Ottawa, April 23, 2004 2004-030 New York, New York Check Against Delivery Let me begin by thanking the Canadian Society of New York for your kind invitation to join you today. Since 1897 you have consistently fostered ever stronger ties between Canada and the United States. No one understands the size and the special nature of that relationship better than the members of this Society, and I wish you at least another century of success in nurturing our unique bonds. On both sides of the border, we are determined to achieve the greater mutual security of our citizens and the greater prosperity of our two countries. Given that I am on my way to meetings this weekend of the International Monetary Fund and the Group of Seven (G-7) in Washington, I would like to talk today about some of the challenges facing G-7 countries like the United States and Canada¿not simply this year or next, but over the coming decade. Many of the issues we face do not lend themselves to short-term fixes or easy solutions. They require a comprehensive approach and a sustained commitment. In some cases, the problems have been years in the making and will take years to address. In others, the real challenges are still several years away but are of such dimension that we need to begin to prepare now. And so, we really need to ask ourselves: "where do we want to be 10 years from now?" and "what are the right policies to take us there?" It was very much with the longer term in mind that I presented my first budget just a few weeks ago as Canada's new Minister of Finance. That budget had two central themes. First, an unmistakable, unshakeable commitment to strong fiscal discipline, prudent government management and careful public spending¿with accountability, transparency and value-for-money as guiding principles. And second, the budget got us started on Prime Minister Paul Martin's new Agenda for a new Decade of Canadian Achievement¿advancing a thriving 21st century economy, strengthening our social programs, and building for Canada a more effective and influential role in global affairs. In tackling this agenda¿all within the disciplines of fiscal responsibility¿I can think of at least four crucial challenges Canada needs to meet, challenges which we face in common with all our G-7 colleagues: the economic challenge, a demographic one, a social challenge and the security challenge. Let me touch just briefly on each. First, the economic challenge. For all G-7 countries, strong and sustained economic growth is the key to rising incomes and job creation and the only sure path to the kinds of financial resources all our countries will need to steadily upgrade the quality of life enjoyed by our citizens and their families. At our last G-7 meeting in February, we all agreed on the importance of all our countries pursuing sound fiscal policies, as well as other measures to increase economic flexibility, improve productivity and generate greater employment. This G-7 approach is entirely consistent with Canada's policy position. So, what are our results? Ten years ago our public debt was ballooning out of control with annual deficits approaching $40 billion per year. We had weak economic growth and little job creation. Business and consumer confidence were both in the tank. The world's most prominent financial media were depicting the Canadian economy as "a candidate for membership in the Third World." The situation was clearly untenable and urgent. With the disciplined support over this past decade of ordinary Canadians¿citizens who, I think, were generally ahead of their politicians in perceiving the problem and demanding action¿action was indeed taken. And it has worked! First and foremost, we have put our fiscal house in order. Last month, I had the honour of announcing that the Government of Canada would balance its budget again for the seventh consecutive year in 2003¿04 and that we expect to do so again in 2004¿05 and 2005¿06. This string of balances is unprecedented in Canadian history and follows some 27 years of deficits and rising debt. Canada is also the only G-7 country to have balanced its books in each of the past two years, plus this year and next. What have those balanced budgets meant? To start with, they have brought our debt down by more than $52 billion. They have brought the federal debt-to-GDP (gross domestic product) ratio down from a peak of 68 per cent to 40 per cent. They have brought federal market debt as a share of GDP to a lower level than in the U.S. for the first time in 25 years. And, by the end of this year, the combined debt burden of all levels of government in Canada is expected to be below that of all other G-7 countries. So we have made tremendous progress on the fiscal front. Are we satisfied? No! We want to go further and to do even better. Improving a nation's finances is not easy¿and it is never over. We also know that in good times, it is easy to slip back into bad habits. That is why our budget took a careful approach, using cautious planning assumptions (including independent private sector validation), maintaining a contingency reserve to protect against the unpredictable, and building in a further measure of fiscal prudence to guard against deficits. We also announced a comprehensive package of measures to control growth in spending, to examine government programs to make sure taxpayers are getting full value for their money, and to find annual savings of at least $3 billion within four years for reinvestment in the highest priorities of Canadians such as health care and learning. We want to build on the fiscal progress that has already helped us free up billions of dollars in interest savings each and every year through debt reduction. At the same time, balanced budgets have meant that our government has sharply reduced its use of private savings to finance its activities, making greater room in our financial markets for Canadian businesses and industry to finance improvements to their productivity and competitiveness. Our fiscal progress has also allowed us to take action to stimulate investment not only in things such as machinery and equipment, but also in research, knowledge and innovation¿all of which contribute