and eventually in the early 1980s the federal government came out with the Canada Health Act enshrining some of the ideas proposed by Tommy Douglas. Before that provinces began to sell out some of their jurisdiction in health care to the federal government, creating a problem in 1994 when the federal government drastically reduced funding after provinces were accustomed to a certain flow of cash from Ottawa for health care. I would like to suggest that just as the health plan which is embraced by Canadians today emerged from a province, and then other provinces, the solutions to fix the plan are going to come from provinces and not from the federal government.

Across Canada the costs in health care are ratcheting upwards at an alarming rate. Some provinces have "restructured." Some have "downsized." In every province you see the costs of health care increasing in provincial and federal budgets. In 1981, the percentage share of the budget relating to health care in Alberta was about 21 per cent. By 1990 that had moved to 24 per cent. This year when we table our budget just over 30 per cent of the budget in Alberta will be committed to health care.

We are beginning to take an honest question to our constituents and that is: "What other services should we no longer fund in order to commit more funds to health care?" We need to find solutions for those increasing-pressures. Our Premier Ralph Klein has gone where no one has dared to go before on this particular issue and he is suggesting that enhancing, or at least exploring to a greater degree, the delivery of services through private entities at no cost to the consumer, is something that is worth considering. That has taken some courage. When an elected;person starts talking about that he is immediately accused of promoting U.S. two-tiered health care.

l'm not sure what that is but that is the accusation. However, I'm encouraged by the fact that our premier and others are able now to talk about that and still survive. If you had talked about those issues 10 years ago you would have been hanged in a public square. Now when you talk about it you're only hanged in effigy.

I maintain that the solutions will come from the provinces. You can look at other policy issues in provinces to see that solutions have been found. My view is that any time you have a monopolistic situation, be it government or the market, you are going to create inefficiencies. You are going to create obstacles. You are going to see lost opportunities. You will see the same lack of innovative approaches if we don't let provinces move ahead in innovative ways in terms of health care while still maintaining the benefits and the principles of the Canada Health Act itself.

In the area of education, in Alberta we have promoted, and again at some political risk, the idea of charter schools. In a particular jurisdiction under the public umbrella, parents can decide among themselves that a school should have a certain emphasis, take out a charter for that school and start to introduce some diversity into the education system. That's a province moving ahead and taking some initiative. Other provinces are able to watch and possibly follow.

Social services is an area of provincial jurisdiction. In Alberta we have gained from the mistakes and the successes that we have made and those that others have made. If I can gently point towards Ontario in the mid- to late eighties this province was in a wonderful time of economic boom. The economy was red hot. The economy was robust. Things were great and the government of the day made a decision that it could now afford to greatly enhance the benefits that were being paid out to those who were asking for those benefits. We saw a basic rule of social science come into play. Whenever you increase benefits you will in fact increase the number of those coming into the system. I say that being sensitive to the fact that any caring society should clearly and absolutely support those who are not able to support themselves. How you do that is going to determine whether you will be able to afford to continue that programme. We saw from the Ontario experience in a robust economy its social services roles radically increased to the point where you had some real difficulties even after a change of government. We learn from these things.

The federal government should not tell a province it can or cannot do something in an area of provincial jurisdiction and yet that has happened. In the area of social services not too long ago the Province of British Columbia made a policy decision that those coming to their province would have to wait three months before they could qualify for social service benefits. Alberta may or may not agree with that particular stance but a province should have the ability to have a programme or policy that is different from others. At the very least we learn from our mistakes. The federal government moved quickly to penalise and to fine BC for having that type of policy initiative. This was a case where diversity was being squelched in an area that should have been allowed to proceed so that we could see what the long-term effects would be.

