Mr. Speaker, I am pleased today to rise in the debate on the prebudget consultations and the process that will take place leading up to the budget to be brought down sometime hopefully in the new year.
The committee travelled extensively and heard from a lot of Canadians. It produced a report called “Canada: People, Places and Priorities”.
The Canadian Alliance recognizes that fundamentally Canadians want an increase in our standard of living. They want a reversal in the long term economic decline. While the Canadian Alliance supports many of the recommendations contained in this report, we do not feel that these priorities have been adequately reflected in either last year's budget or in the report itself.
Last year the Canadian Alliance issued a supplementary report and it warned the government of the need to control expenditures to allow for further tax relief and debt repayments. However budget 2001 did not make these issues a priority, and therefore we feel compelled to raise them again this year.
Furthermore, this year's throne speech increased the pressure to spend with its many promises for new programs. Private forecasts have estimated the aggregate bill for these new spending programs at about $38 billion over the next eight years and this does not include the cost of climate change commitments, especially to Canadian consumers and taxpayers. With recent speculation of a $15 a tonne emissions credit cap for industry, the Liberals appear to be looking at the overburdened Canadian taxpayer to foot the bill again.
The throne speech hardly mentioned the need for further tax reduction and reform. Instead it stated that the government would maintain its commitment to fair and competitive taxes. The Canadian Alliance argues that Canadian taxes are neither fair nor competitive.
It is against this backdrop that the Canadian Alliance has felt compelled to submit a supplemental report. At a time when health care, security issues and taxation continue to be at the forefront of Canadian concerns, the Canadian Alliance insists that the federal government must not be distracted by costly and misguided legacy dreams.
We believe that these are the issues that require attention: government spending; taxes and the tax burden; ongoing productivity and competitiveness concerns; and the debt burden. I will address those one at a time.
Spending is the first issue I would like to address. The Canadian Alliance strongly supports recommendation 2 of the committee report which calls for a balanced budget, a cap of roughly 3% increase on spending to keep in line with the growth of population and inflation, paying down market debt and a ongoing review of federal expenditures. These have all been longstanding Canadian Alliance policies. However these recommendations can only work if they are carried out, which has not been the case to date.
The significance of recommendation 2 pales when one considers the government's recent increases in federal spending. We note the concerns expressed by the Canadian Chamber of Commerce about the increased government spending levels. President and CEO of the Canadian Chamber of Commerce, Nancy Hughes Anthony, said:
In the view of our members, this...creates a very dangerous precedent. If we look at the cumulative government spending, since the deficit was eliminated--very few years ago, 1997-98--that increase is almost 25%.
The Canadian Alliance strongly urges to federal government to discontinue its new spending spree. We agree with C.D. Howe Institute economist Jack Mintz when he said:
Those who believe governments have inadequate revenues to spend on critical public services have it wrong. The problem is that governments misallocate tax dollars by designing ineffective public programs. For example, in 1999 Canada spent almost the same as the United States on health, education and protection, about 16% of GDP--by the way, protection includes defence and law and order...However, Canada spent almost 25% of GDP on other programs and debt carrying charges while the U.S. spends only about 15% of GDP on similar expenditures.
Members can see that Mr. Mintz is saying that there is a 10% gap between Canada and the United States and it makes up that huge difference in the size of government in Canada.
Rather than increasing spending every year as the new priorities are identified, the Canadian Alliance recommends that the federal government show leadership and make the required spending cuts from lower priority areas so that the overall federal spending envelope does not grow faster than population and inflation.
I want to take a moment to talk about the taxes and tax burden. Our tax burden in Canada remains too high. Even after implementing the tax changes announced in budget 2000, Canada will still have personal and corporate tax rates far above the OECD average. Moreover, our overall tax burden remains about 10% higher than that of the United States, as Jack Mintz said.
Currently the federal government's revenues remain at about 16% of GDP. I want to make the point that they are only slightly higher now than they were in the mid-1990s, so revenues continue to grow for the government. In fact, Dale Orr of DRI-WEFA, in the spring of 2000 in a presentation to the finance committee, said:
Total revenues for all governments, netting out transfers, have only fallen from 41% [of GDP] in 1996 to 40.1% in 2002. It will be disappointing for Canadians to learn that this overall tax burden has not fallen that much.
