Wednesday, October 12, 2011
Check against delivery
Good afternoon, distinguished guests, ladies and gentlemen.
I would like to thank you for inviting me to join you today. I am honoured to have this opportunity to speak to the world’s largest business federation.
I am also pleased to be in the company of so many people committed to helping business thrive, enhancing American competitiveness and promoting the free-enterprise system.
In fact, I feel very much at home!
Our two countries have a remarkable relationship.
The United States is Canada’s closest and largest trading partner.
In 2009, over 600 billion dollars in bilateral trade crossed our shared border. At the end of 2009, American direct investment in Canada was about 288 billion dollars and Canadian direct investment in the United States was 261 billion dollars.
Canada is the largest export market for 34 states, including Michigan, New York and Illinois, and the largest, most secure supplier of energy to the U.S.
All of this creates and sustains millions of jobs in both our countries.
And we are close friends and allies.
Just last month on the 10th anniversary of September 11th, we recalled how Canada opened its runways to accept all U.S bound air traffic.
Building on these close and historic ties that bind us, I thought you may be interested in hearing about Canada’s fiscal journey.
It’s the story of the fiscal darkness Canada found itself in during the ’90s, and the steady progress over a number of years to the good place Canada finds itself in today.
Let me begin by taking you back to January 1995.
That was the year that two marvels of the age, the Space Shuttle Atlantis and the Russian space station Mir, docked for the very first time.
Here in Washington, the government experienced a budget crisis and closure of most of its offices.
In Canada, we also had a crisis in government.
An editorial in the Wall Street Journal, published on January 12, 1995, said, and I quote, “Canada has now become an honorary member of the third world in the unmanageability of its debt problem.”
While the comment was an exaggeration, no one will deny that we couldn’t continue down the road we were on.
We were in a fiscal crisis.
This reality came about because between 1970 and 1997, Canada’s federal government had consistently run budget deficits (Finance Canada, Fiscal Reference Tables 2010 October).
At the beginning of 1995, our federal deficit was 4.8 percent of GDP while our total government net debt stood at almost 71 percent of GDP, the second highest in the G7 (Finance Canada, Fiscal Reference Tables 2010 October).
What’s more, we had lost our triple-A credit rating.
But what has happened since then has been rather remarkable.
Successive Canadian governments, across political lines, at both the federal and provincial levels, faced the challenge square on, delivering fiscal reforms that started us on a path to balanced budgets.
As a result, our country has enjoyed a strong economic performance, with Canada leading the G7 in economic growth (The Canadian Century, (Brian Lee Crowley, Jason Clemens and Neils Veldhuis).
By 2008, Canada had posted the strongest record on debt reduction in the G7, with the total government net debt-to-GDP ratio falling almost 50 percentage points since 1995 to 22.4 percent (Finance Canada, Fiscal Reference Tables 2010 October).
Currently, after 3 years of fiscal uncertainty, our debt to GDP ratio is at 34 percent ― still an enviable number in a global context (Finance Canada, Budget 2011).
How Canada made that journey is largely the story of how we got control of government spending.
And for that, we need to start in the Canadian public service with an initiative known as Program Review in the 1990s.
Program Review was a comprehensive examination of federal departmental spending, in which every department put their program spending under the microscope.
The result was that 1997-98 marked the first time in over 25 years that the government had a balanced budget. And after 1997-98, it proceeded to run 11 consecutive budget surpluses.
In 2007, we took the next step in getting our fiscal house in order through responsible expenditure management. We launched the Strategic Review of program spending.
This was a rigorous assessment of the federal government’s program spending, in which, every four years, every department and agency assessed all of their programs to ensure that they were:
Through this process, the performance and relevance of all government programs were assessed. And based on the results, the government shifted funds from low-performing, low-priority programs to higher Budget priorities.
As you know, a good house starts with good foundation.
When the financial crisis hit in 2008, Canada was, fortunately, in a sound fiscal position. Our country had a good financial foundation.
In fact, we were in a better position than most other OECD countries heading into the storm.
We had been paying down the debt for over a decade, which gave us a stronger credit rating as a country.
We had cut taxes across the board, including income taxes and taxes for small businesses.
For example, our government has been gradually reducing the corporate income tax rate from 22 percent to 16.5 percent now. As of January 1st, 2012, it will fall to 15 percent, one of the lowest rates among the G8.
And we had, and continue to have, a strong financial sector.
That’s because our banking system is based on sound risk management and supported by an effective regulatory and supervisory framework.
All of this helped make Canada one of the last countries to be hit by the global recession.
And when the crisis did hit, we moved quickly.
We delivered the largest economic stimulus plan in Canadian history — about 5 percent of our GDP on infrastructure and other targeted measures (Budget 2011).
This plan, launched in 2009, included a wide array of measures designed to boost consumer confidence, create new employment, and support those people who had lost their jobs.
This did not come without pain.
For the first time in 11 years, we ran a budget deficit, which topped out at 55.5 billion dollars.
And our public service got the job done. They got the money out the door quickly, especially for infrastructure, so that we were able to ensure that significant stimulus to the economy started in 2009.
The stimulus plan worked.
The economy has created more than 600,000 net new jobs across the country since July 2009 (Finance Canada).
That’s more than we lost during the recession. And I always like to point out that more than 75 percent of these are full-time jobs.
Our unemployment rate for August stood at 7.3 percent (Statistics Canada).
What’s more, our deficit for 2011-12 is projected to be 1.9 percent of GDP, while our federal debt is expected to come in, as I said earlier, at 34 percent of GDP (Finance Canada, Budget 2011).
And once again, Canada is on the path to a balanced budget ― while keeping a competitive tax regime.
