I apologize, Mr. Speaker. I wanted to make it absolutely clear that I was speaking to the Parliamentary Secretary to the Minister of Industry and not transport. I am very honoured the Minister of Transport is in his place this afternoon.
There are a couple of reasons I believe the 3 per cent of the GDP as a deficit is unacceptable. First, I was absolutely amazed to think of where that 3 per cent of the GDP came from. The following question was asked in the House: "Why is 3 per cent such a reasonable goal?" The Prime Minister answered at that point, I believe it was April 11, 1994, by saying: "We have a goal that is achievable to reduce the deficit in relation to GDP to 3 per cent per year. This goal is very reasonable because 3 per cent of the GDP is the requirement for any country to qualify in Europe to use the new currency called the ECU. If it is good enough for all countries in Europe to have that goal it should be good enough for Canada".
Why is that a problem? Is is because Europe has a totally different geography. The economies of the countries making up the European community are very different. The total debt structure is very different. The demographic distribution of population is very different. Their natural resource base is very different. Why is it that should apply it to our country?
If it is good enough for them it ought to be good enough for us only if everything else is equal. Is it really relevant in that situation? I could not help but think of an analogy in our armed services. I thought about the uniforms some of our generals wear. It seemed to me it was something like going to the tailor and saying: "If you want to make a good suit for the Prime Minister, go measure him really well. If the Prime Minister fits the suit it will automatically fit the Minister of Finance". Nothing could be more ridiculous than accepting for Canada a similar goal that is set somewhere else and saying that it should be ours as well unless everything else is the same.
Why do we not have a goal made in Canada for Canadians by Canada's government? That has not happened.
Second, this goal is not acceptable because it is financially inadequate. There is a principle that all governments should observe: governments should not be allowed to spend what taxpayers are not prepared to pay for. The violation of that principle has put us into the mess we are in today. For the last 30 years Canada's expenditures have exceeded revenues. Canada's debt has risen exponentially in the last few years.
Third, foreign investors who hold about 40 per cent of Canada's debt are becoming concerned that Canada will not be able to service its debt. It is not that they are so worried about paying the principal of the debt but they are concerned about being able to service it, that is paying the interest on it.
I am sure it comes as no surprise to anyone in the House that the deficit on an annual basis is made up of the interest payments on the principal of our debt.
There may be those in this House who suggest that the debt problem is really that of more than one level of government. It certainly is.
I go back to the ECU. That 3 per cent GDP figure includes all debt of a country, not just the federal debt. In Canada we are looking at 3 per cent of the federal debt and that is not sufficient.
The suggestion is also made that somehow there is support in the economic community or in the business community for that level. I want to refer to October 18, 1994 when the Prime Minister said: "We have faced up to our responsibilities. We
were the only political party that put in writing in our red book exactly how we would achieve our objective. The financial community thinks that it is realistic and it is a realistic objective. A deficit of 3 per cent of the gross national product is the level required in Europe for all countries in the European community to qualify for the new European currency".
The justification is that our business community supports that. I simply refer to the suggestion that our credit rating will be dropped down. We have had since then a devaluation of the Canadian dollar. We have had an increase in our interest rates. Also I draw members' attention to the situation in November 1994 when foreigners took a net $2.2 billion out of our country. Foreign investors reduced their holdings of Canadian bonds by $4.9 billion, a record for a single month.
Some other points to observe are that by September 1994 Nomura Securities Canada Inc. said that eight of the largest Japanese life insurance companies had cut their Canadian dollar exposure by 60 per cent from the previous year's level, reflecting mainly concerns over currency losses. The Canadian dollar decreased in value while the yen increased in value.
The London based Warburg Asset Management director Tom Berger says that Canadian bonds because of the debtload no longer make up core holding in his portfolio but may be used opportunistically on a short term basis.
Further evidence comes from Michel Doucet, economist for the National Bank, who observed that foreigners sold $3.4 billion of Canadian bonds in the secondary market in November 1994 alone reflects a loss of confidence in Canadian bonds.
One of the reasons investors are worried is that the debt is rising faster than the economy. Particularly they are worried that the government will relax its hold on inflation targets and that the currency will devalue as a result.
There are serious implications of the Moody's situation. I think it was two days ago that the president of Sun Life indicated that there is enough discomfort by that sort of thing happening that we rebegin to question whether the superintendent of financial institutions through the office of the superintendent of financial institutions is inadequate to control and monitor meaningfully the financial institutions of Canada.
All we need to do here is milk the special white paper that was introduced last week by the secretary of state for finance. It is worthy to note as well that nothing has been said about the implications of the goal for our chartered banks and other deposit taking institutions of those kinds of downgradings.
Let us not forget the billions of dollars that are found in RRSPs, GICs and other debt instruments. With one stroke of the pen to decrease the value of the Canadian dollar, a lot of damage can be done to the savings of Canadians.
