Madam Speaker, I was expecting the Bloc member to make a few more comments and he caught me by surprise.
This budget implementation bill is obviously important. We certainly have to take a look at the financial status of the government and what is happening in Canada today.
There has been a lot of talk that very shortly the finance minister will be announcing a much lower deficit than he projected in February of this year when he said that the budget would come in at about $19 billion.
When we analyse the latest Fiscal Monitor put out by the Department of Finance two months in arrears, we see some interesting financial information. The Department of Finance releases this document which enables everyone to see what is happening on an ongoing basis. It is a very worthwhile and useful document.
Reform researchers have analysed it and have found some interesting information. Last year the government was able to predict a deficit overshoot by extrapolating final fiscal figures from the monthly series. The presentation I make today will show a bit about how the government is able to make its projections and predictions and keep telling Canadians where it stands.
Since the Fiscal Monitor is released with an average of a two-month lag, the most recent figures are from the February issue. It covers 11 months of the previous fiscal year, from April 1, 1996 to February 1997. The deficit at the end of February stood at $7.8 billion or $15.5 billion lower than the same period in the previous year of 1995-96. The improvement comes from increased revenues of $9 billion, reduced transfers to provinces of $4 billion, reduced public debt charges of $1.7 billion and reduced departmental spending of $400 million.
The Liberals will overshoot their deficit target by about $10 billion, mostly as a result of stronger than expected revenue growth, an international trend toward lower interest rates and large reductions in health and education transfers to provinces.
If members will recall, the finance minister projected a $24 billion deficit for year ending March 31, 1997 and then it was revised recently to $19 billion. This $10 billion overshoot is from the $24 billion down to about $14 billion instead of the $19 billion that he had projected.
The finance minister's department seems unable to make accurate forecasts. That generally reduces the level of confidence with which people view any of their forecasts.
During the Mulroney years, which was referred to today in question period, the department was always wrong in that it always overstated revenue growth. Now the department errs in the other direction, constantly understating revenue growth with the implication that taxes remain high as a result of this understatement.
It is just as bad to be wrong one way as it is to be the other. If a deficit is projected at X and it is exceed because certain things happen negatively in the economy, we have an excuse. If a deficit is projected at of X and it is lower, then it depends on what program we are trying to push.
I maintain that the finance minister is trying to preserve and protect the EI fund, which has now reached $7 billion, as a surtax on his deficit. Rather than making the program spending cuts that he projected and said he would, he is using this extra revenue from UI to cover off his and his department's slow progress in making the cuts that they promised to make.
Perhaps the minister would have faced more pressure to cut taxes had the department been more accurate in its forecast. This type of poor forecasting sets a dangerous precedent and calls into question its credibility. The one thing the Department of Finance should be serious about guarding is its credibility in making forecasts.
However, one never knows what happens with the Department of Finance, the cabinet and the finance minister. Perhaps there is some political pressure. Perhaps there are instructions to shape, present the numbers, present the worst case scenario and be overly conservative on revenues so that the pressure can be kept up to make the cuts. In either case, there is a variance that is never accurate.
Nobody says the forecast has to be within a billion dollars. However, if it cannot be within 15 per cent or 20 per cent of the projected number, whether it is a deficit or a surplus-let us say that a 20 per cent variance is acceptable either over or under-if it is exceeded then the fundamentals that are being used to achieve those budgetary projections, especially given that they are revised on a quarterly basis, have to be seriously questioned.
If it actually does go from $24 billion as was forecast a year ago February down to $14 billion, some people would say that was great. This is what the Liberal government says. However, I am submitting that is bad. It is just as bad as the Conservatives when
they projected a $20 billion deficit and it ended up at $38 billion, $18 billion higher. That is more than 20 per cent the other way.
