Mr. Speaker, here we are in the last phase just before the tabling of the federal budget for the 1994-95 fiscal year which, as everyone knows, begins on April 1.
Few budgets have been as eagerly awaited as this one. The new government has had a chance to distinguish itself from the government that the voters judged so harshly in the last elections. It is the new government's responsibility to tackle with conviction and fairness the complex problems facing Canada that can be seen in our poor economic situation and the crisis situation in government finances.
The number of real jobs that have been created is still negligible. There are not even enough new jobs to absorb the newcomers onto the job market, and 40 per cent of the jobs lost through the recession have not been made up. The Canadian economy is still performing well below its potential.
The indications of the crisis in government funds are now so well known there is no point in dwelling on them further. Suffice it to say that the federal debt has reached a critical point. The federal government has been borrowing money for a long time to pay its grocery bills, and then to pay the interest on those loans.
From 1985 to 1993, when the ratio of the debt to GDP in Canada increased by 82 per cent, that ratio increased by only 21 per cent on average in OECD countries. The net federal debt is increasing so quickly that it has now surpassed 70 per cent of GDP, up from 46.4 per cent in 1985.
What is more, every year one third of federal revenue goes to paying the interest on the debt. The situation would be less critical if the government was going into debt in order to invest in capital projects. According to the 1993-94 Main Estimates, the government's capital expenditures represent only 4.16 per cent of total gross program expenditures.
In addition, 53 per cent of that amount goes to the Department of National Defence alone. A burden of this size weighs heavily on the strength of the economic recovery, primarily by exerting undue influence on medium- and long-term interest rates. We must quickly reduce this burden by a considerable amount, and at the same time we must be careful not to shatter this fragile recovery.
According to the Prime Minister, the size of the federal debt is not so spectacular when compared with the debts in European countries. Perhaps he should take a second look, and not compare apples with oranges. Canada's total public debt is the highest debt of all G-7 countries, after Italy's. And the federal debt is the largest part of Canada's total debt.
Therefore, the government cannot choose to solve only one of these two problems, either the debt or the sluggish recovery, and leave the other issue unresolved. The two issues have to be tackled at the same time, or any success that comes about will be only short-lived.
Since last October 25, speculation has been rife about the government's plans for public finances, that they will reduce spending, or go even more deeply into taxpayers' pockets. Nothing has yet been decided and uncertainty prevails.
Although the throne speech gave nothing away in this regard, it does appear that reducing the deficit through taxation is at the very top of the government's list of priorities. Job creation seems to have been relegated to second place, along with the elimination of useless expenditures, the ones that inspired the Liberal leader to such impassioned and repetitive speeches during the election campaign.
Yes, there is still the infrastructure works program, the one that is clearly inadequate. Let's look more closely at this program. The federal government's contribution will amount to $2 billion over two years.
The increase in unemployment insurance premiums that came into effect at the beginning of 1994 raised an additional amount of $800 million per year. Anyone can rob Peter to pay Paul. It is not necessary to have a government that says it has experience to do it.
All analysts are unanimous in making objections to increasing taxes on the payroll. This is just what the government has decided to do with unemployment insurance. One can ask whether the government really wants to see this recovery that everyone is waiting for. Everything points to the fact that, apart from its program to repair municipal infrastructures, this government has decided to do nothing but gaze in open-eyed wonder at its little red book. The government is making a religion out of its electoral creed, to which it believes it owes its
election. Propaganda has never been so effective, since even the government, the author of the red book, believes in it.
Recycled as the throne speech, the red book is still providing fodder for the Prime Minister's speeches, and the Minister of Finance is still taking delight in it. Again yesterday, I saw a government minister religiously brandishing the booklet in this very House. The worst is yet to come, since in a few weeks we are very likely to see it reappear sumptuously adorned as a budget speech. In other words, the government's job creation program is the same as the one we saw from the Liberal Party during the election campaign: nothing but words and the incantation: jobs, jobs, jobs. And as for the rest, they are counting on a hypothetical recovery that is likely to happen of its own accord. This is an irresponsible gamble on a better future, as well as being an ominous memory lapse about the causes of the deficit.
It is not necessary to remind hon. members that boosting the economy means less unemployment, less welfare and higher tax revenues. Thus it contributes in two ways to lowering the burden related to the public deficit.
For example, if we had the same number of jobs we had before the last recession, the expected deficit for 1993-94 would be well below the figure announced by the Minister of Finance, which is artificially inflated for obvious reasons. That target is quite modest.
