Madam Speaker, the debate on the social union initiated this morning by the Bloc Quebecois is taking place against the backdrop of an economic downturn, which makes it all the more urgent to adopt a series of measures to reinvest in the economy the money accumulated at the expense of everyone but the Minister of Finance to stimulate economic growth.
We have suggested, and we are doing it again in this debate, that an increase in the social transfer could, in part, serve that purpose, particularly to finance social security, post-secondary education and, of course, health.
Since mid-August, the Bloc Quebecois has been warning the federal government that a major economic downturn and even a recession could be expected in the next few months. In August, we could already see some signs of this, since the growth in the GDP had been slowing down for three consecutive months, that is in April, May and June.
Last Thursday, Statistics Canada announced a decrease in the growth of the GDP for the fourth month in a row, which means that, according to the figures registered or estimated by Statistics Canada, the Canadian economy lost over $5 billion in the last four months, which means about $200 per person in Canada. In four months, due to negative growth, $200 from our pockets were completely squandered.
Two more months of economic downturn will usher in a full recession. Six months in a row of reduced growth of the GDP is the very definition of a recession.
Two major factors explain the downturn in the economy we have been seeing in the past four months. First, there is the Asian crisis which is exacerbated by the crisis in the former countries of the Soviet Union, mainly Russia. Those two crisis combined have resulted in an increase in uncertainty all over the world, in a decrease in the value of our exports of raw materials, especially to Southeast Asia, which in turn resulted in a decrease in the demand for the Canadian dollar and therefore a fall in the value of our currency.
In the face of this world uncertainty, speculators have turned to what are called safe havens, in particular the U.S. dollar which they have bought in large quantities. They shied away from the Canadian dollar, thus accentuating the downward pressure on our currency.
Everywhere, the consequences of this crisis have been enormous. The fall of the Canadian dollar may be profitable in the short term for the tourism industry, for example, but it is not profitable in the long run in the high tech sector, in particular in those sectors where inputs have to be bought in the United States, in those sectors where high tech electronic equipment must be bought at higher prices. Since Canadian business must pay more for this equipment, we become less competitive at a time where we are already facing an economic downturn not only nationally, not only in Quebec and in Canada, but also internationally.
The second factor responsible for the decrease in Canada's GDP is the federal government. For several years we have been telling the government that it cannot make deep cuts in social programs, such as health care, post-secondary education and welfare, and in transfers to the provinces in general, help itself to the employment insurance fund surplus and maintain artificially high taxes without causing an economic slowdown.
In four years of Liberal government, taxes going into the federal treasury increased by $37 billion. Individual taxpayers had to pay $20 billion more in federal taxes, and businesses had to pay $17 billion more. These $37 billion taken out of the economy inevitably contributed to the economic downturn.
The artificially high employment insurance premium rates are just another tax in disguise, adding to the tax burden of businesses. In a situation where the economy is slowing down and where the cost of buying foreign goods has increased because of our falling Canadian dollar, now is not the time to maintain premium rates at the current high level.
The government is responsible for the economic downturn because it has failed to substantially reduce EI premiums and because it has chosen to maintain high taxes. It is also responsible because of the billions of dollars it took away from the unemployed two years ago with its employment insurance reform.
The government cannot continue taking more money from taxpayers. It cannot maintain all kinds of taxes in disguise, such as EI premiums for employers, and think the economy will keep on going.
Moreover, the debt reduction policy is also partly responsible for the low Canadian dollar and for the harmful effects of its fall.
Taking a lot of money, billions and billions of dollars, to pay back part of the debt, can look good. That is what the Prime Minister bragged about last summer. In 15 months, the federal government used $20 billion, which amounts to the surplus found in the employment insurance fund, because the premium rates are too high, or to one and a half times the health budget. They used $20 billion to pay back part of the debt.
What impact did this $20 billion payment have on the Canadian and world markets? It flooded the money market with new Canadian dollars, which reduced the value of the loonie. That is what this federal policy did.
To understand the situation, one has to know who the Canadian debtholders are. In Canada, 25% of debt securities, bonds, etc. issued by the federal government are held by foreigners, almost half of whom are American. What did these people do when we bought back our securities, as the Minister of Finance did? What did they do? They exchanged their new Canadian dollars for US dollars, because they are Americans, and by doing so they flooded the Canadian money market with new Canadian dollars, which, in turn, decreased the value of the loonie.
The other debtholders are chartered banks, pension funds, insurance funds. These people were looking, especially last summer, for the best return possible and for less uncertainty. What did they do when the federal government bought back their securities in Canadian dollars? They took the money and either exchanged it for US dollars, which is a sure bet in these times of uncertainty and crisis in Asia, or bought shares in American companies or US bonds, which is a better investment in these turbulent times throughout the world.
The Minister of Finance, who asked the Bank of Canada to step in, especially in August, to support the Canadian dollar, was himself responsible for the precipitous drop of the Canadian dollar and for all its impacts on the competitiveness and on consumer confidence.
The monetary policy and the interest rate policy of the Bank of Canada are the third reason that makes the federal government responsible in part for the economic downturn and, indeed, for the recession that could happen next year if the data continue to show the same sluggishness observed during the first four months.
While we learned, last August, that the GDP had fallen for three months in a row and that other indicators hinted to a major economic slowdown, the Bank of Canada decided to raise its interest rates by 100 basis points or 1%. This 1% raise may seem insignificant, but when there is already an economic downturn, one can deal a death blow to the economy simply with a 1% shock on the monetary market, through an increase in the interest rates.