What we need is a Department of Finance that will not get brow beaten by any finance minister regardless of political party, that will present the facts as it knows them to be because it is the one constant from government to government. The officials who work in that department have a handle on the revenue stream. Unless a government decides to spend a bunch of money somewhere else, it is able, given the variance in the economy, to conservatively and within a 20 per cent variance predict the revenues. However, it is off big time.
Never before have I seen a government make so many fundamental changes in the way it does the financial statements and present the government's balance sheet. The government has moved things around. It has redefined certain types of spending. This has allowed the government basically to redefine program spending and claim that it is sticking to the percentage cuts that it predicted of 18 per cent when it is really only 8 per cent or 7 per cent. It has taken some program spending out and put it over into other areas, off balance sheet spending and it ends up claiming that it has met its targets when that was not the intent.
The government was supposed to cut $9 billion and to date it has only cut $4 billion. We are going to go into an election. Is it going to promise to do the rest a year from now? The implication of bad forecasting is just as bad if one is better than expected rather than worse than expected.
If we take a look at the difference and review the components of the deficit reduction, we see from the "Fiscal Monitor" that the revenues of the government increased by $8.964 million. The government reduced the transfers to persons by $349 million. It reduced transfers to provinces by $4 billion. Departmental spending went down by $400 million in the last 11 months and the debt charges were less than projected at $1.7 billion. That is a variable that is out of the control of the government.
When things get really bad the government will say: "Interest rates are not really something that we can control directly. Indirectly, yes, we can, by running a prudent government". Interest rates are a factor of the global economy and how our dollar compares on an exchange rate basis with currencies of other countries. Therefore, to that degree it can have a huge variance and a huge swing and the government cannot be held accountable totally for that.
We notice that this comes to $15 billion. That is the total decline in the deficit. Of that $15 billion, the increased revenue as a percentage of these reductions is a 58 per cent component. The transfer to persons is at 2.3 per cent. The transfer to provinces is at 26 per cent. The departmental spending is only 2.6 per cent.
Wait a second, were the transfers to provinces not to be equal to the reduction in departmental spending? That is what the government said. It was going to lead by example. It was going to cut $9 billion out of program spending to justify the $7.5 billion reduction in transfers to provinces for the Canada health and social transfer. It does not seem to me that the government is on target for that. The debt charges as a percentage of the $15 billion improvement is11 per cent.
To sum up, according to our table, increases in revenue and reductions in transfers to the provinces made up a full 84 per cent of the improvement. Increased revenues through taxation, reduction in the transfers to provinces represent $13 billion out of $15 billion in improvement which is 84 per cent. Yet the government claims that 94 per cent of it is through growth in the economy.
Cuts in the federal government's own back yard make up only a 2.6 per cent paltry reduction. It is important to note that the tiny contribution of cuts to departmental spending correspond with what the Reform Party's earlier findings were, that the government has missed its cuts in departmental spending by as much as 50 per cent. We brought this out two or three weeks ago in question period, when we said that the evidence is that the government has only cut by $4.2 billion and it promised $9.5 billion.
It is important to note that the surplus in the employment insurance account is running at $6.8 billion after 11 months. Let us just round that out to $7 billion for the sake of discussion. This surplus represents a regressive form of deficit reduction tax and in question period today in quizzing the finance minister I referred to this as a deficit surtax.
The government should set EI premiums on an annual basis to match the funds required, within a tolerance level. If the government would set the premiums to match the benefits, the deficit would be $14.6 billion rather than $7.8 billion and it would be right on target.
I will give the finance minister some constructive criticism which will help to improve the economy. It will help to keep Canada competitive. It will help to keep interest rates as low as possible without outside interference. The $7 billion surplus in the EI account should come under general revenues. It should be applied against the deficit to reduce it.
If the government were to lower the premiums from the current $2.95 or $2.90 per hundred of insurable earnings up to $39,000 down to $2.20 and leave that money in the hands of the wage earner, their take home pay would increase. That would also reduce by 28 per cent what the employer has to pay. It leaves more
money for the corporations to hire people, to invest and to expand. It will help to stimulate the economy.