The Canadian Alliance members note that Canada's tax burden will increase even further during 2003 through payroll taxes, as the Canada pension plan premiums are set to increase another half a per cent. That happened since the time the report was written. That works out to $964 million more out of the pockets of Canadian employers and employees. We are not even sure whether that is sustainable.
The former chief actuary of the Canada pension plan was fired, if the House recalls, because he suggested it probably would have to rise to 15%. The former finance minister did not like what he said and therefore the chief actuary got the boot and the government brought somebody else in who would give the government the answer it wanted.
Mr. Don Maunders, the vice president of the Canadian Restaurant and Foodservices Association, had this to say about it:
So when I ask our operators what they need to hire more young people, they're very clear. They say, “Make it less expensive for me to hire that person, and I'll add them tomorrow”. They look at payroll taxes as a particularly expensive barrier to hiring more staff. As labour gets more expensive, they look for ways to drive more hours out of the workweek.
The Canadian Alliance members reiterate our call for the elimination of the capital tax. We note that the finance committee has once again recommended this move but we urge the federal government to immediately commit to rid Canada of this damaging tax on productivity and investment. It was a recommendation in last year's prebudget consultations and report but it was not picked up.
Recommendation 4 on corporate taxes is somewhat disheartening as the goal of this Liberal Party seems to be to guard against an unacceptable divergence with the U.S. rates. Time and again witnesses before the committee stressed the importance of creating a Canadian tax advantage rather than attempting to keep up with our southern neighbour.
Thomas d'Aquino said in April 2002 that:
--the goal of tax policy should be clear. Competitiveness in taxation is not just a matter of playing catch-up with the neighbors. Rather, Canada should be trying to create a meaningful advantage over its major competitors.
Nothing much has changed since then.
Last, the Canadian Alliance members recommends that the federal corporate tax rate on profits from the resource sector be brought in line with other sectors. It is a drag on the economy. It is a drag on investment. We have had many submissions before us from people in the mining and petroleum industries asking why they are being treated unfairly and why they are not the same as all other industrial sectors in Canada.
The other is the ongoing productivity and competitiveness concerns. The Canadian Alliance is deeply concerned that the reports attempt to play down Canada's problems with productivity and international competitiveness. Many witnesses expressed concern that the productivity gap between Canada and the United States remains wide and continues to grow.
The report however appears to suggest that revised data has shown that the gap between Canada and the United States is smaller than previously thought. There is a well documented 30 year decline in Canada's standard of living that can hardly be made up by revising data. Unfortunately, this is typical of the denial of the Liberals of the role that public policy has played in Canada's long term economic decline.
According to the Global Competitiveness Report 2002-2003 , Canada tumbled five notches to eighth spot among the most competitive economies in the world. Think of it: 25 years ago the United States was number one in terms of productivity and Canada was number two. We were very close. We are now in eighth place. The U.S. remains number one. Just think of where that puts our Canadian companies that try to compete. We have tumbled and we have the worst rating since 1996. Meanwhile, even with the current U.S. economic troubles, the Americans managed to improve their productivity by 4% in just the last quarter alone and I understand that gap is increasing and growing even today.
Here is what Jayson Myers, the chief economist of the Alliance of Manufacturers and Exporters, had to say about it:
The gap in productivity performance between Canada and the United States continues to grow. Productivity is a measure of the wealth-creating capacity of the economy. It's also a measure of return on investment. Our lagging productivity performance is therefore not only an indication that real incomes of Canadians are falling in relative terms to those of the United States, but is also a reason why Canada's share of foreign direct and portfolio investment is declining, and why the Canadian dollar, in spite of all efforts aimed at improving fiscal and monetary fundamentals in this country, continues to depreciate against its U.S. counterpart.
It is roughly 63¢, a big decline since the Liberal government came to office in 1993, and a huge decline in the last 25 years. That is what Jayson Myers had to say about it.
The most troubling matter is the government's longstanding refusal to acknowledge the failure of its own policies to encourage innovation and productivity. Liberal members who comprise the majority of the committee did not recognize the role that successive Liberal governments have played in hindering Canadian economic progress and development. This state of denial is negatively impacting Canada's standard of living, which is currently 30% lower than that of our American neighbours.
