A New Vision for Canada

Head Table Guests

Margaret Samuel, Vice-President, RBC Dominion Securities and a Director, The Empire Club of Canada; The Rev. Dr. John Niles, Minister, Victoria Park United Church; Andrew Willis, OAC Student, Oakville Trafalgar High School; David Rosenberg, Vice-President, Director and Senior Economist, Nesbitt Burns; The Hon. Michael Wilson, Vice Chairman, RBC Dominion Securities Inc.; The Hon. Ernie Eves, Q.C., Deputy Premier of Ontario and Minister of Finance; Gerald Shelf, Chairman and CEO, Gluskin Sheff and Associates Inc.; and Kathleen Hermant, Vice-President, North Point Enterprises Ltd. and an Honorary Director, The Empire Club of Canada.

Introduction by George L. Cooke

Our guest speaker today is Hugh Segal, the first of four Progressive Conservative Party of Canada leadership candidates who will address our Club this fall. He is presently an Advisor at the investment firm of Gluskin Sheff and Associates Inc. as well as a Resident Fellow at The School of Policy Studies at Queen's University and Adjunct Professor at the School of Business.

Many of you will know Hugh as a "Pundit" who frequently "observes" on our country's top public affairs programmes. Obviously qualified, his curriculum vitae indicates that he has been associated with many notable political leaders including Jean Charest, Bill Davis, Larry Grossman, Mike Harris, Frank Miller, The Rt. Hon. Brian Mulroney, Robert Stanfield and Claude Wagner.

Undoubtedly, if he were just a little older, that list would also include leaders like Sir John A. MacDonald!

Born in Montreal, a former National Vice-President of the PC Young Federation of Canada and author of two books, Hugh is married to Donna and has one child, Jacqueline.

Over lunch, I think I heard two of our head table guests talking about tax cuts and the need to eliminate disincentives for small business. But... this is not my speech, it's yours, Hugh... we welcome you to the Empire Club.

Hugh Segal

It has always struck me as essential, in almost every aspect of life, to keep a sense of perspective and balance and, above all, a compelling determination to build as much as one can for the future.

The Tory leadership race in which I am a candidate would benefit immensely from this perspective, balance and focus on building.

Let us be frank. The Conservative Party has a huge task ahead of it--a task that will summon every ounce of strength, energy, vitality and courage, and then some, from the new leader. Reaching out to Canadians both to the right and in the moderate centre core of Canadian politics will require more than just willpower, hard work or nostalgia. The meaningful advancement of Conservative Party fortunes will depend more on why we should seek to form a government than simply how.

What is our role in the Canadian political system? What is our duty to history, and what is our vision for Canada's future? Why do we actually want to form a government? It is essential that the successful candidate for leader articulates the answers to these questions.

As part of this process I believe that each candidate must provide the party and the nation with a clear articulation of his priorities. Throughout this race I have done this by releasing a series of detailed policy proposals for the consideration of the party and the country. Among those released to date are Papers on National Defence, Reform of our Democratic System, Social Policy and Poverty, Healthcare and Restructuring the Party Organization.

Although we will ultimately sit down to set policy together as we prepare for the next election, party members deserve to know where their leaders personally stand. After all, party members expect the leader to play a role in the policy process, and not simply to be another moderator.

I have chosen to release policy discussion papers because I believe that people are motivated in their political decision making by compelling ideas. I also believe that our party is the proper home for ideas that are innovative and that inspire hope and confidence.

Today I am here to address economic, taxation and fiscal priorities, and to discuss the state of our economy and my thoughts regarding the creation of wealth and the pursuit of community. For some time now, we have been treated to repeated assurances from the Prime Minister and the Minister of Finance that in our tiny patch of the world all is indeed well.

Let me suggest that Canada's position is a lot more tenuous than we think. Our productivity is dangerously low compared to our closest trading partner, the United States. Our debt-to-GDP ratio is too high. We have too great a reliance upon commodity sales for export earnings. By doing this we continue to tie our economy to world commodity price fluctuations.

On top of all of this we have a tax system that drives some of our brightest to leave the country, while making criminals of many others who turn to the underground economy in pursuit of relief. Taxes in this country have reached the point where they are a disincentive for many Canadians to work hard, and for some to work at all.

Most telling are the facts that Canadians' savings are at an all time low, our level of personal indebtedness is at an historic and menacing high, and our contributions to personal retirement savings plans are comparatively modest.