There is the argument that EI and CPP are not payroll taxes, that they are investments. Regardless of what they are, the money is taken away from workers and corporations by the government. The rate at which the money is taken away is set by the government. If it is compulsory it is a tax. If it is voluntary, like an RRSP, if it is an inducement to invest, it is an investment.
Nevertheless, if the taxpayer was able to keep the money, I submit that more jobs would be created. More money would be spent. More money would be invested and more money saved. That would benefit a lot of Canadians.
I am not the only person who thinks that way. I am a businessman and I have thought this way for a long time. Wherever possible, keep taxes as low as possible and set the tax rate at the level required to pay for the programs which Canadians want.
In today's Financial Post is an article written by the business economist Dale Orr. He wrote: ``What is really happening is that Ottawa is using the present annual surpluses of $5 billion or so in the EI fund as a form of deficit reduction surtax''. The only thing wrong with that statement is that it is not $5 billion, it is $7 billion. The finance minister is using $7 billion of funds which come from employed workers and corporations, the intent of which is to pay for people who are unemployed while they are looking for employment for a certain period of time.
There is a huge surplus. The excuse is that some years there is a deficit. That is true. When I ran in 1992-93 the deficit in the EI fund was $3 billion. That gives a clue why in our zero in three budget we felt it imperative to make $12 billion in cuts immediately, faster than the paltry cuts the government has made in its program spending, because we did not count on a huge surplus in the EI fund.
This is a gift to the finance minister which he has misused. He has a golden opportunity to stick to his party's platform, to stick to his party's caring, sharing, forgiving and giving government, doing it slowly, doing it properly, not punishing people unduly, and yet he will not share the $7 billion. He has a golden opportunity.
He might do something during the election campaign. Maybe that is the selective tax cut that he will justify because I agree we cannot have a broad based tax cut.
Today he misrepresented our platform when he said that the Reform Party would implement a broad based tax cut. That was not true. He told half the story. He should be spewing forth the truth when he talks that way.
He should be saying that once the budget is balanced the Reform Party would offer broad based tax cuts that would average $2,000 per family by the year 2000. That is why we say $2,000 in 2000. It takes a year or two to balance the budget. We say no tax breaks until then, no tax cuts until then.
Then we raise the personal exemptions, the spousal exemptions, to $7,900. We will get rid of the federal surtax of 5 per cent, the 3 per cent, and all the extra taxes we will not need. That will leave the money in the hands of the people who need it, in the hands of the people who know how to spend it better to look after themselves. This in turn will reduce the pressure on welfare programs, reduce the pressure on all the other social assistance programs the government has to provide, as it should to those who truly need them.
I will quote further from the Financial Post to support my argument and submission that there is an opportunity here to do something with the $7 billion in the EI fund.
A faster reduction in the premium rate would help lower business costs for employers, whose share of the premiums is proportionally more. It would boost take home pay, especially for lower income workers. The combination would contribute to higher consumer spending, profits, economic growth and jobs. Some studies put the employment potential at up to 200,000 jobs.
A potential for 200,000 jobs just be lowering the unemployment premium rates, EI rates, to $2.25 or $2.30 from the current $2.95.
These are not from the Reform Party. The finance minister takes off his glasses, waves them and says that half-baked numbers do not work. They were from a business economist. He is not the only one. I could quote many different sources and many economists who argue and maintain this point of view.
High taxes kill jobs. Payroll taxes kill jobs. Why does the finance minister not something when he can and while he can? We have a surplus. We do not need the $7 billion in the EI fund. We should keep a base of $3 billion to $4 billion, keep that surplus and reinvest $3 billion of it with the Canadian public.
Maybe I should not tell him that, because if he offers that he might come back here with a majority government again. We really do not want that. We want a fresh government later this year.
