Ottawa, December 14, 2004 Montréal, Quebec Check Against Delivery Good morning, ladies and gentlemen. Greetings and good wishes from the Government of Canada. And thank you for this opportunity to meet once again with the Montreal Board of Trade. Yours is one of Canada's most interesting and dynamic business organizations, and I want you to know that your advice to government is both welcome and valued. The Government of Canada is now well into its pre-budget planning cycle for 2005. I expect to table the next federal budget some time in the latter part of February or in March. Between then and now, as usual, I will be engaged in a series of discussions with Canadians-in every region and from every walk of life-to identify their expectations for this upcoming budget. I want to ensure that our economic and fiscal planning reflects the beliefs and the aspirations of a broad cross-section of citizens, voters and taxpayers. The consultative process continues today in Montréal-doing more listening than talking. So far I have heard requests for more federal spending on both social and economic programs. I have also heard about the need for tax relief and ongoing debt reduction. Sometimes the debate among those who advocate for these different and competing priorities becomes quite intense. But I have also heard about some common themes. One is the need to achieve an inclusive balance among all the many purposes to which we could dedicate available federal resources-to be fair to all Canadians. Secondly, I hear consistently that we must never deviate from prudent planning and responsible behaviour-to ensure that the books of the nation stay solidly in the black. No one proposes a return to deficit financing. And third, it is recognized that we, in this country, have the rare privilege of actually having a debate about how best to allocate successive surpluses-at a time when a great many other countries are deeply in debt and going deeper. This is just one of the things that makes Canada special. And let me focus on that thought for just a moment. As Canadians, we have devised for ourselves a truly remarkable nation-one that is both highly improbable and yet hugely successful, the envy of much of humankind. Someone once said that we are a country that works far better in practice than in theory. And it's true! Our nationhood is a continuous act of sheer political will-achieving against the odds. Just think about it. Canada stretches across a huge land mass on the northern part of this vast continent. We are the second biggest country in the world. Quebec alone is three times the size of France. We have fantastic geography and topography to admire, to wonder at and to challenge us, from coast to coast to coast. We have a difficult and sometimes downright perverse climate-ranging all the way from the North Pole to the same latitude as the state of California. Canadians are a small but complex population-beginning with Aboriginal peoples, and then the Norse and the French and the English explorers and settlers, and then wave after wave of enriching immigration. To the point now that we count in our numbers every colour, every creed, every ethnic origin, every political background, two official languages and many cultures-quite literally, the diversity of the whole world. All here and mixed together unevenly, not in a melting pot, but as a mosaic. And strung out sparsely along some 4,000 miles of American boundary-studded only here and there by a world-class metropolis like Montréal. Yes, indeed, you could hardly imagine a more unlikely set of circumstances from which to forge a country. But in fact Canadians have done it-faithfully and patiently together-over a span of nearly 138 years. Never easily. Not flawlessly. But in these early years of the 21st century, global personalities as diverse as the rock star Bono and the Secretary-General of the United Nations Kofi Annan have ventured to say that what the world truly needs these days is "more Canada"! So how has this unlikely country prevailed? Through lots of hard work, yes, and some generous good luck, yes. But mostly, through the steady application of some deeply held and broadly shared Canadian values. A sense of fairness and justice. A spirit of generosity. Compassion and tolerance. Caring and sharing. An instinct of inclusion. Open minds and open hearts. Pride in our vast diversity. A knack for honest accommodation. We have always practised that willingness to listen to each other. To reach out. To bridge differences. To try very hard to understand one another. And once we have listened and understood, Canadians have always been prepared to act-with and for each other, together. Not because it is in the narrow self-interest of some comfortable majority. Not because we have to. But because we want to. Because it is right for the fair and decent and successful country that we aspire to be. Canada is thus a triumph of our common will-a triumph of the human spirit. And it's never "done." Canada is now and it always will be a precious "work-in-progress." A masterpiece in the making. That is the reality of Canada that I carry with me in my job as Minister of Finance. The economic strength and the fiscal integrity of this nation are works-in-progress-works that have been progressing very well since 1993, but works we must never take for granted. We can never afford to get careless. And Canada's remarkable achievements over the past decade in terms of economic and fiscal success are not just ends in themselves-our goal is not the mere accumulation of statistical bragging rights. Our goal is to use the dividends of fiscal and economic strength to empower Canadians to keep on building a world-leading society with a top-notch quality of life, and to do so in a fair and balanced way. We have made huge progress in that direction! Some 10 years ago, in the first part of the 1990s, this country was quickly becoming an economic basket case. Annual government deficits were out of control. Public debt was skyrocketing. The cost of borrowing was high, and we were borrowing a lot. Economic growth was sluggish or non-existent. Jobs were evaporating. Hope and confidence were in very short supply. The Wall Street Journal wrote back then that Canada could be a candidate for honorary membership