to greater productivity and better-paying jobs. We have also been able, on a sustainable basis, to make our tax system a whole lot more competitive. In fact, in 2000 we introduced a five-year $100-billion tax reduction plan, the largest tax cut package in Canadian history. Those tax cuts have substantially lightened the personal income tax burden on Canadians and their families. They have also created a real tax advantage for investing and doing business in Canada since our corporate income tax rates are now below those of the United States. And we took additional steps in our last two budgets to further improve our tax system, as we intend to continue doing in future budgets too. Canada will stay the course of rock solid economic fundamentals and fiscal discipline, not only to deal with today's pressures, but especially to make sure we have the resources and responsiveness we know we will need down the road. That brings me to the second major challenge¿demographics. Within a very few years, all G-7 countries will be facing the consequences of the graying of the baby boomer generation. This phenomenon may be a bit more dramatic in some countries than in others, but we will all have to come to terms with it. For Canada the wave will really begin in earnest after 2010. We will face a dramatic shift in the composition of our workforce and the nature of our population¿the baby boomers will be retiring. The largest generation ever will be leaving the workforce, leaving a smaller one to take its place. We will begin to see the ratio drop from about five workers for each retired person, to about 2½-to-one. This will have at least two profound effects on our society. There will be greater demand for the social programs we value, particularly health care, and at the same time there will be fewer people working and therefore contributing to those same programs. Like death and taxes, aging is something we can be certain of. A decade from now, we will all be 10 years older. Obvious, perhaps, but too many public policy makers have failed to appreciate the full implications of this simple reality. And as a result, many countries are not prepared for what lies ahead. The demographic challenge is at least twofold. First, to ensure that we have the resources required to meet the growing demands of an aging population. And second, to make our remaining and ongoing labour force as large and productive as possible. The sustainability of public pension systems has to be a top priority. In Canada we have taken steps over the last several years to put our public pensions on a solid footing. In fact, the Canada Pension Plan is now actuarially sound for at least the next half century. But we are one of only a very few countries whose public pension plans are so secure. That being said, we believe there is more we must do to have the resources needed to deal with the inevitable demands on our other social programs, including our health care system. This again speaks to the importance of paying down debt today, because the more old debt we are still carrying at and after 2010, the less flexibility we will have to respond to those growing demographic requirements. That is why our budget announced that we have set a new goal of reducing Canada's debt-to-GDP ratio from its current level (about 40 per cent) down to 25 per cent within 10 years. That should mean that for every dollar the federal government has to spend, not much more than a dime will be needed for debt-servicing costs¿down from 37¢ per dollar before we balanced our books. Pensions and health care are two specific examples of the demographic challenge. But there are many more that make it important we have the right policies in place¿to have the highest possible labour force participation as well as very productive workers. For example, as baby boomers retire, we will rely increasingly on skilled immigrants in our labour market. Having the right policies for immigration will become more important than ever. Canada and the U.S. have always relied heavily on immigration and will continue to do so. In fact, no two countries in the G-7 understand better the importance of welcoming newcomers to our shores and ensuring that they can contribute fully to their own and our nations' success. And that leads me to the third major challenge faced by all G-7 countries¿our social challenge. How do we build vibrant, dynamic, inclusive societies that offer opportunity for all of our citizens? How do we ensure that in a global knowledge economy, our citizens¿in fact, our countries¿can compete and succeed? The most essential foundation of a strong economy is a strong and confident society¿and such a society is built on a strong economy. The two are mutually reinforcing and we cannot ignore one without harming both. Good economic policy makes it possible to afford an excellent health care system, first-rate schools and the social services that reflect our values. Good social policy, in turn, produces an educated, skilful workforce¿one that is both healthy and productive. My recent budget continued this emphasis. For health care, it combined substantial and predictable funding with a commitment to meaningful systemic reform¿to secure the sustainability of our health care system. And on education, we announced important new initiatives to help low-income families better afford post-secondary education: an enhanced student loan program, new education grants and greater inducements for families to save for their children's education. Canada is doing relatively well in building an educated workforce. Of all the countries in the Organisation for Economic Co-operation and Development, we have the highest percentage of people with a post-secondary education (41 per cent). But we need to continue to improve, to aim higher and reach further, by promoting a culture of lifelong learning and excellence. Why this single-minded focus on education? Because in this knowledge-based and skills-intensive world, access to education will be a crucial determinant of the well-being of our society, including our economic performance and our international competitiveness. Consider the problem many G-7 nations face with respect to existing