And if all of this weren't bad enough, the Liberals in Ottawa tell us not only that everything is fine, but that none of this is important enough to do anything about. The reality is that the economic recovery which we have enjoyed has taken place despite, rather than because of, government policy made in Ottawa. Instead of setting the preconditions for growth, the government has continued to tax away incentive and rely on export growth led by a low dollar.

Mr. Martin's economic plan discourages the creation of wealth. The absence of encouragement for wealth creation will cripple our economic capacity to maintain the safety net Canadians value.

My vision for the Conservative Party requires that the party be a vehicle for hope--that we plan an agenda for fostering enterprise, wealth creation and the vitality of our community together.

My primary goal as prime minister would be to build a civil society. This is a society that emphasises community, wealth creation and principles of equality of opportunity through the provision of fairness to all rather than subsidy to some.

In a civil society, the government may steer but very definitely does not now. The heavy work, that of innovating, creating and selling products and services both domestically and abroad, is best done, in most cases, by the private sector which is splendidly equipped to do just that.

The function of government is to provide the infrastructure needed to facilitate economic activity, the legal framework for the pursuit of law and order, and a social environment that promotes fairness and opportunity for all Canadians.

I believe that government should and must take purposeful action toward removing impediments to growth and creating the kind of environment where the economy has a chance to thrive.

These fundamental beliefs about the role of government are informed by my roots. As the son of a cab driver in Montreal and the grandson of immigrants I learned the importance of enterprise and economic opportunity, first hand. My grandparents and my parents worked to ensure a future of opportunity for my brothers and I. As a businessman I know how the private economy works, how government can set the stage for growth, and the constraints which should limit government as a direct actor in the economy.

These are lessons which are sadly absent in Ottawa. In the world of Jean Chretien and Paul Martin, it's all right that Canadians are working harder and harder and keeping less and less. They are paying more and more taxes and getting less and less service. People are fearful for their futures; we must replace that fear with hope. To do that we must face some hard realities.

The percentage of earned income transferred by Canadians to government is at a record high, despite the claims by the Liberals that they've beaten the deficit. Sales taxes and capital gains taxes are almost double what they are in the U.S.

Regrettably, "bracket creep" has left Canada with a tax system with a participation threshold that is the lowest among our trading partners, meaning that more than a million of those people at the low end of the income scale have been sucked into the tax system in the last 10 years.

Combined corporate tax rates in Canada continue to exceed those in the U.S. and are restricting companies from making job-creating investments in the country.

Again, this is killing the opportunity to reduce the underemployment and unemployment evident in so many of our communities.

Our productivity is lower than needed to sustain any type of competitive advantage should the economy take a turn for the worse.

But yet the Liberals say not to worry. Everything is fine. All is well.

I frankly disagree. I believe that Canadians deserve to keep more of the money they earn. I propose that it's time to curb the voracious appetite of government and put the tax system back to work for the people who do the work.

You do not build a civil society by depriving Canadians of any hope of ever improving their material well-being, just to satisfy the seemingly endless appetite of big government.

You build it by rewarding initiative, encouraging risk, and liberating entrepreneurial activity. You build it by giving our best and brightest--our sons and daughters--more reasons to stay home and succeed, rather than seek their fortune south of the border where lower taxes help their dollar go farther. You build it by working hard to run government more effectively, at lower cost, so that people can keep more of their money and with it make economic choices for themselves.

In fact, the single overriding theme of my economic platform is this: If we free up individuals to make decisions about the economic well-being of their families and communities, Canada will succeed dramatically in the 21st century.

In order to do that our efforts must be focused on reducing the federal personal income tax burden faced by Canadians by some 20 to 25 per cent. Doing so with utmost haste is the most important mission my party will undertake in government. That is a substantial sum, and accomplishing it will not be easy given the tangled web of transfers and tax policies in this country. But there are numerous examples across North America of jurisdictions that are reducing the tax burden faced by their citizens while delivering services and encouraging economic growth.

To achieve this goal, I would want a Conservative government to explore six initiatives. We will, of course, do this within the context of our national economic realities; and with a core zero-tolerance towards deficit financing. This is about building a responsible agenda for economic opportunity.

First, we will eliminate bracket creep. This is an undesirable process maintained by the present government that relies on low inflation to raise taxes under cover of darkness. In the current environment, tax brackets remain fixed unless inflation exceeds 3 per cent. But with low inflation, the government has been picking the pockets of hardworking Canadians who may have only been able to earn a cost-of-living increase in these highly competitive times. With bracket creep, they become worse off every year. This must stop.

