Mr. Speaker, I shall be sharing my time with the Secretary of State for Multiculturalism and Status of Women.
I am most pleased today to be able to take the floor in this noble institution to speak on the 1996 budget. This is the third one we are presenting, aimed at guaranteeing Canadians budget stability and an economy that is vigorous, dynamic and competitive, in today's harsh economic context.
Along with the 1994 and 1995 budgets, this one maintains a broad strategy that is deliberate, measured and responsible and is aimed at putting federal public finances on a sounder footing. It is deliberate, because our efforts are continuing unrelenting. As the Minister of Finance has pointed out, in our implacable fight against the deficit there is no going back. We are going to balance our books. We shall also put the debt-GDP ratio onto a permanently descending curve, dropping lower every year.
It is measured, because our action plan is not being applied in a blind and reckless manner; it is well structured and proceeding at a rate that will allow efficient adaptation. What we are aiming at is not a quick fix but permanent progress over the long term.
It is responsible, because this is a strategy which requires us to take the needs of the economy and of society into account, and to use particular care in designing the strategic options which will equip us to meet those needs.
What is more, we are seeking the necessary balance to allow Canadians to join us in our efforts to reduce the deficit.
There remains no question about the need for dramatic and disciplined action. High public sector deficits and debt have sapped confidence, soaked up domestic savings and led to a sharp increase in the country's net international indebtedness. Canadians were paying a painful high price through the punishing pressure that high deficits place on interest rates. This takes away consumer and business investments and drives down job creation.
The lethal combination of high interest rates and deficit borrowing also meant that a growing share of government resources must go to interest payments on a growing debt. This year those charges will cost the federal government $47 billion, money that cannot go to lowering taxes, aiding those in need and helping our economy create new jobs.
These, Mr. Speaker, are our reasons for doing what we did. It is not because solving Canada's budget problems constitutes an objective in itself, but because it constitutes a fundamental component of our national growth, of job creation, and of economic security.
In the first two budgets, we began a process of improving our public finances and of restoring the state's budgetary credibility, after years of failing to control the deficit.
By setting credible rolling two-year targets, by basing budget planning on cautious economic assumptions and by creating substantial reserves for contingencies, we are making public finances once again credible.
The first two budgets provided for unprecedented cuts to program expenditures. These structural cuts focussed on the medium term. Thanks to them, the 1995-96 and 1996-97 objectives of reducing the deficit to 3 per cent of the GDP will be met, despite the fact that the growth of the GDP is slower than expected.
This progress is due in part to the fact that interest rates are also much lower than expected, and this in turn offsets the negative effect of the slower GDP growth.
The measures announced in the 1996 budget strengthen and extend those of our initial budgets and provide an added push toward the achievement of our economic and financial goals.
We set our sights on the reduction of program expenditures, because the debt problem was the creation of the governments. They must therefore resolve it by putting their own affairs in order.
Therefore, the 1996 budget provides for no increase in taxes. There is no increase in income taxes for individuals or corporations, and there is no increase in the excise tax.
Expenditure cuts in the 1996 budget will amount to $1.9 billion in 1998-99 and will build on the reductions of the two previous budgets to keep program spending on a downward track.
Here is a point that must be emphasized: a full 87 per cent of the cumulative fiscal actions taken from 1994-95 to 1998-99 will have been expenditure savings.
Together the three budgets will contribute $26.1 billion in savings for 1997-98. This action, together with the reform of the employment insurance program, will ensure that we hit the new deficit target, to bring the deficit down to 2 per cent of GDP.
Thanks to the measures announced in the budget, we will manage to save an additional $28.9 billion in 1998-99, which means that the deficit will continue to shrink.
There is no doubt we have taken a historical step. The program expenditures, that is, all expenditures less interest payments, could shrink for six consecutive years, until 1998-99. These are actual cuts in real dollars. Expenditures would shrink from $120 billion in 1993-94 to $105.5 billion in 1998-99, that is, a reduction of 12 per cent in the amounts spent.
In real terms, the level of program expenditures, adjusted to reflect inflation, will in fact be below that for 1984-85.
Program spending, as compared to the size of the economy, will be at its lowest level since 1949-50. The debt to GDP ratio, or what we owe as compared to what we produce, will drop by 1.1 per cent to reach 73.7 per cent in 1997-98. This will be the first significant drop since 1974-75.
Another fiscal element is worthy of mention. Calculated the same way a number of countries, including the United States and the United Kingdom, measure their deficit, our financial needs reached $30 billion in 1993-94. In 1997-98, they will have dropped to only $6 billion. As compared to the size of the economy, this is the lowest they have been in nearly 30 years. At this rate, we will likely have the lowest shortfall of all G-7 central governments.
Two additional points are worthy of mention. First, the economic assumptions included in the budget plan are once again more conservative than the private sector's. For instance, our projections for 1997 are based on interest rates nearly 1 per cent higher, or 80 base points, than the private sector's forecasts.
If economic forecasts reach or surpass the planned levels, the deficit could be lower than our 2 per cent deficit target for 1997-98. Any unused portion of the contingency reserves will be used directly to reduce the deficit even further.
Second, the federal government's fiscal health is not the only one to improve; that of the provinces and territories is also improving markedly. The combined deficit of the provinces and territories dropped from a record $25 billion in 1992-93 to $12.6 billion in 1995-96, from 3.6 per cent to 1.6 per cent of GDP. Consequently, in Canada, the total government deficit should improve significantly as compared to the other G-7 countries.
In 1992 the combined government deficits in Canada stood at 7.4 per cent of GDP. That was double the G-7 average of 3.7 per cent and the second highest behind Italy. This year Canada's total government deficit will have fallen below the G-7 average to rank second lowest among the the G-7 countries, just behind the United States. By 1997 our country's total government deficit should be the lowest of the G-7 based on the each country's current plans.
Obviously, we are making sustained progress, as are all major public administrations. The biggest winners will be Canadians. We are taking the necessary steps to lower interest rates, increase competitiveness, promote job creation, and improve economic security. You can be sure we will stay the course.