With normal expansion in the number of jobs over the past three years, we could have avoided the sudden deterioration in the budgetary situation of the federal government and the provinces.
When the recession began, the federal deficit was $29 billion; today the Minister of Finance puts it at $45 billion. The main cause of the increase is an unexpected drop in revenue.
During the first seven months of the current fiscal year, revenues were down 5.7 per cent from the same period the previous year. This drop is disturbing, because it occurred despite a slight improvement in the economy.
The deficit now represents 6.2 per cent of GDP, a proportion twice that of the American debt, which is 3 per cent of GDP according to the OECD. A 1993 study by the IMF says that even if the economy were performing at full capacity, Canada's governments would have a deficit on the order of 3.5 per cent of GDP, with forecasts of 2 per cent for 1998. So there is also a very serious structural problem here.
Three years after the recession technically ended, the deficit has reached, according to our calculations, about $41 billion-that is, if one eschews accounting fictions (which are so dear to the Minister) and includes the impact of lower interest rates on debt-servicing charges. The Minister of Finance has not done either of these things, despite his commitment to greater transparency in setting out budgetary parameters. He obviously finds it more appealing to announce a reduction of the deficit from $45 billion to-say-$37 billion rather than a much less dramatic reduction from $41 billion to $37 billion. It is a numbers game.
I want to ask the Minister today if he stands by the projected deficit for the current fiscal year that he announced at the end of last November.
Debt servicing constitutes the largest budget item: $39.5 billion in 1992-93. Given the wide gap between short-term and long-term interest rates-almost 3.5 percentage points-is there a strategy at work? One may well wonder. Does the Department of Finance have a strategy for taking advantage of falling short-term interest rates by continually shortening the average term of government securities? Since at the present time there are no inflationary pressures in Canada or the United States, where the most recent data demonstrates a further drop in inflation rates, the question is worth asking.
Last year in Canada the domestic inflation rate-which does not include imported products-was not even 1 per cent. Under the circumstances, is it reasonable to continue, for example, paying 7.1 per cent on 30-year borrowings? When you have a debt of $507 billion, the difference between a borrowing cost of 5 per cost and a borrowing cost of 6 per cent represents more than $5 billion. How many home owners are there in Canada just now who would opt for a 10-year mortgage at 8.5 per cent? Very few.
Fiscal equity demands that certain tax shelters be closed, but the Minister of Finance is now trying to give this idea a broader meaning, so that it can include the notion of expanding the tax base. But eliminating this or that deduction used by a significant proportion of the population means by definition increasing the tax burden on those taxpayers, who belong very largely to the middle class. In other words, it amounts to increasing their taxes. The Minister of Finance talks about transparency, but he does not want to call a spade a spade. He would be happier if nobody noticed his little manoeuvre and he could pull a fast one on us, as they say.
The Minister should be warned against two temptations: that of retroactive measures and that of unequal treatment of taxpayers according to their conditions of employment.
The very notion of a retroactive measure strikes at the heart of a society governed by the rule of law, and we are such a society. Citizens are rightly outraged by the arbitrariness of power when the government changes the rules in mid-game to suit itself. Outrage was certainly the reaction in Quebec when the government brought in a retroactive surtax in its last budget.
As far as RRSPs are concerned, and they are very much at issue just now, workers who do not have the advantage of benefitting from a pension fund must be treated on the same footing as those who do.
It is really rather odd that the government is contemplating additional taxes affecting large numbers of people while at the same time complaining about the growing scale of the underground economy, which is causing tax losses for it. And at a time when the Canadian and Quebec governments finally seem to have seen sense as far as tobacco taxes are concerned, we must hope, as I said two weeks ago in this House, to see a rapid and energetic decision. Let us face facts: our governments have let the situation fester.
Deciding to lower tobacco taxes will not prevent governments in the slightest from continuing and even stepping up their fight against tobacco use. In the medium term, tobacco consumption depends on more than price. The proof is there: American taxes on tobacco are much lower than ours and yet Americans smoke less than Canadians. Moreover, when they buy smuggled cigarettes smokers cease to contribute to paying for the health-care costs than tobacco taxes help to underwrite.
There is a simple way to achieve greater fiscal equity. It consists of putting into effect the recommendations contained in the latest report of the Auditor General. We have to attack the level of expenditures and we have to do it with determination.
First of all, we have to deal with the most widespread problem causing the greatest unfairness, the problem of fiscal expenditure.