Second, employment insurance premiums will be dropped to 1.7 per cent from 2.7 per cent of wages. These premiums are little more than taxes on jobs. But more importantly, the El system is in surplus now to the tune of some $20 billion. This surplus is totally unnecessary and far exceeds the deficit in the El account during the last recession. If this money isn't to counterbalance an economic down cycle, then it isn't insurance; it's simply another tax. With a drop of one full percentage point in El premiums, GDP would rise by about 2 per cent and some 175,000 jobs would be created.

Third, we must make significant changes to marginal tax rates. A Conservative government should cut the effective marginal tax rate for middle-income Canadians by raising the definition of middle income to somewhere closer to reality. Currently middle income is defined as net income between $30,000 and $55,000 and the federal tax rate for this income level is 26 per cent. When one includes payroll taxes and provincial taxes, the marginal tax rate for someone earning in the range of $30,000 can be around 50 per cent. This is a rate that rivals the highest in the world and acts as a massive disincentive to work, innovation, and the creation of wealth and investment in the economy. We would propose defining middle income as falling into the $37,000-$68,000 income range. Next, the taxpaying threshold should be raised from $7,000 to $9,000 over five years, and the marginal rate at the top end should be dropped from its current combined federal and provincial level of 51 per cent to 45 per cent over the same period. It is intolerable that low-income Canadians be asked to shoulder a tax burden at such a meagre income level. It is equally intolerable that people who succeed in life be penalized rather than encouraged. We must plan to begin to address both of these challenges in the first Conservative federal budget. In order to encourage investment, our government should lower capital gains taxes by 10 per cent. This cut will generate new jobs and investment, leading to increased revenue earned through new economic activity.

Fourth, we will endeavour to start by reducing the GST to 6 per cent, a 10-per-cent reduction, and begin to work towards a 30-per-cent cut over time. Our analysis indicates that the 30-per-cent reduction in the GST alone will result in the creation of more than 200,000 jobs and the expansion of GDP by 1.7 per cent. And it is a fair way to put money back into the hands of all Canadians, and into domestic retail demand.

Fifth, the need for maintaining balanced budgets is a paramount concern for Canadians. A balanced budget law with teeth is needed in this country. And at the same time, a Conservative government must lower the debt burden of Canada by setting targets for debt reduction until the federal government achieves a debt-to-GDP ratio of about 35 per cent over 20 years. We will make our first annual payment on debt principle beginning in our first year. Like a mortgage on our homes, we must commit to making these principle payments to put our financial house in order, and to increasing the amount of these payments whenever the economy permits.

And sixth, core services that Canadians expect are going to be protected. Our government should agree on a binding covenant with the provinces to ensure that the health-care and education systems will be underpinned by realistic and fair negotiated federal cash and tax point transfers, as opposed to cuts imposed unilaterally on the provinces by the Minister of Finance in Ottawa.

Ladies and gentlemen, I believe that the combined effect of the cuts that a determined Conservative government should work towards in our tax system can be accommodated within a modest growth scenario and zero-tolerance of deficit financing. These tax cuts will have a positive effect on GDP growth and should stimulate directly and indirectly the creation of more than one million jobs.

This is the economic proposal that I make to my fellow Conservatives and Canadians. It is entirely consistent with our party's efforts to open up our economy to greater competition, to enable Canadian firms to succeed at home and abroad, and to make it possible for Canadians to earn a higher standard of living for themselves, their families and their communities.

Recently, following the release of my discussion paper on poverty and opportunity I was meeting with the Editorial Board of a newspaper in one of Canada's largest cities. "Putting out a paper on poverty" I was told, in a very good natured way, "is not a very conservative thing to do."

My response is very similar to the biases I express to you today. If one believes in economic freedom and wealth creation and in fostering an enterprise society, one must also believe in a basic equality of opportunity. At the same time that we pursue a free market, we must invite more and more Canadians to join the economic mainstream, not fewer and fewer. Our socialist opponents believe in equality of outcome--and often legislate and regulate to get there at society's and freedom's expense. Tories believe in equality of opportunity as a pillar in support of a vital and dynamic marketplace. But that can only be achieved with real wealth creation which in turn requires a restrained tax system--a system that serves rather than confines our fellow citizens.

I believe that the Conservative Party is Canada's best vehicle to achieve the balance of community, opportunity and enterprise we need as we build our individual and national futures. Together I believe that we can set the national agenda and refocus our joint efforts on providing Canadians with government that understands industry and initiative and aims to set the preconditions for growth. In this cause, I ask for the support of Conservatives and Canadians throughout this magnificent country.

Thank you very much.

The appreciation of the meeting was expressed by The Hon. Ernie Eves, Q.C., Deputy Premier of Ontario and Minister of Finance.