What about our debt burden? The Canadian Alliance believes that it is vitally important to control overall spending in order to accelerate debt repayment. Although our debt to GDP ratio has improved, our debt burden still remains very high, and the interest costs to cover that debt continue to be a drag on Canadians.
William Strain, chairman of the taxation committee of the Conference for Advanced Life Underwriting, had this to say about the debt:
Debt is currently at an unmanageable level in relation to the GDP. It's taking 23 cents of every tax dollar to pay the interest. That has to be brought down to a more manageable level going forward...We're certainly encouraged by the level of debt repayment that has occurred over the last few years, and a commitment, even on a five-year timeframe, in the order of magnitude we've seen over the last few years would be a step in the right direction, to have it up in that $5 billion to $10 billion a year committed repayment level.
That is what he said, but we see no line item in the budget that would deal with this issue. It is just left to happenstance. As the report notes, reducing our debt will result in a permanent fiscal dividend, which can be used in strategic investments and other areas like defence, health care and further tax relief. And we certainly know there is pressure in all those areas as the Liberal government has mismanaged those entire sectors of our economy.
To that end, the Canadian Alliance recommends that planned debt repayment be a specific item within the budget and not left to chance at year-end.
Canada has an untapped potential for growth but Canadians need the proper environment to nurture our prosperity. The Canadian Alliance is confident that Canada can regain its prosperity and competitiveness. However, strong government leadership is required to provide crucial fiscal responsibility. Canadians deserve a significant reduction in taxes and prudent management by government departments. It is up to the government, however, to put those priorities into action in the upcoming budget.
I want to deal for a moment with the mismanagement we have seen, which has led to this 30 year decline in Canada's standard of living. It is pretty tragic, really, to see a great country like Canada brought down to this level, where we have had a decline in our standard of living relative to that of our major trading partner, our neighbour to the south, the United States. Our standard of living is something like 30% lower than that of the United States.
What I really want to get across is that the promotional spin of the Liberals as being good money managers is just that: spin and promotion. The mounting evidence clearly paints a very different picture, one of financial mismanagement and accounting deception.
As I stand here today, Canada's standard of living has been falling in comparison to that of our largest trading partner and competitor for the past 30 years. This decline has been even more dramatic since 1993, when this current Liberal administration took power.
How far have we drifted off course? Many economic commentators describe the last 10 years as Canada's lost decade. In the lost decade under this government, Liberal mismanagement and misguided public policies have translated into unfavourable comparisons between Canada and our southern neighbour.
According to the Centre for the Study of Living Standards, Canada's productivity gap was 19% when we were compared with the U.S., measured by GDP per hour worked. This means that Canadians were only 81% as productive as American workers, not because American workers are working harder but because they have better tools and technology than their Canadian counterparts. I would submit that the heavy hand of government on their backs, taking 12% more of the GDP in this country than it does in the United States, is a major contributor to that.
Hand in hand with the Canadian productivity gap is our standard of living gap, which is now 29%, according to the centre. That means that Canadians are only 71% as wealthy as Americans, measured by real personal disposable incomes. This gap increased from 25% in 1993. It is huge and we are in this major drift. I suggest that it is even worse than drift; it is mismanagement, and even worse than mismanagement, it is wilful mismanagement in many areas.
Once Canada was a long term importer of foreign capital, but today Canada has a direct foreign investment gap of 2%. That means Canadians are investing more money abroad, mainly in the United States, than foreigners are investing in Canada. Why is that? They are investing it abroad because they are looking for better rates of return in other countries. Why can investment in Canada not get a favourable return? The first reason is the Canadian dollar. They have to buy machinery and equipment for their new plants. When they buy that with a 62¢ dollar it makes it very expensive.
Then, when they get their plants set up, what happens? There are higher tax rates in Canada. There are higher payroll taxes and there is higher regulation in Canada. In other words, they are not competitive. Then we throw in the issues like the security at the Canadian-U.S. border. Can we imagine what happens? Then we throw in Kyoto and the uncertainty of higher energy prices. Where is new capital flow going to go? People in Canada are voting with their feet on that issue.
