Thank you very much, Chair. It's a great pleasure to be at this committee not to defend a budget, as I did many times in earlier years, but to discuss one that is to come.
It's a very difficult one to come because of the difficult times in which we live. We're in a period of rapid and extensive structural change to which we all must adapt and this budget and future budgets have to address.
I think we know the issues. We have demographic change. Life expectancy at age 65 is increasing, and this requires major investment in care facilities and so on. Also, very importantly, there is increased savings on the part of workers, because they have a much longer period after they finish working now to finance.
The second is climate change. Dealing with climate change requires increased investment in adaptation to higher temperatures and more frequent storms, and it requires a huge investment in all forms of low GHG-emitting energy production and consumption in order to try to reduce the GHG level.
The third issue we have is a big change in the global trade order and adaptation to a more fragmented global economy. This implies additional domestic investment to improve security of supply.
Finally, it is a period of major technological change. AI and digitalization offer great hope for future productivity increases, but in the short term, they require a very significant increase in investment in intellectual property; in digital systems, including our antiquated payment system; and in R and D.
That's what's going, and adaptation to all four of these changes is not costless. It requires that businesses, households and governments devote a larger share of their revenues to investment than they were before COVID. While in principle some of this investment might be financed by borrowing, here in Canada, and indeed in almost all advanced economies, debt levels are high and savings levels are weak, so attempting to finance all these investments by borrowing is resulting in an increase in prices and in interest rates, and it will continue to do so at least over the next decade.
Faced with this reality, to increase investment businesses will need to have a smaller share of their retained earnings, which they distribute to shareholders; households will have smaller shares of their incomes to devote to their current consumption; and governments will have smaller shares of their revenues to devote to the provision of current services for their citizens.
This is not a pleasant prospect. Devoting a higher share of revenues to investment is never easy but can be managed more easily if incomes are growing fast and borrowing costs are low. Unfortunately, real incomes are not growing so quickly. Indeed, on a per capita basis, they have been falling. The cost of servicing debt has risen, and while it may come down a little from the current levels after 2024, it will remain well above pre-COVID levels. Therefore, Canadian households are curtailing, and will have to continue to curtail, some current consumption in order adapt to these structural changes.
People will look to governments for help, but governments face precisely the same issues as do households. Investment requires a greater share of revenues to facilitate adaptation to the four major structural changes I mentioned. At the same time, charges for public debt incurred in the past can eat up larger shares of revenues as interest rates rise. New borrowing to finance additional services for households or supports for business investment will simply raise further the fraction of revenues that must be devoted to interest charges and will further curtail government capacity to provide services in the future.
Governments cannot borrow their way out of these difficult choices involved in the reallocation of resources in order to manage these four big structural changes. Politically difficult as it may be, over the next few years budgets are going to need to be roughly balanced. To allow for additional public investment and support for private investment, the growth of government-provided current services or transfers needs to be somewhat curtailed or, alternatively, taxes on private consumption increased. However unfathomable such curtailment may be, failure to invest in adaptation will condemn Canadians to a much more unpleasant future.
Thank you, Mr. Chairman.