Mr. Speaker, I am very honoured to take part in the debate on Canada's budgetary process.
It is important to spend a little time trying to realize how we got to where we are. Studying the history of where we are and how we got here may allow us to reach a conclusion on how to get back out. We got here by getting on what I call the STB formula for disaster, which is basically spend, tax and borrow.
The concept of spend, tax and borrow has caused a ratcheting effect, constantly spiralling interest rates with the debt expanding and growing ever faster. It is very much like a mortgage where you never pay the interest. It just keeps getting bigger and bigger until we get to the point where we cannot pay it off. That is what we have done.
We started back in 1982, just to use a very short period of time to reflect on. From 1982 until 1992 federal government spending increased from $67 billion to $141 billion, a 210 per cent increase. Governments have become insatiable spenders. We have been sold on the idea that somehow we can continue to enjoy services without paying for them.
It is partially the fruition of the baby boom generation. Some of this is psychological. The baby boomers believed they could continue to consume without paying. Politicians told us this was possible and we wanted to believe it.
The exasperating formula of STB is also partially related to the fact that there is no division of these powers within government. In other words, the power to spend, the power to tax, the power to borrow is all in the same hands. Some people have suggested that we should have a special commission, one that simply collects taxes so that governments would have to match their spending to the taxes that were available, rather than the other way around.
In addition to the spending we also started building up a huge civil service. Currently 6.5 per cent of our labour force, 866,000 people, is employed by government. We seem to have growth for the sake of growth.
In most of these areas we did not actually add any productivity into the economy. In spite of the fact we were told we could do this for free, taxes slowly started rising. Many people in the House have complained about the complexity of our tax system. They search for some kind of new Utopia, a flat tax, a simple tax. To me that is a recognition of not knowing why the tax system is what it is and how it got to where it is.
The tax system is designed to extract the maximum amount of money out of the pockets and purses of the people of Canada. It gets more and more intuitive and more and more inventive as our insatiable desire for more taxes increases. A simplistic tax system is very easy but it may allow the escape of some moneys in the system.
For instance, even in the Income Tax Act there is an anti-avoidance section, which simply says in layman's terms that if we cannot catch you somewhere else in here, we are going to catch you anyway; we can override the income tax system. I often thought that we should call the GST or a new value added tax the value added cumulative user utility method or vacuum tax which is basically what we want to do. We can put a vacuum into everyone's house and suck every last cent out of it.
Not happy enough to increase our spending, to increase our taxation levels to the point where people did not have any disposable income, we then started borrowing. First we started borrowing from ourselves. The baby boomer generation borrowed from its predecessors who knew how to save, who had gone through the depression and had great savings. Canadians were the second highest savers in the world. Even so, we outstripped that. We used all their savings.
Then we started borrowing from foreigners. We started borrowing from people in the United States. We started borrowing from people in Japan. Currently 44 per cent of our gross domestic product is accounted for in foreign borrowing. Twenty-five per cent of our total outstanding debt is owed to people outside the country.
This creates an additional problem. We have to keep getting investment money into the country so that we can earn foreign exchange reserves to pay the interest. We are caught in a constant ratcheting spiral.
Where are we today? People talk about continuing to spend. We have curtailed some of our spending. We have discovered that some of the benefits in our current governmental system are really earned by people going back to work, causing upward changes in our revenue and a downward push on the UI account. The reality is we continue to spend. Worse than that we continue to tax.
I have some interesting statistics on the average Canadian family that earns $57,696 in 1994. Here is the bill: social securities, unemployment insurance, Canada pension plan and medical taxes, $5,011; gas taxes, vehicle licences, $926; liquor, entertainment taxes, $1,274; property taxes, $2,041; federal and provincial sales taxes, $4,284; other taxes such as import duties, $2,630; income taxes, $11,037; total, $27,203 which is almost 50 per cent of what it earns.
During the recession this got worse. Suddenly some lost their jobs and half the income went out the window. The Auditor General reports that he is concerned about the over $6 billion in arrears of income taxes. What I cannot understand is why it is so low. The reality is that when people could not put food on their tables they stopped paying their income taxes. We only left a small pittance for these people to pay their mortgages, feed and cloth themselves and still we continue to borrow.
Some of our smarter people started thinking: "Wouldn't another country be better to live in?". Some people think we can continue to tax. People earning over $250,000 pay a 53 per cent marginal rate of tax. In the United States it is 32 per cent. In the United Kingdom it is 42 per cent. Suddenly people start thinking: "Let's get out of here. There are better places to live".
We talk about assisting small and medium sized businesses but in reality the federal government crowds out the capital markets. People cannot borrow. Why loan money to Joe's auto body up the street when you can get a mortgage on all the people of Canada?
The federal government, in trying to resist spiralling interest rates, started shortening the length of its debt instruments. Currently the federal government debt is out to four and a half years. That is the equivalent of refinancing your mortgage 25 per cent every year. What does it mean? It creates all kinds of volatility. What if some day somebody does not want to lend you any money? That is exactly what is happening. People are starting to look at Canada and wonder about our insatiable appetite for spending. They start debating whether they should lend to us at all. They certainly start pushing up the interest rates and for a short term period of time.
In September in the private sector there was the greatest conversion of Canadian denominated bonds in two years; $1.9 billion was converted into foreign currency away from the Canadian market.
Where do we want to go? We want to get the ratchet working the other way. We must look back at these three aspects of spending, taxing and borrowing, and reverse the process. We must cut spending but we have to be very judicious as to how we do it.
Public sector unions are trying to maintain their existing wage structure. The reality is that the public sector unions in all segments of their employment are paid 20 per cent higher than all private sector wages.
We have a guild system in our transportation network. These are things from the past, from history. We cannot afford to continue. Everybody, whether it is labour, business or government has to be part of the solution. Everybody has to realize that they have to accept less to make the country whole again.
As well as the Reform Party, I have made some suggestions. We should roll back RRSPs from $12,500 to $7,500. This would save the government half a billion dollars a year.
On the question of international aid, I do not think it is a matter of being mean. It is a matter of doing what we can afford as a country. Canada's foreign aid is twice as high as that of the United Kingdom as a percentage of our gross domestic product, twice as high as the United States, and a third higher than Australia. We simply cannot afford that degree of spending. By cutting foreign aid by half so it is consistent with all these other countries would save a billion dollars.
We have to restructure our social programs. This is not to take money from the people who need it, it is to make those systems work more efficiently. We are not eliminating them but we are trying to cut those areas of abuse from the system. Over $3 billion could be saved in this area.
Money could be saved in the area of the CPP. We could make it more efficient by being more efficient in collection methodology. That would save a quarter of a billion dollars.
We need a further cut of $2 billion in defence spending. By cutting the funding of cultural and advocacy groups a small amount of money, $.01 billion could be saved. Agricultural subsidies are another area that we are going to have to cut. We just cannot afford it, a billion dollars.
I looked at civil service wage reductions. How we are going to get them, I do not know, but the bottom line is savings of $3.6 billion. We can make our prison system more efficient by making it more income sensitive, saving half a billion dollars. By restructuring of our transportation industry, another half billion dollars can be saved. That is $12.36 billion.
I also estimate that a reduction of that magnitude will actually lower interest rates in Canada by 2 per cent. This will reduce interest on the federal government debt by a further $12 billion. That is a $25 billion reduction. These things are possible. These things are necessary. We have to do this and we have to get on with it.
In conclusion, regardless of whether they are in the labour movement or in business all people in Canada realize we have to address this problem. This country can no longer continue on the road to wrack and ruin. We can no longer afford champagne when we have a beer budget.