in the Third World. But Canadians were not content with that prospect. They demanded a change in direction, and they provided the disciplined support that was essential to get through the tough decisions necessary to accomplish change. And it paid off. After 27 years of ever deeper and deeper red ink, we balanced Canada's books in 1997. We have tabled seven consecutive surplus budgets since-the best performance of any Canadian government since Confederation and the best performance of any country in the world-leading G-7 group. The federal debt is now on a steady downward track, both as a proportion of the gross domestic product (GDP) and in absolute dollar terms. It has been slashed by some $61 billion. The federal debt-to-GDP ratio is now 41 per cent, compared to 68 per cent in 1995. And in my budget last March, we committed to lowering it to just 25 per cent within 10 years. That would mean debt-servicing charges will consume only 12 cents out of every federal revenue dollar, instead of what used to be 39 cents just eight years ago. And here are two very key points. Canada's net foreign indebtedness has been slashed from 45 per cent of GDP in 1993 to less than 14 per cent-a huge turnaround. And because of overall debt reduction, we are now saving more than $3 billion per year on debt-servicing costs-$3 billion every year which can now go to building a better country and not just paying creditors. Canadians have worked very hard to get the nation's fiscal fundamentals in order, and the benefits are unmistakable. Liberated from the suffocating impacts of chronic deficits and rising debt, the economy has generated remarkable and sustained rates of growth. More than 3 million new jobs have been created. Inflation and interest rates have been low and stable. The nation has regained its triple-A credit rating. Consumer and business confidence have gone up. Close to two-thirds of Canadians believe the country is now headed in the right direction. And we have seen more improvement in the average Canadian standard of living in the past 7 years than in the previous 17. In this atmosphere, beyond just debt reduction (as crucial as that is), we have also implemented the largest tax cuts in Canadian history. We have been able to meet and beat a series of expensive nasty surprises that have come our way-like natural disasters, the security fallout from global terrorism, the outbreak of severe acute respiratory syndrome (SARS) and the impact of bovine spongiform encephalopathy (BSE). We have also invested heavily in Canadians' prime priorities-like health care, equalization, learning and innovation, housing and infrastructure, the well-being of children and families, environmental protection, and others. I should say a bit more about the first two items on this list-health care and equalization-because they involve some of our biggest federal investments and they were both the subject of successful federal-provincial-territorial First Ministers' Meetings earlier this fall. In September all jurisdictions signed onto a groundbreaking $41-billion, 10-year agreement to bolster our health care systems. That deal is significant for many reasons. It was unanimous. It involves an asymetric arrangement to accommodate Quebec. It includes important systemic reforms and the best terms ever on reporting and accountability. It surpasses every public test of federal financial support. And it shifts the attention of all governments from a never-ending feud about funding to concrete measures to shorten waiting times, to bring on more health care professionals and better equipment, to improve primary care, home care and drug coverage, to advance health research and innovation, and to achieve greater public health and wellness. For Quebec, the health deal means an additional $502 million in federal transfer payments this year, $736 million next year, and further increases annually thereafter-totalling more than $9.6 billion in incremental federal health money for Quebec over this coming decade. With respect to equalization, a second First Ministers' Meeting in October produced the most beneficial program changes since the federal equalization system first began in 1957. The reforms address chronic previous problems about clarity, predictability and adequacy. Significantly more risk is being assumed by the Government of Canada. As with health care, an automatic escalator clause has been included. Over the coming 10 years, the new equalization deal is worth an incremental $33 billion to Canada's less wealthy provinces, with the largest dollars flowing to Quebec. For Quebec, this additional equalization amounts to $477 million more this year, rising to $1.12 billion more next year, and so on into the future. I know I have rattled off a lot of numbers. Let me just put them all together for you for this current fiscal year. Total federal transfers to Quebec in 2004-05 are expected to reach close to $14 billion. And as a result, the provincial government is on track to record a balanced budget this year-crediting "significant" federal increases as a large part of the reason. Federal transfers will account for about 25 per cent of Quebec provincial government revenues this year. We are able to help and we are glad to help-thanks to strong federal fiscal fundamentals earned meticulously over the past decade. And what of the future? Our plans are clear. They were laid out during the June election campaign and in our October Speech from the Throne. They include high-quality universal, affordable and developmental child care-inspired by the Quebec model. A powerful New Deal to support cities and communities. Enhanced support for seniors, the disabled and their caregivers. Meaningful action on serious Aboriginal issues. Protection of Canada's natural environment. Meeting the imperatives of national security and national defence. And building Canada's role in international affairs. This agenda is ambitious. But promises made will be promises kept. Founded upon a robust, competitive and innovative economy-growing and thriving in a knowledge-based, technology-driven and highly skilled world, and rooted in rock-solid fiscal responsibility. In that important vein, bearing in mind future downside risks to our economy-like currency uncertainties, global energy