There is a third reason this is an inadequate target. It guarantees further indebtedness. At the rate of $25 billion per year, that means that there will be a $100 billion addition to our debt every four years.
It is already growing faster than the rate of the GDP. That means it is as if the value of one's house were going down while the cost of one's mortgage was going up, a formula for disaster.
Let us review some of the recent experiences with reducing the deficit as a proportion of GDP. In 1991 the deficit was 6.6 per cent of the GDP. In 1992 it was 9.1 per cent. In 1993 it was 7.1 per cent and in 1994 it was 6.5 per cent.
From that vantage point alone it seems a bit far fetched that all of a sudden we are going to get to 3 per cent. Canada's economy has been strong because the U.S. economy has been strong.
There are now some pretty clear indications that the prospect of the U.S. economy continuing to roll along is not going to happen but that it is slowing down. It is likely that we are nearing the end of the current North American business cycle. That will make it increasingly difficult for the Minister of Finance to reach the goals he has set.
Three years have been wasted. It should be no surprise whatsoever that business leaders and credit rating agencies have difficulty believing that the minister is serious about dealing with the deficit.
The other part of the problem is the composition of the contemporary welfare state. Our welfare state works at the present time so that deficits rise when recessions hit and fall when the economy grows. Let us look at this in more detail.
Canada's deficit soared nearly 7 per cent of GDP after the 1981-82 recession but was under 3 per cent of GDP in 1988-89 after several years of solid growth.
This time in this increase the economy has been growing since 1992 but because of Ottawa's position of inaction we have seen no improvement in the deficit and that is where the problem is. It affects the levels of all governments to borrow for their needs for capital expenditures such as roads, schools and things of that sort. There will always be a need to borrow money. If our credit rating drops down it will impact our ability to do so.
If we use our credit to finance current expenditures for education, health and welfare we will be unable to finance those projects that are in themselves revenue generating. That situation compounds a difficult situation into an escalating and worse position.
I think this particular goal is deceptive. It sounds so good to be able to say 3 per cent of GDP. It is confidence generating-they have a number, they have to be right. The result is that the number, as we have indicated previously, cannot improve the long term health of our financial position because it will increase the debt of our country.
It is illusionary. The deficit will never be eliminated by a goal where the deficit is a proportion of the GDP. It means a perpetual deficit and the accumulation of more debt.
It transfers more of our responsibility not to ourselves but to future generations, in particular our children and our grandchildren. Instead of providing them with a more promising future we are saying they are going to pay more and more for the lifestyle that we ourselves were not prepared to pay for.
It reduces the attractiveness of Canada as a place in which to invest money. Another reason why I believe this particular goal is inadequate is that it is manipulative. It creates the illusion as if something is being done when very little is being done that would instil confidence in investors and credit rating agencies.
While Canadians on the one hand are urged to plan for their retirement, their children's education and so on, it is clearly known by the Minister of Finance that in pursuing this particular course the government's inaction will erode the future purchasing power of those savings through inflation and increased taxes.
Thus what appeared to be a very well planned RRSP turns out to be a mere existence under the new economic conditions. Canada pension plan contributions were said to be deposits for the future of the depositor so they could retire in comfort, but the legislative provisions for the investment of those funds mitigated against them. Many of the returns on those invested dollars were uncompetitive.
For these reasons I believe that this particular goal is inadequate. It is inadequate because the target was chosen not for Canada but for another series of countries. The fact that it is a rolling goal over two years and so on is not acceptable, as we heard so aptly this afternoon. It is based on the goal that we are supposed to be able to continue to grow and develop when there is nothing in the history of Canada so far to indicate that will take place. It is inadequate because it is not an honest position of giving hope to future generations. It saddles them with the responsibility of paying for a lifestyle which they did not enjoy but which we did.
That is a moral question as well. I believe that I should be held accountable and responsible for the things that I enjoy and the things that I want to do. I should not go to my children and say I want to drive a new car, I want to be able to do all of these things and they are going to pay for them.
This goal is a disincentive not only for us if our taxes are going to increase, which I understand from the minister, not directly but indirectly that they will, but it is also a disincentive in the sense that it provides little or no hope for our young people who will look forward to an increasing burden of debt. Is that the legacy we want to leave them? No, that is not what we want to leave them.
Much has been said this afternoon about compassion. The greatest compassion we can have is give to our young people the hope of living a better life than the one which we have enjoyed, to give them a tax burden which is less than ours, not greater than ours, one in which they will be able to initiate their own ingenuity, their own entrepreneurship, their own aggressiveness to be able to build a life which is self-satisfying and fulfilling, better than the one we have been able to give them.
We have not been giving them the example of managing money successfully and effectively. We have given them the impression that government can answer all questions, government can do all things and government can give them jobs. The answer is that government can do none of those things. As the parliamentary secretary said so clearly, it creates the environment in which these things can happen. This goal destroys that environment. We must change that. We must stop that and bring about a deficit which will reach zero in three years. That is what our plan is. That is what our party stands for. That is true compassion.