Mr. Speaker, this is a good opportunity to rise today to speak Bill C-28, the budget implementation act. At the outset, the Canadian Alliance is very disappointed with the government in terms of its approach to the budget in this year of 2003. We believe it has taken the wrong focus and wrong approach to this budget, and there needs to be major adjustments, even at this stage, to the spending commitments it made.
This budget was brought in on February 18. It increased the amount of program spending by the federal government from $124 billion in 2002 to $150 billion in 2003, a $26 billion increase in three years. That is almost a 20% increase in spending on an annual basis, and clearly it is not sustainable. We pointed that out at the time, but it was pretty clear even back then that this was intended to be a legacy budget for the Prime Minister, and probably a leadership budget for the Minister of Finance.
What we told the Liberal Party and the people of Canada on February 18 is just all the more accentuated now because there are significant changes to the economy that would indicate the government simply has to move away from some of the budget commitments it made on February 18 in terms of the spending; spending increases that clearly cannot be maintained or sustained. The reason I say that is because we are seeing a lot of factors starting to gather. However even back on February 18 it was clear the economy was starting to slow down.
The United States economy was bumping along the bottom in terms of major changes such as the collapse of the IT sector, the information technology sector of the United States. Also the stock market had a big hit in the United States in terms of the confidence of the people who were buying stocks. By the way, that is a pretty big part of society in the United States. Almost 30% of the public own stocks and bonds. The Americans confidence was hurt by some of the scandals in the United States leading up to Enron and other matters, and it was clear the United States economy was not going to recover very quickly.
How can the Liberal Party suggest that Canada can go it alone in terms of growth in the economy if the United States is not growing or if the recovery is not underway? It was clear back then to us that could not be maintained. Now we see the Bank of Canada and other economists around the country saying that rates of growth have to be adjusted downward from those projections made by finance minister on February 18. He was talking about 3.2% growth for next year but it has already been revised down to 2.5% and may be revised down further.
We have a number of factors right here in Canada that are having a major effect on the economy. The rising Canadian dollar, or the depreciating U.S. dollar, is one of those. The 2% spread in interest rates between Canada and the United States is attracting investment in Canada and driving up the Canadian dollar. The huge current account deficit in the United States is driving down the U.S. dollar against other currencies around the world.
This should be a celebration for Canada. Canadians should be able to celebrate the fact that our dollar has appreciated. Unfortunately, past policies by the Liberal government and the other one sitting down the way, when it had its brief time in office, had a major detrimental effect to the Canadian economy. We are now only 80% as productive as the United States. Our living standards are only 70% of that of the United States. Clearly these have a big impact on us.
One would think that a rising dollar should be good news for Canadians, and it is for some people. However we are a major exporting country and as such, the cost of production in Canada has to be lower to compensate for the cost of the Canadian dollar. Clearly that is starting to have an effect on the economy. There are industries talking about layoffs as a result of it.
Over 30 years we have seen this long term decline. I do not think it was a natural decline. Back 30 years ago, and over the 100 years previous, the Canadian and the U.S. economies could be charted on an analytical basis. There are people who chart these things. Through good times and bad times, ups and downs, the graphs showed basically the same function for the two economies.
About 30 years ago that started to change and the Canadian economy started to dip. I believe it was because of public policies that were pursued by the Liberal and Conservative governments of the day that had a major impact. In fact the size of government in the United States has not changed much in 30 years, representing roughly 30% of the GDP of the country. In Canada in 30 years, those fellows across the way have grown the size of government from about 30% to 42% of GDP of the country. That takes up a pretty big chunk of the economy.
If this was all productive spending, it would not be too bad, but we know there is a lot of waste in government, particularly in this government, for things like the gun registry which has cost $1 billion and is still running. That really personifies what the problem is. The government has wasted $1 billion in the EI program. A lot of grants and subsidies have been given to the business sector, and some people would say that is a good thing.
If Canadian taxpayers wants to invest in General Electric or Bombardier, they can do that. There are stocks out there that they can buy. They should not have to do it as taxpayers of the country for something committed to by this Liberal government. Those are the kinds of things that have caused the Canadian government to rise as a percentage of GDP and a bigger take of the economy. This is part of our productivity problem.
Witness after witness appeared before the industry committee. Three major studies have been done at the industry committee about Canada's competitive position and our productivity. They have told us that we need lower taxes in Canada, probably lower than the United States, to have a competitive edge but we do not have that. The U.S. President pushed a package through Congress the other day for about $500 billion, Canadian, a further tax cut in the United States. We were already behind the United States in corporate and personal tax income rates and it is moving further. That will put us into a more uncompetitive position.