When the Bank of Canada did that, which was very stupid, the Minister of Finance said that he still trusted the governor of the Bank of Canada, even though the latter is stopping—and I would even say throttling—economic growth in Canada. Gordon Thiessen, the governor of the Bank of Canada, not only made a mistake when he raised the interest rates by 1%, but recently he also sent contradictory signals.
Last Thursday, when the US Federal Reserve Bank lowered its interest rates by 20 base points—it could do so because large economies like those of Germany and the United States must lower their interest rates—the Bank of Canada followed suit in exactly the same proportions. That was nonsense. The Bank of Canada should have done nothing.
That is precisely what is being asked of the governor of the Bank of Canada: to stay put and do nothing. He should lock himself in his office, and think up more intelligent measures than the ones he is taking to stimulate Canadian economic growth.
Why be stubborn, like the Minister of Finance and the Prime Minister who, all summer long, made light of the fall of the Canadian dollar, and even of the economic downturn?
On the contrary, he should admit there is a downturn, that all the experts now agree with the Bloc Quebecois who raised the alarm the very first week of the financial crisis. All the experts are now saying there is no sign that next month or the following one—I am still talking about economic statistics—things will pick up. As I mentioned before, we are talking about the first four months of the current fiscal year, or April, May, June, and July. In August and September, unless one is as short-sighted as the Minister of Finance, the economy did not do better.
In August, the Canadian dollar dived to an all-time low. Businesses were beginning to complain about the increasing costs of American equipment and high technology as a result of the decline in the value of the Canadian dollar. If there was an economic slowdown in April, May, June and July, we should expect the same in August and September. We will then have, according to the technical definition, a recession.
For the last month and a half, we have been asking the finance minister to use if not all, at least most of the actual surplus to promote economic growth instead of using the entire amount to repay part of the debt—we are not against repayment of the debt but it makes no sense in the current climate of economic uncertainty. We are not asking him to spend money recklessly as the Liberal government used to do in the old days.
I remind you that the current Prime Minister was once the Minister of Finance and that he was responsible for one of the largest deficits in Canada, back in the days when the federal government used to run deficits. We are not asking him to fall back into the same bad habits. Neither are we asking the Minister of Finance to repeat his Prime Minister's old mistakes. Since the budget surplus will reach between $12 billion and $15 billion by March 1999, we are simply asking him to take these funds and announce imminent tax reductions and measures that will boost the economy and restore the confidence of consumers, which is now badly eroded.
What is the greatest threat? It is that in a few months consumers, whose savings are unusually low right now, facing uncertainty, a falling dollar, and the do-nothing attitude of the Minister of Finance and the Prime Minister, will decide not to spend, to postpone all their purchases. As I said, with their unusually low savings, they are quite likely to postpone their purchases, and that will be the end. As early as 1999, we will be in a recession, and it will be because of the Prime Minister and the Minister of Finance, who did not take seriously the early signs of a major slowdown in the economy in the last four months. They did not listen to the Bloc Quebecois which, for a month and a half, has been mapping a plan for government action.
What could the government do to stimulate the economy? We are asking for three things. First, implement a series of fiscal measures within a special budget. These measures would include, among other things, a substantial tax break for middle income earners.
We are also advocating a reduction of EI premiums to help employers go through the economic slowdown and help middle income earners who are likely to spend the extra money made available through income tax cuts and premium reductions, thereby stimulating the economy.
And on the heels of the debate on the Canadian social union, we also ask for an immediate increase in social transfers to the provinces. Spending on social programs can also result in economic growth.
Then we are asking the government—this is our second demand—to ask the Bank of Canada to stop making erratic decisions and creating shock waves in the economy. Nobody knows where the Bank of Canada is going anymore. Gordon Thiessen told us “We are independent from the U.S. Federal Reserve Bank”. This does not hold true anymore. Last Thursday, when the Federal Reserve Bank lowered its basic rate by 25 basis points, Gordon Thiessen blindly followed suit, something he should not have done.
A better way to manage the monetary policy would have been to wait and see. His 1% rate increase at the end of August has hurt the economy, but what is hurting the economy even more is that we do not know where he is heading. He has put us in an uncertain situation. He is putting the financial markets in a situation where we expect the worst. Things may not be at their worst, but they could certainly be better. We in Canada are just keeping our heads above water.
Gordon Thiessen should keep quiet and lock himself up as I was saying earlier. Perhaps the Minister of Finance could reconsider Mr. Thiessen's future, for he is the one responsible for our greatly reduced options in terms of monetary policy and interest rate management policy.
Our third request to the government in this economic slowdown scenario is to hold a full public debate on the best way to spend the budget surpluses derived from employer and employee contributions to the employment insurance fund, from the substantial tax increases imposed on middle income Canadians in the last four years, and from cutbacks in transfers to the provinces.
There should be a public debate on these issues as well as on debt management. Why is it important to talk about debt management? Because the government is lying through its teeth. In the latest budget, at page 58, in table 1.13, we read:
We established a debt reduction plan for the next three years. We will use the contingency reserve.
This is a reserve to provide for the unforeseen. It amounts to $3 billion a year. What the Minister of Finance said in his budget is that if this reserve were not used in the three years, it would simply go to repay the debt.
If we calculate—and we are able to do calculations—$3 billion this year, $3 billion next year and $3 billion in two years add up to $9 billion in three years that the Minister of Finance had promised to apply to the debt.
He applied $20 billion in 15 months totally contrary to the promises in his budget and the electoral promises made, whereby 50% of the surplus would go to repay the debt and 50% to reducing taxes and increasing social transfers, especially to support health.
The government has yet again reneged on its promises, as it did with its shamefaced lies over the GST. This is why we have to have a public debate. There is nothing but a wad of lies between what they write, what they do and what they say.