Finally, the Canadian dollar gap is 38¢. The dollar is at about 62¢ as we speak. There was a 23¢ gap in 1993. This is another example of the decade of drift, a lost decade under the Liberal administration.
What about our international relations and security? Under the Liberals, Canada has declined not only economically but also in our political stature on the world stage. We now have gaping holes in our military capability and are letting down our international allies. Liberal disregard and anti-Americanism chauvinism have put the Canadian-American relationship in a dismal state. Our once unprotected border is now armed to the teeth by a distrustful American government. As I said, what effect does it have on two-way flow of trade when we have a slowdown to the extent that we have seen?
Meanwhile, even our Coast Guard cannot adequately patrol our shores because there is no money to put fuel in the boats, which have to sit idle.
The Liberals are more concerned with tweaking the nose of the United States than they are with safeguarding Canadian economic interests.
Another case in point: What have they done in regard to agriculture? And what have they done in regard to protecting us in softwood lumber?
Trade relations with the United States, our major trading partner, are at all time low level. I suggest that we do not have the kind of good relations between Ottawa and Washington that are required with the kind of trade relationship we have. It is neglect and it is worse than that. It is actually tweaking the nose, as I said, of Uncle Sam, and it is not acceptable.
Would good managers develop the kind of public policy that has allowed this to happen? I do not think so.
One of the most significant differences between the American government and the Canadian government is that our government takes up 12% more of the economy than the American government, even though the United States spends more public money per capita than Canada. If the money were going to productive spending such as usable infrastructure perhaps it would do some good, but it is not.
What did the Liberal government spend its tax dollars on? That is coming to light every day in the House. There was HRDC boondoggle from about two or three years ago. There was the case of the Hostess potato chip company, I think it was, which was enticed to move its plant from Niagara Falls down the road 40 miles to Brantford, to the constituency of the HRDC minister at the time. What kind of useful infrastructure spending is that? There was $1 billion unaccounted for.
It is even worse. There is the gun registry. The Auditor General identified a cost overrun of at least $1 billion. The Auditor General had to give up because the paper trail was so bad and the books were so bad that the audit could not be completed.
In fact, my colleague from Yorkton—Melville talks about how far the deficit may run on the gun registry. He says that there are only about two million firearms registered. There are some estimates that there may have to be another 10 million registered. This thing could accelerate to several billion dollars. It is out of control.
The Liberals are not good money managers.
What about Shawinigate? Do members remember that?
What about the ongoing advertising scandal, the wasteful spending through regional development programs and technology partnership scandals?
Why is the Canadian taxpayer in the business of funding business? General Electric, Pratt & Whitney and Bombardier were given industrial grants. Is that what we want to do as a government, give money to huge corporations? What is the trade-off? There is less money for things like health care. There is less money for tax relief. Canadians already know how heavily they are taxed.
These are the kinds of problems there are.
Then, of course, we have Revenue Canada and the GST scandal. CBC has reported that maybe $1 billion has escaped through GST white collar fraud. A lot of it has apparently gone into Barbados and into offshore accounts that cannot be recovered. So someone does a couple of months in jail and when he gets out he has an account for $1 million sitting in Barbados. And they get away with it. That is not just mismanagement. It is wilful mismanagement. It is awful.
This is not even to mention the Enron style accounting practices of the government, such as throwing $7 billion in multi-year funding to foundations, money that is sitting in bank accounts across Canada and should have been used to further pay down the debt. Successive Auditors General have said that this accounting standard is not acceptable.
Before the former minister of finance lost his job, he was in Toronto last spring lecturing the private sector about cleaning up their books and cleaning up their act in accounting. I suggest that he did not have any lessons to give anybody. The Auditor General has been on his butt for a long time in this area and this area needs to be cleaned up.
Under the Liberals, federal-provincial relations have also deteriorated, first under health care funding and now with Kyoto.
Some suggest that this all will be cleaned up. There is a lot of hope about how this will be resolved with the political future of the member for LaSalle—Émard, when he comes into the House as prime minister in a few months and turns the situation around. So I think it is only fair that we examine his record for the time he served as finance minister, from 1993 to the summer of 2002.