jobs going offshore. How do you compete with China or India, where wages are far below those of any G-7 country? The answer, in the final analysis, is you don't compete on wages, but on skills. A race to the bottom is self-defeating. What we need to do is develop the best-educated workforce and create the best-paying jobs¿at the top! In today's knowledge economy what matters most is our brains. The greatest value is to be found in the human intellect, turning ideas into enterprises and in some cases whole new economic sectors. Success today is measured by new yardsticks: innovative capacity, resourcefulness, numbers of graduate students, patents produced and new ideas brought to market. Canada will continue to invest in individual excellence and national achievement. Education will be at the core of our future success. So will health care. For Canadians, our universal health care system is the flagship of our social policy. For Canadian businesses, it is also a significant economic advantage. Take the auto industry, for example. Every car that rolls off the assembly line in Detroit costs $700 more than its counterpart in Canada because U.S. companies have to pay for employee health insurance. In fact, major automakers recently stated that they spend more on health care plans for their U.S. workers than they do on steel for cars. Of course, like other G-7 countries, Canada's health care system is not without challenges. With rising costs, sustainability is a major issue. As a nation we already spend more per capita on health than the great majority of developed countries. And pressures will rise as our population gets older. We must deal with the situation, and we will. Our government wants to focus on real outcomes such as improved access to services and reduced waiting times. Solutions will require more than just more money. Greater investment will be necessary, but equally crucial will be change in how the system is managed. And this is our primary preoccupation right now. Let me move on to the fourth great challenge facing G-7 countries, and that is security¿something which you keenly understand in this great city. In many ways, meeting this challenge will determine whether we are able to address all the others, for if we cannot defend ourselves from terror, the societies we nurture and the economies we build will always be vulnerable. Terror is an ugly scar on our world¿one we cannot ignore. The brutal images of 9/11 and other subsequent tragedies are seared in our memory. It has profoundly transformed how we understand our vulnerability in this modern age, and how we reconcile our most precious freedoms with our need for safety. Today we live in a world where terrorists use technology to maximize their reach and minimize their risk, a world where borders and distances no longer guarantee that any country can be a sanctuary of security. As a result, security has moved front and centre in our thinking. The Government of Canada's 2001 budget was largely devoted to security issues. It put in place a multi-year, $7.7-billion package to improve security in air travel and at our borders, intelligence and policing, emergency preparedness, and more efficient screening of immigrants and refugees. In the budget I presented just a month ago, we are continuing to invest further in such priorities as intelligence, marine and cyber security, enhanced coordination of systems, information, threat assessments and emergency responses, as well as border security. In virtually every single area I have just listed, we are working in close collaboration with the United States. That includes our joint efforts to keep our borders closed to terror but open to trade. In addition to the new money for security provided in our budget, we have also changed our machinery of government to achieve a sharper security focus and better outcomes. A new security department is being created under the direction of the Deputy Prime Minister. A new security committee of the federal cabinet is in place to coordinate the work that needs to be done government-wide. The Prime Minister has appointed a National Security Advisor. The Government has received and accepted a detailed audit of its security situation and requirements from the Auditor General of Canada. And next week a comprehensive National Security Policy for Canada will be presented. As we look at the broader security challenge, we know that because terrorists see the whole world as their field of action, so must we. Because they enjoy unlimited reach, we must employ unparalleled cooperation. That is exactly what the G-7 has been doing. Under your country's leadership, we have moved aggressively to combat terrorist financing by freezing assets, enhancing international standards, promoting greater compliance and improving cooperation between international institutions. I am confident we will be able to make more progress on this front at our meetings in Washington this weekend. The issues I have talked about this afternoon will, I believe, be defining ones for every G-7 nation in the years ahead. For our part, we believe Canada is on the proper road and moving in the proper direction. We also understand that our future prosperity and security are closely linked to partnerships with other like-minded nations, and that no partner is more important to that future than the United States. Close dialogue, knowledge and understanding between us is crucial. In that spirit, U.S. Treasury Secretary John Snow and I have agreed to establish a system of regular annual meetings between us and our two departments¿to share views and ideas and to advance our common interests. Prime Minister Martin will be meeting with President Bush in just a few days, the second time they have met this year. The Prime Minister has also announced a new committee of cabinet (which he will chair personally) devoted exclusively to Canada-U.S. relations. So let there be no doubt. We are determined not only to maintain good relations with the United States, but to make them better. What we have between us is the most remarkable and durable and valuable international relationship on this earth today¿a prize to treasure on both sides! Thank you.
