Terrific.
I have just five points.
First of all, a higher dollar is good, and good for the country. How high and how fast it's gotten high is another question, but I'm not despairing over the dollar being higher.
Number two, being below purchasing power parity, as Andrew Jackson mentioned earlier, when purchasing power parity has stayed constant over the last 30 years, in the low 80¢ range...I think it was bad for Canada to have the dollar consistently below that, at 75¢ or below, for a decade from 1992 to 2002. Why? Because we're then selling the entire economy too cheaply compared to our costs of operating.
What's the problem? I think the problem, as everybody said, is obvious. It has risen too fast and too high.
Just to give some perspective, it is truly unprecedented. If we look back over a long period of time, if we go back to the height of May 1974, at $1.04, the dollar took 11 years to drop 31%, to December 1985, to 72¢, and then did its big rise. The biggest rise the dollar has ever experienced prior to this one was from December 1985, over a six-year period, to October 1991, to 89¢, or a 24% rise. It then took another decade to fall all the way to 63¢, and another six years to rise to the current levels, a 60% rise. So think of this as being a rise that is more than double the amount in the same period of time as our previous most rapid rise, and it has dramatically overshot anything approximating purchasing power parity.
I agree with Jean Laneville, who just talked about the conflicting messages this sends to manufacturers or anybody buying machinery and equipment, hardware and software. All the service industries buy enormous amounts of hardware and software as well. On one hand, all the imported product, machinery and equipment, is cheaper by a long shot, but on the other hand, they're scared because they don't know where the dollar is going. The dollar has gone up so rapidly that it's hard to make the adjustment. That's why, as Jean said, they don't automatically go racing out and becoming more productive really quickly, because they're scared and they're experiencing something they haven't experienced before. So if anything, there is a lag effect until we'll see any kind of pickup in investment in machinery and equipment. It will only happen when the manufacturers feel comfortable and confident that their economic equation is going to work for them now in this new higher regime.
What does that mean? For policy—these are points four and five—there are two things I would say. One is that this is the best time ever for Canada to finally fix the problem with how we tax corporations and how that impacts corporate investment. As we've said on our task force for a number of years, Canada has one of the worst regimes for new investment in the world, among the highest taxation of corporate investment. Why we think we can be a great importer of capital and a place where companies want to set up shop and our own companies want to grow and expand, when we have one of the greatest punishments for new investment, is beyond me.
I think it's great that we finally have a dialogue in Ottawa on this, with both the Liberals and the Conservatives suggesting that they're going to cut corporate income taxation. All I say is that I would use the very positive treasury situation now to cut deeper in that than even planned, to make Canada below the OECD average in terms of its effective tax rate on capital investment.
So do it. I'm thrilled to see the fall update address it, but now is the time to go even farther to help our companies.
The final point I'd say is that this gets back to the question of fixing the exchange rate against the dollar. I know there's this argument every time this is raised, where everybody says, “Well, that will reduce our sovereignty and our flexibility”, and the like. All I have to say is, look what we're doing and talking about and saying now. Is this just so terrific to have this kind of sovereignty when it begs the question, in what respect is this great sovereignty that we have this huge problem now because the dollar has swung up 60% over a course of six years, 10% a year on average, and now we have to scramble to do something about that? Nobody in the world is free from the effects of the global economy. So saying that because we have our own currency we somehow are sovereign, more sovereign than we would be if we fixed it to our major trading partner, I think is an old-fashioned view, and I wish we as Canadians would just get over that and do the thing that will create the stable platform for our companies to invest and grow.
Thank you very much.