I will summarize a few more items from the Fiscal Monitor . Transfer payments in the 11 months since April 1996 to February 1997 have decreased. Transfer payments to individuals, which includes the elderly benefits and the EI benefits, net out at a decrease of $349 million. It increased the elderly benefits by $512 million and decreased EI benefits by $861 million.
Not only is what it is collecting on EI greater than what needs to be put out, but the benefits it is paying out are going down from the previous year by almost $1 billion or $861 million.
Transfers to governments have been reduced by $4 billion. Of that $4 billion, $3.685 billion is the Canada health and social transfer after 11 months. That is where it hits.
The government claims it is the fault of provincial governments because it is their responsibility to look after health care. If they close hospitals, we should not blame the Liberals. If they have to lay off nurses and pay doctors less, we should not blame them. We should blame the provincial governments, provincial health ministers, provincial premiers and provincial treasurers. How foolish is that?
In its first budget it said that we all must sacrifice. I support the government in reducing the Canada health and social transfer by $7.5 billion. That is not my criticism.
The Liberals said that we had to share, sacrifice and make do with the same or less money. They were to show leadership by example. They were to cut federal government program spending outside the Canada health and social transfer, outside the transfer to provinces. They were to reduce the rest of the spending of government by a greater amount than the $7.5 billion. They were to reduce it by $9.5 billion. To date, after 3.5 years and projected to the end of four years, the government will not be there. The Liberals will have only made $4 billion with those cuts. That is from their own information.
This is not being made up by the Reform Party. I respect the Liberal member opposite who said politicians should represent more of the facts rather than distort or give their interpretation of them. That is what I am trying to do. The government has fallen far short.
Other transfers and subsidies add up to $128 million. Total program spending has decreased by $4.778 million. If the government were truly trying to show leadership by example, after four years of governance the government should be closer to 50:50 in program spending even in the past year. In fact the number should be higher than $4.7 million. The $3.6 billion reduction in Canada health and social transfer is fine. That was projected. It was to be phased in over a period of time, two or three years, which is the right way of doing it.
Cuts in program spending should have matched. Rather than $4.7 million, the real embarrassment to the finance minister is that the number should be $7.2 million. He has failed to pressure, to push, to keep the other cabinet ministers in line, and to force cabinet ministers, deputy ministers and assistant deputy ministers to clean house, to shape up. This is what the Canadian public wants.
Those are the direct words and orders from the finance minister and the President of the Treasury Board. They set the target and they are missing it big time. That is the embarrassment in the Fiscal Monitor .
That is what it revealed. That is the failure of the finance minister. He is actually $4 billion behind the cuts he promised to make when he asked all Canadians to sacrifice and all levels of government below this one to figure out ways to provide the same level of service with less money. The federal government cannot do it.
The President of the Treasury Board rose today in question period with a set up answer from the former minister of defence. He talked about infrastructure and whether municipalities would be guaranteed the money would go to the programs they want. Then he lambasted the finance minister from Ontario. He quoted him by name. He took after the premier of the province. Those two gentlemen are in provincial politics. They are not even in the Chamber. They are not here to ask a question or to defend themselves. That is shameless. It is an embarrassment to have a member of the government do that. It was cheap, political partisanship against a level of government that is not even here.
He should hang his head in shame. He should write a letter of apology saying that he is sorry and that he got carried away. He should indicate there is an election coming and the former minister of defence asked him to embarrass the local government in Toronto so that he can boost his chances of getting re-elected.
That is crap. They believe in infrastructure but I do not. I criticize all levels of government for going forward on short term jobs. There is only one taxpayer. It is an admission by all levels of government that they have let infrastructure deteriorate, if that is where it is truly going.
The first responsibility of a municipal government is infrastructure: bigger projects, provincial and bigger than that, federal. Where have these guys been for 10 years if all of a sudden we have to spent $6 billion or $9 billion on infrastructure?