In 1987, as the economist Léo-Paul Lauzon reminds us, 90,000 companies made profits without paying a cent in taxes. According to the Auditor General, Canadian companies invested $90 billion abroad of which $16.1 billion went to tax havens. In such cases the revenues are only taxed abroad at the accommodating rates prevailing in those countries. The amounts mentioned only reflect the investments which are declared because many of those companies are not obliged to produce information statements. In this way, each year hundreds of millions of dollars escape taxes.
It is obviously quite essential that all corporations must be subject to a minimum level of taxation.
But, in the field of tax inequity, I repeat, the prize goes to family trusts. Analyst Claude Picher of La Presse writes about them in a recent article describing the formula, which-and I quote-
allows taxpayers to set up a trust and include in it securities whose yield is tax-exempt as long as it remains in the trust, which, under present provisions, can be practically indefinitely''. As we know, this system was set up by the Liberals, and prolonged by the Conservatives. They have been passing the buck, from one government to the next. I continue the quotation:The trust must be set up according to a complex and costly procedure, which makes such trusts much less affordable, unless you happen to have a fortune''. A trust, then, of course, intended for rich families. I have inserted a few personal comments into the quotation. I feel that people will be able to distinguish between the cold comments by analyst Picher and the ones I have added.
In an article in the January 29, 1994 issue of La Presse , the same economist considers, and I quote: ``that it is credible that the tax provisions for family trusts represent a shortfall of $340 million annually''. And these are conservative figures, since it is the government's responsibility to unveil the true dimensions of this flagrant injustice and eliminate this unseemly shelter once and for all. The Minister, who has access to information about this issue, knows this: he knows the exact extent of this scandal. As a result, he is under considerable pressure: his knowledge of this issue is certainly strengthening his desire to right a wrong and put back into the public coffers hundreds of millions of dollars each year that would provide relief for the taxes he is preparing to impose on the middle class.
We must also expect substantial reductions in federal expenditures, traditional expenditures. But-not so fast!-not by charging ahead and arbitrarily slashing 5% across the board. Because of its role as initiator of the budget crisis, the federal government must first set an example; it must clean up its own act. Since this government was elected, the federal government has been preparing to take shots at easy targets: social programs, people who have no lobby, no union, no representation, no party, no voice. They are easy targets; they are the ones at whom the government has been taking shots since yesterday. And, a year from now, we shall see the results. It is also easy to target transfers to the provinces; from the federal point of view, the provinces are like chicks surrounding a mother hen. But there is no announcement about its own waste or its own ponderous bureaucracy.
We have not heard any speeches about that. We have not heard one Minister admit guilt or declare an intention to cut the bureaucratic machinery down to size. Nothing. Once again, we are bracing for the culpable connivance that made the federal government one of the causes of our present deficit.
The evidence is accumulating. Yesterday, it was the Minister of Human Resources Development putting forward his fantasy plan for improving the quality and range of health and social services by cutting related expenditures. A vicious circle. We shall see how he manages.
Where transfers to the provinces are concerned, aside from the equalization payments, the federal government's decision will be made public in three weeks, as part of the budget. But where federal government expenditures are concerned, nothing. No announced speech, only vague phrases for media consumption. And any reference to federal timetables is cloaked in confusion.
For example, the Minister of Finance repeated several times that his first budget, the actual budget, the one that is coming up, apparently would not be the real thing. What is this upcoming budget going to be? The budget of another country? The budget of another organization? No, apparently it is not going to be the real budget. The 1995-96 budget, next year's budget, is going to be the real thing; that is where a reform of social programs could be included. That is where we could see how these programs would be delivered by the two levels of government.
We cannot see any need for such lengthy delays in a field like labour and occupational issues, occupational training. These issues have been dragging on for years, and what Quebec is asking for is both known and endorsed by all players from all sectors in society in Quebec.
But, according to the Minister for Human Resources Development and his colleague responsible for federal-provincial relations, we must wait not one year, but two, to ascertain what the federal government will deign to bestow. At least that is what he was saying until yesterday morning; then he presented us with a timetable covering approximately 12 months. Perhaps he realized the confusion his former statement had created.
Does this mean that the Minister of Finance is locked into an unrealistic timetable? Or does it mean that the right hand does not know what the left hand is doing? Or, instead, a rather clumsy plan to postpone any meaningful streamlining of the federal bureaucracy, and not give English-speaking Canada the unpleasant impression that the Quebec sovereigntists were right to point to fat in the federal bureaucracy?
