Mr. Speaker, because of the birth of my second child, I have not had an opportunity to speak in the House at length, so I would like to congratulate you on your election as Speaker. I am probably the last member of the House to do this formally, sir, but I would like to congratulate you on your new position. I also congratulate your colleague, who has now taken the chair, and thank you for making things go so smoothly in the first weeks of this House. Thank you again.
I welcome the opportunity to speak at second reading of Bill C-14, the borrowing authority bill. I urge the House to proceed with this legislation as quickly as possible so that new borrowing authority will be in place at the beginning of the new fiscal year.
Before speaking directly to the measures in the bill, I would like to put this legislation in its proper context. The amount of borrowing authority requested in the bill is directly connected to the financial requirements set out in the budget presented earlier this week by the Minister of Finance. The information required to deal with the financial aspects of the bill is set out in the budget.
It is extremely important that this bill be passed as quickly as possible. Without borrowing authority early in the new fiscal year, there will be severe constraints placed on the government's financing program. Essentially the government would be limited to using section 47 of the Financial Administration Act which restricts funding to short-term funds.
No bond issuance will be permitted except to funding maturing issues of which there are very few in the first quarter of 1994 and 1995. Any delay in the passage of this important bill beyond the end of the current fiscal year therefore could prove costly to the government and Canadian taxpayers, and would expose the government to the additional interest rate risk implied by higher short-term funding.
With the large financing program, delaying bond financing will also be potentially disruptive of the capital market which could result in higher debt servicing charges. It is critical that borrowing authority be secured as soon as possible after the budget.
In granting the borrowing authority requested in this bill, hon. members should keep in mind that the budget takes strong action to bring government finances under control. The measures announced in the budget are an essential part of this government's action plan to revitalize Canada's economy.
We do not put forward this request to borrow money lightly. We know there are real costs involved in adding to the country's debt burden. That is why we have taken real action by proposing the most substantial spending reductions by a government in the last 10 years.
As well, in charting Canada's fiscal course in this budget we have relied on cautious, prudent projections of economic growth for this year and next. Consequently the deficit projections are much higher than those given to the House last April.
The economic projections presented in the budget are based on a consensus of private sector forecasts and are in stark contrast to the overly optimistic, some might say unrealistic, expectations of growth presented in some previous budgets, expectations that have resulted in deficit forecasts that were wrong by tens of millions of dollars.
For our part we have served notice that we are committed to changing the way government does business. One aspect of this is the use of prudent projections of economic growth to generate budget numbers that Canadians can trust.
The 1994 budget actions, coupled with the moderate economic growth we are projecting, will reduce the deficit from $45.7
billion in 1993-94 to $39.7 billion in the coming fiscal year. A further drop to $32.7 billion is expected in 1995-96. As a percentage of Canada's economy, the deficit will fall from 6.4 per cent of gross domestic product for this year to 4.2 per cent of gross domestic product in 1995-96. Looking further ahead, the budget sets the deficit on a path to meeting the government's interim deficit target for 1996-97: 3 per cent of GDP or some $25 billion.
In setting this course of responsible deficit control, the government has put the emphasis on actions that will support economic renewal and confidence. Most important, we have emphasized reductions in government spending. Net expenditure cuts will total $17 billion over the next three years and while we have proposed some measures to increase revenues there are $5 in spending cuts for every $1 in new revenues.
The 1994 budget sets in motion the most comprehensive fundamental change in decades. However, change is not always comfortable. It is not always easy and is tempting to attack. This change is vitally needed because it focuses on three essential goals that directly answer the priorities expressed by Canadians during our first ever series of public budget consultation conferences.
Canadians said they wanted action to restore our country's economic vitality and to create the jobs so many people desperately need. This budget addresses those needs.
We are accelerating regulatory reform and GST reform because Canadians told us they want government to get off their backs and relieve them of the dead weight of over-regulation and red tape. Canadians also told us they want a government committed to lowering taxes that stand in the way of hiring and growth. Therefore, we will roll back UI premium rates in 1995 to their 1993 levels. This will save industry almost $300 million a year. Due to this action there should be some 40,000 more jobs in the economy than could otherwise be expected if premiums were allowed to rise.
The budget also funds new strategies to promote small business and technological innovation, key engines of a successful economy in today's global arena.
