Mr. Speaker, on the surface today the opposition motion calling for an immediate $2 billion boost in federal transfers to the provinces for health care is certainly both timely and constructive. It is timely and useful because the government is right now engaged in its annual pre-budget consultation, a process spearheaded by the finance committee.
It is clear that the issue of health care will be a top priority in the upcoming budget. We welcome advice on the design and amount that this support for health care should take. But what can seem like good intentions does not necessarily guarantee good policy.
Good intentions when they ignore the basic realities and constraints can often lead somewhere very unpleasant, and that is the problem with today's motion. To justify their call to add billions of dollars to federal transfers with an initial jump of $2 billion, the opposition cites a mid-year figure showing a federal fiscal surplus of $10.4 billion. The logic seems clear. The opposition would have Canadians believe that the government is awash in extra funds, so why not open the purse strings right now.
I think we need to be clear. Good policy demands looking beyond the narrow now to tomorrow and the day after. Good government cannot afford to ignore real economic risks in the pursuit of election style spending promises. That is the reason why our government cannot and will not support this motion. It would involve making dramatic spending commitments based on superficial numbers at a time when the global economy faces significant risks and uncertainty and Canada cannot break away from the global economy and ignore the impact it may have on governments and their fiscal outlook in the months ahead.
I welcome the opportunity to address the key issue of the supposed surplus this year. But before I do I want to make clear something about which there is no question and no debate. Health care is at the top of the list for Canadians in every region of the country. It is at the core of how we define ourselves as a national community and it is one of fairness and compassion.
That is clearly why, as the Prime Minister has said, the government will invest more of our resources in the years ahead to reinforce our public health care system. That is to my mind an absolute and unequivocal commitment.
But we also have an absolute and unequivocal commitment to good fiscal stewardship. We will not risk putting Canadians back into the cycle of deficits and debt that put our health care system and our entire social safety net into jeopardy in the first place. That is why in making decisions on further support for health care we will make sure that Canadian priorities are addressed with prudence, not just passion. In other words, we will take the sort of effective long term action that can be sustained year in and year out and not just based on a potential short term windfall.
This takes me right to the issue of the $10 billion mid-year surplus and to the criticism which is implicit in this motion today, that the federal government should not be so cautious about making spending commitments.
One of the reasons our government came to office and was returned last year was that Canadians had seen what happens when government relies on rosy forecasts and wishful thinking. The result was the $42 billion deficit that we inherited and the second largest debt burden in the G-7. We recognized that we had to apply caution to budget planning for a very good reason, so that we could restore confidence in the ability of the government to manage the country's books. That is why we set the two year rolling targets, so that the public could keep our feet to the fire.
As important, we used economic assumptions that were much more prudent than the average of private sector forecasts. This is reflected in a fundamental fact, that with Canada's high debt burden we could not simply rely on assumptions that had only a 50:50 chance of being right. If we were wrong it was the Canadian taxpayer and the Canadian social safety net that would bear the burden and feel the pain.
Now after years of efforts and sacrifice by Canadians to clean up the mess, and despite the fact that our debt burden is still high, there are critics who want people to believe the government should be less careful with the nation's finances. They refer to recent numbers as evidence that the government is being overly cautious and potentially hiding large amounts of money.
Today's motion is a case in point. The hon. member is trumpeting the fact that the results for April through September of this year have been quite strong, with a cumulative surplus to date of $10.4 billion. His implication is clear. Whatever happens in the coming months, he wants us to believe there will obviously be a substantial pile of funds at year end that should have been drawn on now to boost health care. It is easy to jump to the conclusion if we are not responsible for the results. But for a government it is both dangerous and misleading to do so.
First, given the recent downward revisions to the Canadian economic outlook as a result of the global economic situation, there is a real risk of a significant deterioration in the fiscal situation. We have already seen the preliminary indications of the impact of slower economic growth on government revenues. Since June we have had only one month in which the surplus was larger than that recorded a year earlier. The weakness in the economy could easily reverse the gains that we have made to date.
Second, the hon. member does not seem to realize that the government receives between 25% and 40% of corporate income taxes in February and March. That is the settlement period for large corporations. There are some real implications for this year's ultimate fiscal situation. It means that the full impact of slower growth in corporate profits will not be evident until the end of the fiscal year.
Third, the income tax cuts announced in the 1998 budget just started to come into effect in July. This will reduce personal income taxes by $1 billion this year alone and by $2.3 billion next year. In other words, the first half's surplus involves a mixture of apples and oranges when it comes to the full year revenues.
Finally, spending measures announced in the 1998 budget for this fiscal year are still being put in place. That means they have not shown up yet.
All these considerations explain why, at the time of the finance minister's October economic and fiscal update, already showing a surplus of $8 billion for the period of April to August, that led to private sector forecasters such as the Royal Bank, CIBC and Nesbitt Burns to revise down their expectations for this year's surplus to about $5 billion.
There is even a more dangerous flaw in a motion that takes a six month surplus and extrapolates this into the longer term spending capability. Fiscal results are for a single month or a quarter or for a year. But spending like the CHST continues year after year. A $2 billion increase now means providing that additional $2 billion next year. In other words, whatever the final outcome for the current fiscal year, the 1999 budget must be based on the fiscal situation that will prevail in 1999-2000 and beyond. New spending programs and tax changes, both of which by their very nature are a permanent expense, can only financed if an ongoing fiscal dividend of sufficient size is available.
One of the vital skills of good government and effective leadership is to expect the unexpected. In today's volatile world economic environment, large differences between a government's original forecast and final outcome for a particular year are not unusual or unique. For example, the United States February 1996 budget originally projected a deficit of $196 billion U.S. for 1997-98. By last February the government was projecting a $10 billion deficit U.S. Both projections fell far short of the final result, a surplus of $70 billion U.S. by the close of the fiscal year.
At the time of our last budget many criticized our government for too being prudent. But the dramatic downward revision in the private sector forecasts since then clearly illustrates why we must stick to our plan.
We are not going to let Canadians return to the deficit house of horrors, not after having balanced the budget for the first time in 28 years. Fiscal prudence is not something we embrace when times are tough and throw out the window at the first sign that our income may being going up. It is a principle that has to be pursued all the time.
There is no doubt there is a need to further support health care in Canada. That need is real. We will make that support a priority. We have said that before. But we will do it in a way and in the amounts that the health care system in Canada can count on. That is why I urge the House to reject today's motion, not because it means rejecting new support for health care but because it means showing Canadians that the support for the health care system we all cherish must be real, reasonable and reliable in difficult times as well as in times of prosperity.