Unfortunately, the former minister of finance and the Prime Minister are not opposites, as he would have us believe, but are cut from the same political cloth. They both value political expediency over good policy, wasteful spending over restraint, and accounting trickery over transparency. The true legacy of the former Liberal tag team of the former finance minister and the Prime Minister is that they have ripped the fabric out of the health care system and have pushed it to near crisis by slashing funding for the provinces.
Provinces have told us, and we know in the House, that during the height of those cuts we saw $25 billion lost out of the system in health care. Yes, the Liberals have restored the funding to where it was and to maybe even slightly higher than it was when they cut that funding in 1995, but in the process, $25 billion has gone missing. And we wonder why the provinces have trouble funding health care?
Only out of political necessity did these two co-write the budgets that reduced spending. It was only after six years of tax increases that they finally capitulated to the demands of Canadians, in 2000, by grudgingly reducing taxes. From the highest to the lowest point, program spending fell 14%, or $17.8 billion, according to the government's public accounts, which overstate the decreases and understate the recent increases. These financial statements have become, under this Liberal tag team, as genuine as those of WorldCom or Enron.
As the C.D. Howe economist William Robson remarked after the 1999 budget:
Canadians generally can no longer rely on federal budgets, nor on the figures presented in the Public Accounts at the end of each fiscal year, to give a straightforward account of the nation's finances.
What is he saying? In fact, up until about 1993, they were the standard. He is saying that we “can no longer rely on” the budgets or the figures presented in the public accounts to give a straightforward accounting of the nation's finances. What a strong condemnation.
From this perspective, it is outrageous that the current and former Ministers of Finance would have the audacity to lecture the private sector on its corporate governance and accounting rules. Unlike accounting firm Arthur Andersen, the Auditor General has reported the government's accounting failures many times and has repeatedly requested corrective action, just recently, in fact, on the gun registry and on many others.
However, one of the main legacies of this tag team is unapologetic accounting sleights of hand. Advertising, the gun control registry, and the lost tax revenues through GST fraud and international taxation loopholes are the most recent examples of the Liberals keeping Parliament in the dark. The Auditor General had something to say about keeping Parliament in the dark on the gun registry.
Fortunately for Canadians, the national accounts published by Statistics Canada are based on international standards and provide a non-politicized source of financial information. Unlike the public accounts, the national accounts measure peak to trough decline as slightly less than 9% or $11.3 billion. Historically both sources of financial information were comparable. However, after 1992 the public accounts have presented a systemic understatement of program spending.
That is why, according to the public accounts, program spending was below the record high set in 1993, right through to 2001. In contrast, however, the national accounts reveal that the earlier high was surpassed in 1999. A significant reason for the over $10 billion difference between the two accounts is the public accounts improper accounting of family child benefits and the year-end ad hoc spending such as the spending in the areas that I identified earlier as the foundations. The Auditor General has criticized both those practices. She has criticized the accounting of the family child tax benefits and also the foundations' spending.
While expenditure reduction was an integral part of taming the deficit, what was cut is important. Was it done fairly? No. This Liberal tag team effectively off-loaded its problem by slashing social spending transfers to the provinces. The national accounts reveal that transfers to other levels of governments were cut by just over 20% or $6.6 billion. We must keep in mind that this category includes social transfers and constitutionally required fiscal transfers like equalization and therefore understates cuts to social transfers.
Since the fiscal transfers grow in line with GDP, let us consider the impact of reduced social transfers on Canada's largest province, just that alone. I know that it was not just Canada's largest province that was hit, but let us just look at Ontario alone. Federal cash transfers were cut by 36% or $2.6 billion between 1993 and 1998. Therefore, the source of today's fiscal difficulties between provincial and municipal governments can be traced back to these Liberal cuts.
In direct contrast to the dramatic cuts to social transfers, the Liberal government's reductions in its own backyard were relatively tepid. Spending on the federal bureaucracy fell 7% or $2.6 billion compared to the 20% cut in provincial transfers. What does that say? The government cut its own spending by 7% and cut transfers to the provinces by 20%.
The dichotomy of all this in Liberal priorities extends throughout their time in power. Between 1993 and 2001 the finance minister and Prime Minister tag team increased spending on the Ottawa bureaucracy by 16% or $6 billion. Transfers to businesses increased 9% or $330 million. That was some of the money I talked about going to Bombardier and others. Transfers to the provinces increased just 6% or $1.9 billion. It is clear that the Liberal government cut deeper where there would be less political backlash and reduced expenditures the least where repercussions would be stronger.