To pick on people in another level of government who are not in the House and cannot defend themselves is a new level of cheap political partisanship I have not seen before. The government has made its deficit reduction mainly by cutting the transfers to provinces. Some 77 per cent of this year's deficit reduction has been through the Canada health and social transfer. It is undeniable. The facts are here. I am quoting the government's own statistics.
We have proof that an overwhelming majority of the improvement in government program spending comes from cuts to the CHST. I have already said what the percentage. When we include other transfers to provinces, reductions in transfers accounted for a
full 84 per cent. Eighty-four per cent of government spending was by way of downloading. The provinces were given less. They were told to handle it, and the government said it cut spending. The government says it has done its part and now it is the provinces' turn. What a way to do it.
It promised to cut program spending by 18.8 per cent and then only reached 9 per cent and changed the definition of program spending. It took from here and there and suddenly $4.5 billion because 18 per cent again. How does $4.5 billion become 18 per cent? Once again it is perception.
I will speak later on Bill C-95, the anti-gang legislation. The Prime Minister in his autobiography said that in politics perception was everything. What a shame. It is too bad that in politics reality and facts cannot be everything. It is too bad those in the traditional parties who were here before us believed in that perception. Why not deal in truth and facts? Why not represent reality and assess what is really happening and then propose legislation to solve the problem?
In a 1995 speech to a symposium on budget deficits sponsored by the Federal Reserve Bank of Kansas City, the Minister of Finance stated:
We were nevertheless determined not to cut back our support to the provinces by any greater percentage than we were hitting programs in our own backyard.
If he wants to refer to our zero in three, which I will touch on that a little later, I will refer to what he said in 1995.
Cuts to provincial transfers made up 84 per cent of the total spending cuts to date this year. Departmental reductions have made up 8.4 per cent of the spending cuts. The reduction in transfers to the provinces represents a 16.2 per cent cut over 11 months. The $400 million in departmental spending represents 1 per cent.
In the second budget he told us what he was to do with the CHST. He made the promise worldwide so it must be something he believed in and something he told cabinet he would do. He was determined-I would assume cabinet and the rest of the Liberal caucus were determined-not to cut back support to the provinces by any greater percentage than they were hitting programs in their own backyard. All they have cut in their own backyard to date is $4.5 billion. What they have cut by downloading to provinces in other areas amounts to $8 billion.
How about that for promises? That party is good at breaking promises made in its election platforms. The Liberals got elected on renegotiating NAFTA but did not do it. They got elected on not having a third runway in Toronto. They got elected on saving taxpayers money on Pearson airport but did not do it. It will cost us close to $600 million. They got elected on getting rid of the GST but did not do it. In fact they entrenched it.
Talking about flip-flops, when the finance minister was on this side of the House he said that if a provincial sales tax is ever combined with a goods and services tax the GST is entrenched forever. What has he done as finance minister? There is a GST and a BST in the three Atlantic provinces that were signed on by three Liberal premiers, one of whom quit because he saw the writing on the wall. I am looking forward to the provincial elections to be held in another year or so when the effect of the harmonized sales tax works through the system. He has entrenched this GST, a terrible thing which is against his own principles. There are two examples right there.
The government is skimming more and more of the economy's weak recovery in the form of higher tax revenues. In April through February 1996, the government collected $3.5 billion more in personal income tax alone. Part of this increase was due to technical factors which affected the timing of income tax payments while the remainder was due to the effects of inflation in an unindexed graduated rate system with frozen basic exemptions.
Today I asked the finance minister, if everything is so good, why is the after tax disposable income per family down by $3,000? If the minister has not raised personal income taxes over the past three years, why has personal income tax revenue in this past year alone been $4 billion more? And why has personal income tax revenue overall been between $10 billion and $12 billion? In response to my questions, the finance minister cited two or three things and then he stopped. The rest of the truth he failed to spew out was that he had tinkered with the personal income tax system, that he had removed some personal exemptions and basic deductions and that he had closed a few tax loopholes. He failed to say the one big thing he did, which represented a lot of revenue and which he would not talk about.