We are acting to get the banks working better to provide finances for small businesses. We are also reforming the way government approaches science and technology. We are taking steps to give small business access to technology and to allow it to afford dedicated engineering support. We will be developing a strategy for the information highway and we will be issuing a policy paper on science and technology so that we can work with Canadians to develop a clear statement of government priorities in this crucial sector.
During our consultations, Canadians also said they want reform of our social security system to ensure it is fair, compassionate and affordable, a reform that delivers incentives for work and creates jobs and opportunities.
That reform has been launched by the Minister of Human Resources Development. The budget takes important steps to begin meeting this challenge. The link between the length of time a person works and UI benefits is being strengthened. Assistance is being enhanced for those with dependents. These and other actions will reduce the costs of the program by $2.4 billion next year. This will allow us to bring UI premiums down.
The consultations also delivered a third blunt message. People told us to get government finances under control and make government more effective, cost conscious, and less of a burden that undercuts job creation and entrepreneurship.
The government understands that these are obligations we must accept, not options. The budget reduces the deficit with this in mind. Using prudent economic assumptions, the actions in the budget set the deficit on a clear path to bring it down to the target we set out in the red book of 3 per cent of Canada's economy in three years.
The budget also includes freezing both public service and parliamentary salaries for a further two years. I must say as a personal aside that this is the first announcement I have given to my family, including my wife who is in the hospital and watching this, that in fact my salary has been frozen for another two years. I hope she takes it in good spirit.
Defence spending will be cut by nearly $2 billion more. That is in addition to the $1.7 billion saved by cancelling the EH-101 helicopters over the next three years. Subsidies for businesses and grants and contributions to interest groups will also be reduced.
The government will reduce the operating budget of the government departments by $400 million in the next fiscal year with savings rising to $620 million annually in 1995-96 and beyond. Total savings and cuts in government operations will rise from $468 million in 1994 to $1.6 billion in 1996-1055 97.
Grants and contributions paid by the government, including international assistance and grants to small businesses, will also be reduced to achieve $253 million savings during the fiscal year starting next April. These savings will reach $409 million the following year.
The government also undertook a vast restructuring of our social security system in order to improve it and make it better suited to the needs of the time, while making sure it remains affordable.
Within this framework, we have major objectives in two areas: unemployment insurance reform and social security transfers to the provinces.
The new rules will strengthen the link between work history and the ability to collect benefits, and will enhance benefits to those with lower incomes and those who are supporting dependents.
Federal transfers to provinces currently total some $40 billion annually with some $14 billion of that related to social security programs. The budget calls for a two-year period of predictability and modest growth in these transfers.
During this period the federal government will co-operate with the provinces in setting reforms and testing new approaches with extensive public consultations and input along the way.
However, the budget makes it clear that social security transfers will be no higher in 1996-97 after reform than they are this year. This will save the federal government at least $1.5 billion in 1996-97.
The challenge of the deficit is not only one of spending, it is also one of revenues. The government knows that Canadians believe taxes are already too high and we agree with them. Our priority as a government is to stimulate the economy to create growth which will help curb the deficit and allow us to reduce taxes in the years ahead.
The tax and deficit relationship is a two-way street. A higher deficit will lead to higher taxes, while a lower deficit will lead to lower taxes. To reduce the deficit now some revenue increases are necessary. The government has decided that the fairest way to raise revenue is to broaden the tax base and to bring greater equity and fairness to the tax system.
The $100,000 lifetime capital gains exemption will no longer be available for gains realized after budget night. For individuals, the full value of employer paid life insurance premiums will be taxable. The income tax credit provided to persons over the age of 65 will be income tested. I should note that only one senior in four will be affected by this change.
A number of changes are also being proposed to the corporate tax system to make it fairer and to better target the tax assistance made available to certain businesses. They include: a reduction in the GST tax credit and the business income tax deduction for meals and entertainment expenses; the elimination of certain tax preferences aimed at small business that are enjoyed by some large private corporations; a change in the tax treatment of certain security transactions by financial institutions; and the elimination or reduction of certain regionally based investment tax credits that have not been cost effective in attracting new investment. The proposed changes will add $575 million to federal coffers in 1994 and almost $1.4 billion the following year.
In bringing down this budget the government is pursuing a balanced approach, weighing a number of concerns and targeting a number of goals: to create jobs; to stimulate economic growth; to reduce the deficit; and to encourage the long-term financial viability of the social programs that define this country.
There are some voices that might call for a different balance, some views which are focused on one issue or another instead of the complete picture. This government asks them to think again.