The government cut transfers to the provinces. It off-loaded its problem to the provinces to let them deal with it. The dramatic off-loading forced the provinces to reduce their own budgets and resulted in the premiers bearing the brunt of the backlash. This was not done by accident. I suggest the Liberal government knew very well what it was doing. Thus the expenditure reductions were shaped by political expediency rather than good policy.
Members may be thinking that the government cut taxes too and that is true. After six years of tax increases, the Liberals did reduce taxes just before calling an election.
In early 2000 the Canadian Alliance proposed a $100 billion tax reduction program which the Liberals claimed was not affordable. We all remember the ridicule that went on in the House. I remember in 1993-94 the Canadian Alliance, and the reform party before it, had the zero in three program; we would balance the budget within three years. I remember the ridicule that came from across the way. The Liberals said it would be impossible. When they were forced to bite the bullet, the Liberal government actually did it in two years, but we must remember how the Liberals did it. The government did it on the backs of the provinces.
Getting back to the tax cut I mentioned earlier, in early 2000 the Canadian Alliance proposed a $100 billion tax reduction program which the Liberals claimed was not affordable. There was an election in the offing and to ensure electoral success following strong Alliance polling numbers, the Liberals introduced their tax plan to appeal to the growing number of Canadians demanding a tax cut. Although the Liberal plan was smaller than the Alliance plan, it stole several key proposals to augment its political expediency. Members must remember those words, political expediency, because they come up quite often.
The former finance minister and the Prime Minister focused their cuts disproportionately on social transfers and dealt Canada's health care system a body blow. At the same time they increased taxes over 60 times, including bracket creep and CPP premium increases, before capitulating to electoral demands to reduce the tax burden. Yet they still managed to add $40 billion to the over half a trillion dollar federal debt.
The Liberals came to power on October 25, 1993. The federal debt at that time was $508 billion. The Liberal government ran it up to $583 billion in a short period of time before it was stopped. The government has reduced it down to $536 billion I think, but by those numbers that is still a net increase of some $28 billion from $508 billion to $536 billion.
That is the Liberal legacy. They have increased the debt by more than $36 billion. They put taxes up some 60 times in order for Canadians to pay back the debt, but it is still $28 billion higher than when they took office. Out of every tax dollar, 23¢ goes just to pay the interest on the debt. Imagine what we could do with that if that debt was not there, yet there is no real program to pay it down. It is just by accident; if there happens to be a surplus at the end of the year, the government will put it toward the debt. There is no overall plan in the budget to do that.
I ask the Canadian public how the Liberal government would fare as a private company. It gives a lot of advice to private companies these days about getting their corporate governance in order. When I asked the former finance minister before he lost his job last spring about lecturing Canadian businesses in Toronto, he was pretty meek and mild. He knew the Auditor General had been on his case and had said that corporate governance of the federal Liberal government was not that good. In fact I would suggest the Liberals are not good money managers at all. That is being exposed more and more every day.
The gun registry has had overruns from $2 million to over $1 billion and counting. How could that happen? Not only that, the Auditor General said that it was not just an accident, but that the Liberals kept Parliament in the dark in those areas.
I suggest the Liberals are not being responsible when Revenue Canada does not pursue GST fraud by companies and individuals scamming the government. They were not responsible during the HRDC scandal.
The Liberals were not responsible when it came to the advertising contracts. In fact, Groupaction even got in on the advertising for the gun registry. It got a piece of that pie. The Minister of Public Works said that he cut it off, that it got no money but we still see money flowing to it even after it was supposed to be cut off.
I ask the rhetorical question, how would the government fare as a private company? What would its stock be? Perhaps its stock would be 62¢ on the dollar.
The Liberals got 38% of the popular vote last time, and the way they are going I suggest it will be less the next time as they are exposed for what they really are, poor managers. They are back to tax and spend with no regard for hardworking Canadians who feel very heavily taxed. Canadians are among some of the highest taxed people in the industrial world in terms of personal income taxes.
Canadians deserve better. I suggest it is time to turf those guys out of office.