Any old excuse seems valid to put off the time when they will have to look in the mirror.
But we all know that there is fat in the vast federal body. Exactly how much? That is a carefully guarded secret that we cannot rely on people inside to reveal. There must be a careful, detailed examination of all internal expenditures by the various departments. An in-house operation would not be credible. We have only to watch what the Auditor General says about, for example, one very specific expenditure to see the gaps between the federal bureaucracy's perceptions and outside analyses.
I quote a passage from page 25 of the 1993 Main Points; the Auditor General writes: "For 1990-91, we estimate that the total cost of operating the Administrative Flight Service-that is, the VIP Fleet-was about $54 million." Fifty-four million dollars. In Part III of its Estimates, the Department disclosed total costs of approximately $27.5 million. Outside estimate: $54 million; in-house estimate: $27.5 million. One single item, twice as expensive.
We therefore repeat our demand that a multi-party parliamentary committee of the House of Commons be created, whose mandate would be to go through all the government's operating budgets. If the government party is serious in wanting to reduce the deficit in a way that is meaningful but fair, it must immediately attack pointless government expenditures and the many overlapping areas of responsibility that result from systematic intrusion by the federal government into areas of provincial jurisdiction. The Official Opposition is prepared to co-operate in this job of cleaning up federal finances.
In the field of labour, the Government of Quebec estimates at $250 million the annual waste inherent in overlapping areas of federal and Quebec responsibilities in Quebec. Against all common sense, the government is resigning itself to letting this overlap last at least another two years, thus entailing an additional loss of $500 million. Can we still afford such inertia?
The federal government's attitude in this matter looks a lot like the attitude the Soviets had during the Cold War in their negotiations with the Americans. What we have we keep; what you have is negotiable.
The Prime Minister made us smile the other day when he said that Quebec would lose out if the federal government withdrew from this sector. Since Quebec receives as a whole from the federal government barely the equivalent of what it contributes to it, every time the government withdraws from a sector, there must be, in all logic and in all fairness, a compensation or even a transfer of tax points equivalent to the federal expenses in question.
If this were not the case, it would just be another way for the federal government to unload a part of its deficit on the provinces. And one wonders if this reaction on the part of the Prime Minister does not in fact foreshadow unilateral withdrawals by the federal government from certain sectors that it now considers less important, leaving it up to the provinces to pick up the pieces and make up for the loss.
It would be as if the provinces were to tell their hospitals: "We are withdrawing from the health sector. You will just have to find the money elsewhere". It would be an outrageous move on the part of the federal government, but quite in keeping with the system. In this system, there is a senior government and all the others have to adapt to its moods and priorities. In the last budget speech, for example, Ottawa unilaterally ended its financial contribution to the development of new social housing.
Therefore the impact the next budget will have on provincial finances is not necessarily limited to the issue of transfer payments. There are three major federal transfer payment programs: Established Programs Financing, equalization and the Canada Assistance Plan. The three programs do not necessarily evolve in the same way.
Moreover, the federal government includes in these transfers not only payments in cash, but also the proceeds of the tax points transferred to the provinces through agreements on shared-cost programs. It is a way for the federal government to look better. But it has no direct control on what these taxes yield and it cannot take back unilaterally the tax points. It only controls the cash transfers, whose evolution constitutes the real test of federal equity in this matter.
In the case of Quebec, this test is blindingly clear. In the past decade, the federal government's program expenses increased by 53 per cent while the transfers to Quebec went from 6,250 to 7,624 million dollars, which represents an increase of 22 per cent, the lowest of all the provinces. But one must go beyond these absolute, raw figures to see what all this represents in constant dollars and per capita. When inflation and population growth in Quebec are factored in, you get a greater than 20 per cent decrease for the decade 1983-1993. Such is the true picture of federal transfers to Quebec, a greater than 20 per cent decrease in the past decade.
A portion of these transfers goes to health care, a sector where needs are closely linked with age. Because of the rapidly-growing population of seniors, the needs increase automatically year after year and the provincial finances must cover them entirely. And there are people who claim in all earnestness that certain provinces, including Quebec, have not sufficiently contributed to solving the federal government's fiscal problems. In fact, Quebec has already contributed more than its share.
Therefore Quebec has already paid a heavy price on the expenditure slashing fronts. It is time now for the feds to leave most of the provinces alone and to start taking the medicare they have been prescribing to some of the provinces, particularly Quebec.