As the Minister of Finance put it during his address; for those who would have us spend more, Canadians deserve to know where the money would come from. And for those who demand we cut more, Canadians deserve to be told the extent to which that would hurt growth, hurt jobs, hurt the less fortunate. It is with this in mind that we have asked the House for authority to borrow the funds we require in Bill C-14.
I would now like to go into some detail as to the elements of this bill. Like borrowing bills in recent years, this bill contains three basic elements: authority to cover financial requirements for 1994-95; exchange fund account profits; and a contingency reserve. In total, the government is requesting authority to borrow $34.3 billion for the 1994-95 fiscal year.
In addition, there is a provision for an additional borrowing authority of $3 billion to provide for borrowings conducted in this fiscal year under section 47 of the Financial Administration Act.
I would now like to touch briefly on the main provisions of this bill. First, there is the provision for $30.2 billion of authority to cover our anticipated requirements for borrowing to meet the net financial requirements set out in the budget.
Second, there is provision in the bill to cover $1.1 billion of exchange fund account earnings which give rise to additional Canadian dollar borrowing requirements. This is because these earnings, although reported as budgetary revenues, are retained in the exchange fund account. They are not available to finance ongoing operations of the government.
Third, there is a $3 billion reserve, the same amount requested in borrowing authority bills in the last six years. This reserve provides for unforeseen contingencies such as foreign exchange transactions, seasonal swings in borrowing requirements and delays in passing the future year Borrowing Authority Act.
There is also a provision to cover the funding of bills issued in 1993-94 under section 47 of the Financial Administration Act, up to a cap of $3 billion. Without this clause these refundings
would be charged against regular 1994-95 borrowing authority, even though the money was raised in 1993-94 fiscal year.
Members should note that the provision cannot be used to generate additional borrowing authority for 1994-95. Next year's borrowing authority is only increased by the amount of section 47 borrowings actually transacted in 1993 up to a maximum of $3 billion.
There are some minor technical provisions in the bill that more clearly link fiscal year borrowing authority with fiscal year borrowing requirements. One provision provides that 1994-95 borrowing authority may only be used after the 1994-95 fiscal year begins. Another provision stipulates that the borrowing authority covers the full fiscal year beginning April 1, thereby ensuring refunding authority for the securities maturing in fiscal year 1994-95.
Until this bill is passed we may continue to use any amount of the non-lapsing reserve provided for in the Borrowing Authority Act, 1993-94. This bill when passed will cancel all borrowing authority remaining from fiscal year 1993-94. Also, it will deduct from the basic amount of borrowing authority sought any borrowing authority for 1993-94 that is used in 1994-95. This prevents any use of the 1993-94 non-lapsing reserve effectively adding to borrowing authority in 1994-95.
As background information I would like to review the government's debt operation in the current fiscal year up to the end of January. At this point in the domestic debt program about $25 billion in new net market debt has been issued. Of this total, $21 billion was in the form of marketable bonds, $5.5 billion in treasury bills, and $925 million in real return bonds.
The real return bond program was first announced in October 1991 and is a modest and cost effective diversification of a debt program. The bonds offer investors a real rate plus an inflation compensation component.
I would like to report to the House on last fall's Canada savings bond campaign. That campaign with bonds bearing an interest of 4.25 per cent had total sales of $5.4 billion. After taking into account the Canada savings bonds that matured or were redeemed in that period, net purchases of new bonds amounted to $842 million.
Regarding foreign currency debt, outstanding Canadian bills increased by U.S. $2.7 billion to $4.7 billion at the end of January. These are short-term U.S. dollars denomination bills which are issued from time to time in the U.S. market to fund Canada's foreign exchange reserves. In addition, a yen 80 billion bond issued in 1986 matured in July 1993.
In January the government launched a U.S. $2 billion five-year floating rate note. This issue will be used to pay down outstanding Canada bills thereby diversifying the source of U.S. dollar funding of Canada's exchange reserve. It will not increase the level of reserves or Canada's overall indebtedness.
In summary, the bill is straightforward and contains no unusual provisions. All the information needed to deal with it is before the House in the budget, the main estimates, and related documents.
I therefore urge the House to proceed with this legislation as quickly as possible so that new borrowing authority will be in place at the beginning of the new fiscal year and the government's regular borrowing program can proceed as the fiscal year begins.
Borrowing authority is a normal part of the operations of the government. I urge all members to support this bill.