Mr. Speaker, as you might know, I will not be seeking office in the upcoming election. Therefore today I am definitely giving my last speech as an MP in this House in reaction to a government budget.
Let me start my comments with a brief assessment of the budgetary policy of this government during the last three years.
The $42 billion deficit in 1993 required urgent and decisive action. This view was shared by most Canadians and it produced the historic electoral success of the Reform Party which ran on the platform of fiscal responsibility. There are a number of indications suggesting that in 1993 neither the Liberal Party nor the finance minister fully appreciated the severity of the country's fiscal crisis. For this reason the first budget in 1994 reflected the belief that Canada would grow out of the crisis if we just reined in the growth in spending.
The 1995 budget showed that reality had finally mugged the minister and his party. I take pride in my and my colleagues' contribution to driving home the fundamental truth about the effects of compounding interest and the risks associated with threats to the value of Canadian bonds caused by growing debt to GDP ratios.
Pressed in addition by high interest rates, warnings by Moody's about the downgrading of the debt and slow economic growth, the government bit the bullet and announced substantial cuts to program spending and some relatively small but still substantial tax increases.
The minister deserved the positive reaction to his historic budget given by the financial markets and the Canadian public. I praised the minister for having lowered program spending in absolute dollar values for the first time in post-war history.
I still believe that this praise was deserved. The 1996 budget contained no substantial further cuts or tax changes. All the politically difficult decisions had been made and embedded in the 1995 budget.
During the last two years, economic development largely outside the control of government favoured the Liberals and their budgetary goals. Economic growth remained moderately high simply because the country enjoyed a cyclical upturn.
The growth was driven largely by strong exports to the United States, which were fed in turn by a strong U.S. expansion and a low dollar. Most important, interest rates in the U.S. trended downward.
These fortunate exogenous developments produced better than expected increases in revenue, along with decreases in interest costs. As a result, the interest rate spread on short to medium term bonds between Canada and the United States moved in favour of Canada and resulted in even more moderate, positive effects on the fiscal balance.
In light of the much better than expected and very fortuitous improvements in the deficit, a large and vocal faction of the Liberal caucus began agitating for a resumption of the party's traditional policy of spending to buy votes for the next election, though of course they always describe these spending programs as providing compassionate aid to the unemployed and needy.
When the 1997 budget was revealed this week I, the financial community and in my view most Canadians were pleased to find out that the Minister of Finance increased spending and reduced taxes only by a relatively small $1 billion.
With most of the big increases coming a year or two in the future, he has stayed the course of fiscal restraint in this election year and stared down his spend thrift colleagues in the party.
Moreover, the spending increases he made were not of the traditional make work, pork barrel variety but, with some exception, involved projects that have a high probability of bringing good social and economic returns.
Ironically, the basic pattern of the Liberal budgetary policy is almost identical to what Reform had promised to do in its zero in three election platform in 1993. However, there are several major differences.
First, the cuts have not been fast and incisive enough. As a result, in the 1997-98 fiscal year the deficit will still be $16 billion or nearly $1.5 billion a month. This level of deficit may seem low by historic and some international standards but by any other standards it is still outrageously large. I repeat, we are adding to the debt $1.5 billion every month. Divide this by 30 and you get $50 million a day.
An important consequence of this continued deficit is that it exposes Canada to the risk of backslide should there be a turnaround in economic fortunes like a rise in interest rates and lower economic growth. Both these events are certain to take place in the future.
For the sake of Canadians, let us hope that the economic environment remains benign for several more years.
Also, because improvements in the fiscal balance have been so slow, the debt is well over $600 billion and there are no plans for paying it down. Very soon Canada's problem will not be the deficit but the debt, if it is not already so.
Interest payments on the debt of $46 billion nearly equal what the government spends on elderly benefits, OAS and others, employment insurance, formerly known as unemployment insurance, and social transfers to the provinces combined. Let me repeat this. The sins of the past decade, including the last three years, have resulted in an outcome whereby the cost of servicing the result of those sins takes up the same amount of money as our very generous and expensive program of old age security benefits, now called the elderly program, unemployment insurance and the social transfers for health, higher education and welfare. This is truly an astounding number.
When interest rates go up again, the problem will be even worse. Only debt repayment can end this regretful state of affairs.
The media has finally picked up on one of my main themes in past comments on the budget. Two-thirds of the improvement in the fiscal balance was achieved by increased tax revenues mostly through bracket creep, partly through tax rate increases and some through the growth of population and wealth. Only one-third of the fiscal improvement has been due to cuts in program spending.
Unfortunately half of these cuts involved downloading of the adjustment burden on the provinces which in turn have cut funds for health care, higher education and welfare. Only a meagre 35 per cent of the reduction on program spending involved cuts to the size of the federal government, the departments which provide subsidies to business, regions and special interest groups which offer services which duplicate and overlap those delivered by the provinces.
Finally, I was very disappointed that the budget did not start the most fundamental debate that Canadians will have to face in the future. Assuming that economic conditions continue favourably and that the deficit will be eliminated in the year 2000 or so, the debate will be over the use of future dividends.
Canada faces three choices. The fiscal dividend can be used to lower taxes and gradually produce a smaller government. Alternatively, it can be used to pay down the debt and start a virtuous cycle of growing fiscal surpluses which in turn can be used for further debt and tax reductions. The third possible use of the fiscal surplus is increased spending and a larger and more intrusive government.
The next election should involve the discussion of these different paths for the development of Canada. Any government elected in 1997 or 1998 will face the need to decide on this matter. There are obviously no best choices. Each of the three alternatives has advantages and disadvantages. However, in the light of post-war experiences, in my view bigger government does not appear to promise many benefits for society at large.
Surely there are always beneficiaries from government largesse and they always tell good stories on why they deserve the goodies from the state. However, as we look back on the decades since the 1960s it is difficult to find evidence that the massive expansion of governments has produced a significant improvement in the lot of the average Canadian above that due to general and largely exogenously determined economic growth.
If we believe the government's statistics and read the public opinion surveys, poverty, educational attainment, health care, crime and unemployment are worse than they were before the massive growth in spending after the 1960s. In my view it defies logic to argue that because past spending has produced the deterioration of these standards we therefore should have spent more.
I know I am running out of time but I have just one last page. I assure the House that I know the arguments on the other side. Some are good but most involve rhetoric and wishful thinking.
I admit that I may be wrong about the merit of large government. It is for this reason that I think we need a national debate on this issue. What a shame that the 1997 budget did not set the framework for such a debate during the upcoming election.