In fact, today we have the most competitive business taxes in the developed world.
But if the economic stimulus was necessary, it was also temporary. In its second phase, our plan included steps to control government spending.
Our strategy was to approach the challenge from different angles.
First, as a Government, we led by example.
In 2010, we introduced legislation to freeze the salaries of the Prime Minister, Ministers, Members of Parliament and Senators.
We also froze the overall budget of Ministers’ offices, and the operating budgets of government departments and agencies.
So we have already been reducing government spending in various ways.
While Canada’s solid economic performance is great news for Canadians, we know we are not out of the woods yet.
Indeed, Canada’s success has to be viewed in the context of the global economic situation — a situation that continues to present challenges for governments all over the world.
That’s why we have committed to eliminating the deficit and returning to a balanced budget by 2014-15, while keeping taxes low.
We want to ensure that we can continue to invest in the priorities of Canadians and that the economy can continue to grow and create jobs.
That’s also why we launched our deficit reduction action plan.
A key element of this plan is to review government spending with the aim of achieving ongoing annual savings of at least 4 billion dollars.
As the President of the Treasury Board of Canada, it is my mandate to implement this plan, and lead the committee that will be making the final decisions on where savings can be found in time for next year’s budget.
I realize you may not know what Canada’s Treasury Board is or my role in government. To explain it to you, let me give you this analogy.
If the Government of Canada were a corporation, our Prime Minister would be the CEO, our Minister of Finance would be the CFO, and I would be the Chief Operating Officer, the Chief IT Officer, the Comptroller General and the vice-president of human resources all rolled into one ― except I only get one paycheque!
The spending review I just mentioned involves 67 organizations that are proposing savings scenarios worth at least 5 and 10 percent of their spending.
I understand that the U.S did the same — this may be a copyright issue!
The results of our review will be announced in our budget for 2012.
This plan focuses on finding savings in all the federal government’s direct spending on operating costs and grants and contributions.
Since the spring, we have been working hand in hand with our public servants to implement this plan in a responsible way.
As I said, our goal is to reduce spending by at least 4 billion dollars, be more effective, and return to a balanced budget by 2014-2015.
And this is certainly more than a savings exercise.
It is an opportunity to modernize how we do business — to get government right — and to make sure that Canada remains on the right track to fiscal recovery.
So we are doing what we can in government to create the right conditions for economic growth and jobs.
But as British Prime Minister, David Cameron, noted in a speech in Ottawa last month, “we should remember that in the long term, it’s not fiscal policy that makes economies grow, it’s making us more productive that is essential for our future long-term prosperity. This means making it easier to set up a new company, employ people, invest and grow a business.”
We are working on that side of the equation as well.
Canada is a trading nation, and the ongoing strength of our economy is tied to continuing strength in the economies of our trading partners.
So we welcome and support partnerships that seek to improve the prosperity of all our countries.
That’s why Canada and the U.S. jointly established the Canada-U.S. Regulatory Cooperation Council.
This council was put in place by President Obama and Canadian Prime Minister Stephen Harper to look for ways to better align our countries’ regulatory approaches.
We believe regulators on both sides of the border can be more effective and efficient if we leverage the work done in each other’s jurisdiction.
Such regulatory cooperation will increase our reliance on, and recognition of, work already done in the other country, align product standards and product approvals, and increase collaboration and the overall sharing of expertise.
It also provides an opportunity for a joint focus on sources of higher risk facing our two countries from elsewhere.
What it will not do is compromise either country’s sovereignty, privacy regimes or legal and regulatory frameworks. And final regulatory decisions will remain in the hands of each sovereign jurisdiction.
Finally, businesses, both large and small, can expect reduced administrative burden, more efficient supply chains and lower costs.
That means increased trade and investment, and ultimately more jobs in both countries.
Something else we’re doing to bolster economic performance, is improve our citizens’ digital awareness, creativity and competitiveness.
In this vein, we believe Open Government is an important global trend that can propel economic opportunity in our knowledge economies.
Canada is committed to fostering Open Government by offering Canadians greater opportunities to learn about and participate in government and our democratic process, and advance the digital economy
We were among the first countries to implement freedom of information laws that give citizens the right to request records held by their governments.
And on March 18th, we announced the expansion of Open Government in Canada.
The United States has been making great strides in Open Government, and we look forward to working with you as part of the International Open Government Partnership.
This partnership is consistent with the expansion of Open Government in our country, and we have recently signed a letter of intent to join this initiative.
Canadians and their government learned a valuable lesson from our fiscal crisis in the mid-1990s.
We learned that deficits are a mortgage on future economic growth that create higher taxes for our kids and our grandkids.
Today, we are motivated by a simple but compelling goal: to return to a balanced budget by 2014.
Since 2006, our fiscal plan has been based on responsible management.
A clear plan has helped us weather the worst of the crisis. And we have been rewarded.
According to Forbes magazine’s annual ranking of global economies, Canada is the world’s best place to do business. (Forbes, October 3, 2011).
Focused leadership, improvements to the country’s tax system, reduced red tape, strong investor protection and sound banks have all got us to that spot.
The United States, however, is the world’s largest economy, and the world depends on the fiscal decisions made here in Washington.
And in this current economic crisis, there is opportunity to learn from each other as we make it through this sea of uncertainty together.
Our two countries have much in common.
Our people believe in hard work, freedom and sacrifice.
In times of trouble, we have answered each other’s calls for assistance.
And it is by working together that Canada and the United States of America will grow.
No matter how many times our countries face danger and problems together, that is one message that will never change.
Thank you again for inviting me to your beautiful city, and I’d be pleased to take some questions now.