costs, geopolitical tensions and the twin budgetary and trade deficits in the United States-Canada will need an effective plan to strengthen our nation's productivity (especially in light of that huge demographic change that is just around the comer when the baby boomers begin to retire in 2010). We will require the highest quality of human resources; increased capacity for innovation; efficient, transparent and predictable regulatory systems; fewer internal impediments to trade and commerce; competitive taxes; much improved public infrastructure; smart border crossings; and aggressive promotion of international trade and investment. We are at work on all these files to build and bolster Canadian productivity. I would especially appreciate the views of the Montreal Board of Trade on how Canadians can better advance our "productivity agenda." Steady gains in this regard will be crucial to our future economic success and social well-being. Finally, this morning let me touch on the issue of intergovernmental balance and fiscal fairness-always a fundamental Canadian preoccupation. With the greatest of respect for those who hold other views, I have to tell you that I do not subscribe to the notion of a vertical fiscal imbalance in Canada. Disparities among provinces? Yes. But a structural unbalance between the provinces and the Government of Canada? No. Let me explain why this is my honestly held opinion. First, in contrast to the reality in most other federations, both the federal and the provincial orders of government in this country have full access to all the same major revenue bases to finance their activities. Indeed, provinces have some important and growing sources that are not available to the Government of Canada-such as royalties from natural resources and the proceeds of gaming. Secondly, each order of government has full constitutional jurisdiction within its own sphere of responsibilities and full autonomy in setting its own fiscal policies-including its tax bases and tax rates, and its own level of government spending. Thirdly, notwithstanding the tremendous recent progress made by the Government of Canada in reducing its debt, the federal debt in Canada is still more than twice as big as all provincial and territorial debt combined. Fourth, as I mentioned earlier, while fully respecting distinctions in jurisdiction, the federal government is already a major financial partner with the provinces in large areas of shared priorities. Health care and equalization are prime examples. But there are many more. Post-secondary education. Social services. Immigration. Housing. Infrastructure. Research and innovation. Agriculture. The environment. The list is extensive. And for that list, the federal money flowing to Quebec and all the other provinces and territories is getting larger. All-in and after federal transfers are taken into account, total provincial and territorial revenues have substantially exceeded federal revenues for more than two decades now, and they are expected to continue to do so. At the same time, in its own areas of primary jurisdiction, the Government of Canada is also facing large and growing demands. For better employment insurance benefits. For higher federal pensions. For national security and national defence. For foreign diplomacy and international aid. For global trade and marketing. For more Aboriginal and northern programs and services. And for backstopping all manner of national emergencies and contingencies. So it is not factually correct to suggest that the money is all in Ottawa, while the needs are all in the provinces. The reality is that both orders of government have serious responsibilities to discharge in the public interest. Both are always facing financial pressures. And Canadians expect all of their elected representatives to work constructively and intelligently together. We have endeavoured to do just that in dealing with equalization, for example. In addition to providing more money year by year into the future, with greater predictability than ever before, we have also demonstrated ongoing federal flexibility in how intergovernmental accounts are reconciled from year to year-from which Quebec has consistently benefited. In 2004 alone, we have forgiven close to $1 billion in amounts owing to the Government of Canada from Quebec, while we have deferred the repayment of another $2.4 billion. And there's one final point. The current fiscal strength of the Government of Canada-carefully earned, step by step over the past decade-is an important asset which helps to maintain Canada's credibility in global financial markets and keeps the national credit rating in good shape. The benefit of Canada having that positive reputation flows to all orders of government, as well as to businesses and consumers everywhere in the country. It's a reputation to be handled with care. While sustained federal surpluses-no matter how well invested in the well-being of all Canadians-are a topic of some political ridicule in Canada (at least on the part of some in the Opposition in our minority Parliament), I take considerable comfort in the evidence that that negative view is not widely shared. It is not shared by renowned international financial journalists. The Economist magazine in Europe, for example, has referred to Canada's fiscal performance as that of an "economic virtuoso." And Business Week in the United States has spoken of our "Maple Leaf Miracle." The negativity is not shared by the other Finance Ministers that I meet in the G-8 and the G-20 countries who openly marvel at Canada's superlative economic and fiscal performance. And the individual Canadians that I hear from every day-by a large margin-strongly support fiscal responsibility, balanced budgets, sustained surpluses and prudent management. They just want the assurance that we will not squander the excellent record Canada has worked so hard to earn over this past decade. Canadians can have absolute confidence in that regard. Similarly, Canadians in Quebec and across the country can be completely confident that their government in Ottawa will utilize the nation's economic and fiscal strength-in a fair and balanced way-to keep Canada succeeding against the odds, and to maintain our ranking among the world's very best. Thank you.