At the bare minimum transfer payments to the provinces should hold steady in constant dollars on a per capita basis. Provinces that have been singled out in recent years should regain a little of what they have lost.
For some time now the Minister of Finance has been hinting that it will be necessary to cast the fiscal net in a wider fashion. If the minister wants to close tax shelters that benefit the happy few, so much the better. However if he is looking for some convenient way of raising new taxes on the middle class he should not count on our co-operation. Taxes are already high enough.
The Minister of Human Resources Development has been hinting at the necessity of curtailing the safety net, as if those who need it were to blame for the economic mess we are in.
If they are looking for wasteful spending they should be looking at home. There is still a lot of fat in the federal government, not only at the higher levels with all those useless trips, those public relations contracts and so forth, but also in the inner workings of all the departments, especially those that duplicate what other ones are already doing either in Ottawa or in the provincial capitals.
Oh yes, the federal government agrees on paper that these parallel bureaucracies should be streamlined. But where is the agenda, the strategic plan, the incontrovertible proof that something is going to happen soon that will put the federal government on the same diet as the ordinary citizen or business person? Now is the time to act. But it seems that anything is a pretext for procrastinating.
As a matter of fact, overlapping between federal and provincial departments is embedded in the system to an astonishing degree. The Bélanger-Campeau commission in Quebec has arrived at the conclusion that the overlapping costs Quebecers a couple of billion dollars a year-only Quebecers. How about the rest of Canada? This being the case it is very difficult to believe that one could not trim a couple of billion dollars rather rapidly off the imposing coast to coast federal machinery of government. The same could be said of definitive efforts.
Although the economic upturn is quite tepid it should still be a couple of billion dollars in additional federal revenues. Retail sales are on the move and the housing sector should do better this year than last year.
If the federal deficit is really heading south it will bode well for interest rates. We must not forget that a single percentage point drop in interest rates, and long term rates are still too high,
means $8 billion more annually in the pockets and in the cash register of the country. This will have a substantially more significant impact than the government's infrastructure program.
However one cannot rely exclusively on the consumer. One must address the structural crisis in the economy. If we want to stiffen the backbone of our industrial firms we must invest more in research and development. We must also help the conversion of the defence industry to civilian uses.
In short, the next federal budget should provide sensible answers to real questions and not repeat the mistakes of past projects.
In closing, we are well aware of the difficulty of the task assigned to the Minister of Finance. His budget must attack on several fronts: it must provide incentives to create jobs, reduce public expenditures, bring about tax equity, and eliminate overlap. Many battles loom, and we recognize that not one of them is easy. But there must be action on all these fronts simultaneously, and such action must be properly balanced. That is the only way of giving people hope again and giving rise to a spirit of solidarity; only these things can make recovery possible.
Aside from these thoughts that we submit for the consideration of the Minister, kindly allow me to express one pressing concern: concern about the plan to reform the present system of social programs. I come back to this point again today in order to call for vigilance over the reductions this exercise will not fail to have on the social programs we have acquired since 1928.
The government says it has no intention of tearing the social safety net. But in order to reassure its objective ally, the Reform Party, on this issue, it has not neglected to state that one of the purposes of this operation is to reduce the costs of social services. How can we believe that a reduction in resources allocated to this sector will not automatically bring about a reduction in services? Whatever the case, if the Minister of Finance wants to give as many reassurances as possible about the government's real intentions, he must at least give a clear signal in his budget. Not another flight of oratory, not another promise, cross his heart and hope to die! No, Mr. Speaker. He must maintain at its present level in constant dollars, and taking changing needs into account, the federal government's contributions to funding provincial health and social programs, by means of transfer payments to the provinces.
I have a great mistrust of cosmetic expressions that claim to maintain. Sure, the level of transfers to the provinces will be maintained. I can already hear a budget speech: "Mr. Speaker, I announce to the nation that we shall maintain the level of transfers to the provinces," when what is meant is really a freeze. That would be hypocrisy. That is why it must be clear, that is why the signal to come from the Minister of Finance-if he is serious when he suggests that he may maintain transfers to the provinces-must be very clear that the transfers to the provinces are being maintained at their present level in constant dollars, and taking rising needs into account. That is what we mean by a clear signal from the Minister.
We want the government to know, right now, that no one will fall for magic tricks that would consist in reducing its contributions and, like Pontius Pilate, forcing the provinces to do its dirty work.
We shall blame the federal government just as much for hitting the disadvantaged indirectly, using the provinces as intermediaries, as if it did the job directly.