We have a Canada Pension Plan and I want to state for concerned people, especially those who are present recipients and beneficiaries of that Plan, that the Plan is actuarially sound. That was addressed a couple of years ago when it was agreed that the contribution rates would move up significantly. The Plan is sound but there will not be as much there when you come to retire as there could be. We believe from the Alberta perspective that things could be done to the Plan which would enhance the benefits. In Alberta we brought in actuarial experts and did a lot of study on the Plan from the point of view of asking the question: "Is it possible for Alberta to move out of the plan and take on all the incumbent liability that goes with that and in fact develop its own pension plan?" Quebec was the only government back in 1966 that made that choice. I now think it can congratulate itself as having the wisdom to stay out and develop its own Plan. In the exploration of what could be done to make a better Plan for Alberta we realised the entire Plan would benefit if we did certain things. We put those suggestions on the table very recently with officials from right across the country including officials from the federal government. We have a commitment that these officials will work on these ideas and then report back. We'll see if there's any willingness by the other provinces to move along with these changes and hence benefit all Canadians and at that time we'll make a determination if we should continue the work of looking at an Alberta-based plan ourselves. We don't say that in any threatening way but it is another case where a province has the ability to do something different and do it in a way that can benefit other provinces. We learn from the mistakes and the successes that we make.

In the area of taxation, we've done some things that are different and we think will be beneficial to Alberta. We understand other provinces are looking at us. We may make some mistakes along the way as we pursue these particular opportunities but if we do it it means that other provinces will be spared the same mistakes.

I congratulate this province and your premier for being very aggressive on the tax side. Before making bold moves to reduce taxes he was informed by officials at the federal level that there was no way he could do that. I understand he reduced them some 30 per cent in his first term and is following up with a commitment to reduce taxes by another 20 per cent. When a jurisdiction reduces taxes its economy becomes more robust and vigorous. You can see in Ontario and in Alberta that when taxes were radically reduced things began to happen. When the jurisdiction of Puerto Rico radically reduced their taxes, one year later 50 per cent more people filed tax returns. When people have the sense that the tax system is fair the underground economy begins to surface and there's another source of revenue for revenue-hungry politicians.

We analysed the tax system as it was and we came to some decisions. People had complained for a number of years about something called bracket creep-the effect of governments not indexing basic exemptions to inflationand we have all experienced an erosion in our buying power because of that. I was going to call it an anomaly, but it was something that was done deliberately. We looked at the problem of bracket creep and decided to fix it. Who are the creeps? We looked in the mirror and we realised it was us. When we unhook our tax system next year officially and completely from the federal basic system, we will have eliminated bracket creep. We will significantly raise the basic exemption levels for all working citizens from $7,131 to just over $11,000. That means we can all, especially low-income people, earn more money before being punished for being educated, innovative and hard-working. That will be a great boost forward especially for those on the low-income side. We have removed ourselves from the public debate on taxation related to one-income families and two-income families. That is a decision that should be left up to families. Government shouldn't reward or punish people for $that decision. We are significantly increasing the spousal exemption so that it will match the basic exemption. The part that really excites me is the single rate of tax. It is not a completely flat tax because as I've said in raising the basic exemption levels there is progressivity at the lower end. But after you have worked through that lower income echelon then everybody in Alberta will be paying a single rate of 11 per cent. We are excited about that and so are Albertans. It simplifies the whole process.

We had some other options. The federal government was considering a very simplified option. We understand it may even still have it on the table where the entire tax reform is just reduced to two lines. How much did you make? Send it all in.

I believe that today as we look for ways to bring our country together and see it strong more and more people are realising that among Canadians there's a great reservoir of common sense resident in our hearts and minds. And for the common-sense voters who go to the polls, at the federal level there have been an array of choices. Some of us feel strongly that if we can pool the resources represented by those choices we may in fact see a different framework at the federal level. We are putting our hearts and minds together to see that happen. It was said that the last century belonged to Canada. I think this century also does and it will be because of the diversity and strength of its provinces. Thank you very much for your attention today.

The appreciation of the meeting was expressed by Gareth S. Seltzer, Private Wealth Management Professional and a Past President, The Empire Club of Canada.