Mr. Chairman, committee members, thank you for the invitation to take part in your pre-budget consultations on the topic of balancing the federal budget to ensure fiscal sustainability and economic growth.
The Canadian Council of Chief Executives represents 150 chief executives and leading entrepreneurs in all sectors and regions of the economy. Our members lead companies that collectively administer $4.5 trillion in assets, employ more than 1.5 million Canadians, and are responsible for the majority of Canada's private sector exports, investments, and training.
Canada's economy has proven resilient since the recession and continues to expand at rates higher than in most other OECD countries. Reducing the federal debt while implementing pro-growth policies would ensure that Canada continues to grow and remains an attractive destination for business investment and job creation. The CCCE fully supports the government's commitment to balanced budgets and debt elimination. Achieving balance and reducing Canada's debt-to-GDP ratio has four significant benefits.
First, balanced budgets and low debt levels are good for Canada's long-term economic growth. Estimates across advanced economies show that debt levels above 90% of GDP are correlated with lower economic growth. Fortunately, Canada has not reached this point, but that is not a reason to be complacent. The combined federal-provincial net debt reached 62.1% of GDP in 2013 and 2014—an increase from 49% in 2008 and 2009. According to the Fraser Institute's 2014 report on government debt, the story is significantly worse if you look at total liabilities, including debt guarantees, contingent liabilities, and unfunded program obligations. Using this metric, all provinces, except Saskatchewan, have total liabilities as a percentage of GDP in excess of 150%. In short, Canada's long-term prosperity depends on achieving and maintaining a sustainable debt level, and the federal government must lead the way.
Second, balanced budgets allow the government to respond to long-term challenges such population aging. The old age dependency ratio, which measures the number of elderly people as a share of those of working age, will rise dramatically due to a decline in total fertility rate and increases in life expectancies observed over the last 80 years. According to the Parliamentary Budget Officer's fiscal sustainability report, this will lead to slower growth in the labour force and total hours worked. Combined with lower labour productivity growth, projected average real GDP growth will be 1.7% over the period from 2013 to 2087, down significantly from average growth of 2.6% over the past 30 years. Balanced budgets and a low debt-to-GDP ratio give the government the flexibility to face this demographic reality.
Third, balanced budgets and a low debt-to-GDP ratio give the government the ability to respond to future downturns. While Canada's economy has performed comparatively well, the recovery from the global financial crisis has been underwhelming and continues to fall short of expectations. The recovery has had repeated false starts and still faces considerable headwinds. Much of this can be attributed to poor global growth that has averaged 3% over the past 2 years. That's well below the average prior to the crisis, and it's unlikely that 2014 will be much better. Until global headwinds abate and U.S. economic recovery fully takes hold, Canada will be vulnerable to new economic shocks and must be prepared to respond. Balanced budgets and a low debt-to-GDP ratio help to insulate Canada against such shocks.
Fourth, balancing the budget allows the government to make targeted investments to improve economic competitiveness. According to the PBO, the federal government has the fiscal room to increase spending, decrease revenues, or some combination of both.
The following pro-growth policies would ensure that Canada remains an attractive destination for business investment and job creation. First, implement a single, comprehensive portal that brings together data on labour market conditions and job vacancies across the country. Second, introduce a direct R and D support program for major new private sector innovation projects. Third, make targeted investments in infrastructure to promote increased trade and economic growth. Fourth, conduct a comprehensive review of the tax system with the goal of simplifying the tax code, encouraging the growth of small and medium-sized companies and improving exporters' competitiveness.
In conclusion, the CCCE supports the government's efforts to return to balance. Once balance is achieved, we recommend targeted investments to improve Canada's economic competitiveness and long-term prosperity.
I'd be happy to answer any questions you may have. Thank you.