There is a law that unless inflation increases by 3 per cent in the economy the personal exemption will stay frozen. In other words, an individual gets $6,500, the spousal deduction is $5,900 and it will not be touched until inflation hits 3 per cent. It is 2.5 per cent. It has averaged about 2 per cent in the past five years which adds up to 10 per cent. Those people who have seen their incomes go up by 10 per cent because of inflation are in a higher tax bracket. They still get the same low personal deduction of $6,500 and therefore they are paying more in taxes. And he says: "I have not raised personal income taxes". Well, yes he has.
The Reform Party recognizes that. We also recognize the need to ensure there is sufficient revenue so that programs can be paid for, health care and education spending can be increased by $4 billion and we can work toward a balanced and surplus budget. Then the first thing we would do is raise the exemption level, both personal and spousal to $7,900. We recognize that stay at home parents are
being taken advantage of and to help the family decide on its lifestyle and not force both individuals in a marriage to work outside the home. We recognize that what anybody does when they stay at home is just as valuable as when they go out to work. That is why we would make that exemption the same. That is my story and analysis of the "Fiscal Monitor".
Let me get back to the Liberals' favourite tax. The GST and the HST are entrenched forever in our lives. This goes against the very words of the finance minister when he was in opposition. I could not do that and I would not do that. That is not why I would be here. I would consider myself a hypocrite if I did that.
Everybody in the country ranted and raved against the Conservatives on the GST. Eighty-three per cent of Canadians did not want the GST and the fools still put it in because they said they knew what was best for us. "Leadership isn't about popularity", said the former Prime Minister, "it is about doing what is right for the people, and we know what is right". How the heck can 83 per cent of Canadians be wrong?
The Liberals rightly attacked it and attacked it. I am not sure what the NDP did but I know the Liberals attacked it. I have quotations from the Minister of Transport, the Minister of Finance, the Prime Minister, everybody attacked it. They said that it was a big issue. They had a big pre-election meeting in Toronto at which they decided to abolish the GST: "We're going to kill it, we're going to scratch it, we're going to get rid of it". They got elected partly on making that promise door to door. That promise was probably a huge factor in their election.
I hope the Canadian taxpayer remembers what this Liberal government did to get itself elected. Liberals promised jobs, jobs, jobs. That was their big slogan. There were 1.6 million people unemployed. Today there are between 1.4 and 1.5 million unemployed and just as many if not more underemployed. Did the Liberals keep their promise? Did they create the jobs? Decide.
Then we have the GST. Their promise went from abolishing it, killing it, scrapping it, to replacing it, harmonizing it. After two years they went from killing to replacing to harmonizing. If we read the promise in the red book, it states that they would harmonize with a system that was revenue neutral. This is not revenue neutral. It cost the Canadian government $961 million to pay the Atlantic provinces for their loss of revenue from lowering their provincial rate. They call that paying Canadians. I call that a cost.
When the Liberals say they have solved the problem and have kept their promise, it is only in three provinces. Surely to goodness a promise to harmonize would include all of Canada, would include at least Ontario where they have 98 out of 99 seats. They even failed to impress Ontario with their big harmonized sales tax scheme. Do members know why? It is because the Ontario government is smart enough to recognize how much it will hurt consumers in the long run.
After all, a goods and services tax, no matter how it is sliced, no matter what the arguments are-that it helps businesses to keep the cost of the product low, that it simplifies the system and that they would have lower overhead-which are all true, but the one thing they stop short of saying is that no matter what the rate is, whether it is 1 per cent, 7 per cent or 15 per cent, guess who pays. The consumer pays. They pay pre-tax. They pay tax on their income. They have after tax dollars and they have to pay tax on that.
What everyone ends up doing in this country, if they work nine to five, is work half a day for the government and receive half their pay.
How much time do I have left, Madam Speaker?