What we need is a realistic approach to this. The government has to have an economic statement recognizing the problems we have with the rising Canadian dollar. We need to recognize the slow down in the economy. We need to recognize that things like SARS and mad cow disease do have an impact on our economy. The closure of the Canada-U.S. border to imports of over $4 billion worth of beef has an impact.
The Canadian dollar rising 18% without any corresponding decrease in corporate or personal tax rates and red tape also have an impact. A canola farmer knows that instinctively. The price of canola went down from $8 a bushel to $7 a bushel just on the exchange rate. There is no corresponding decrease in the cost of production. This is hurting us and will continue to hurt us unless the government reacts by dealing with this productivity factor. The government has to lower tax rates.
I call on the government to accelerate its corporate tax cuts which are being done over five years. There are some budget measures on resource tax allowance and some things have been done on the capital tax. However they have long phase-out periods of five years. I call on the government to move quickly to bring those tax cuts in on an accelerated time schedule.
We have a problem here. The Liberal government is absolutely committed to spending. It is the old tax and spend regime. It is like the Trudeau era Liberals are back. These are the kinds of Trudeau era policies that got us into all this trouble to begin with. That government had spending rates of 6%, 8% or 10% a year. Under the current Prime Minister we are back to these rates. This year's spending alone has increased by 12% or 15%. How can that be maintained? It cannot be maintained, and it was clearly evident at the time the budget was brought down.
The Prime Minister and the finance minister buried their heads in the sand. The Prime Minister wants to do a bunch of social spending because he has to buy himself a legacy. That is a sad commentary, after 40 years in office to have to think of some way a new spending program can be invented in order to have a legacy for oneself. That in itself in my view is the legacy, and it is not a very good legacy at that.
The Liberals have put us in a very difficult position. They have a dug a hole for Canada of which it will be difficult for us to dig out. I believe we have the potential to have a far better and stronger economy than the United States. We cannot do that if we have been harnessed by bad policies over 30 years which have put us into a very uncompetitive position versus our major trading partner.
Why is it important that we compare ourselves with the United States? It is important because of the two-way trade flow and business we have between our two countries. We know that 87% of our exports go to the United States. The exports to the United States alone account for almost 40% of the GDP of Canada per year.
We have to think about what happens if we are not competitive and we lose manufacturing plants, such as DaimlerChrysler to the United States, because it is concerned about things such as border security. We know that 80% of the production of the automotive sector in Canada goes into the United States. Border security became a problem after September 11. The government clearly is not willing to talk with the United States about security issues. There is hardly a working relationship between the Prime Minister and the President of the United States.
Although, the Prime Minister finally did make a phone call yesterday after months of not wanting to talk to the President of the United States. I hear he talked about baseball. I hope he talked about things such as the Canadian border in relation to the BSE issue and about a number of other issues, such as security issues about which the Americans are clearly concerned. Like it or not, the Americans will take measures to deal with that security issue on the Canada-U.S. border. That could result in a slowdown of product crossing the border.
Two and a half years ago I was in a major steel plant. To illustrate how integrated we have become and how business works across the Canada-U.S. border, the steel rolled that day had been ordered about four months earlier. One thing I did not know is the plant makes about 200 different types of steel there. It is a very specialized business. The steel rolled that day was shipped out that very afternoon to a car manufacturing plant. It was stamped into fenders later that afternoon on a just in time delivery basis.
What does that mean? Why has the plant done that? It has done that because the cost of production has been too high. The plant had to get efficiencies into the system. The cost of carrying inventory is very high. Basically the steel plant eliminated that problem. It does not have to carry inventory any more as a result of delivering that product on a just in time delivery.
Why is that an important factor? It is important because any slowdown at the Canada-U.S. border influences that. All of a sudden if companies have to begin carrying inventory again, there is a massive cost to that. Therefore, the United States is concerned.
Companies that are thinking of new investment in Canada are concerned too because if there is a slowdown at that border and 80% of their production goes into the United States, then they might as well locate their plants in the United States.
There are a few other problems on the horizon that we have been dealing with for a while. They also have to do with a poor Canada-U.S. relationship. It is something the government has actually been very bad at. In fact I think the government enjoys tweaking the nose of Uncle Sam and sticking its finger in his eye. I am talking about duties that have been put on wheat for Canadian farmers.
I think this action is in direct response to a government that has not cooperated with the United States on a number of issues. We think the softwood lumber issue with the United States will be resolved in our favour but it has been a longstanding dispute. It costs our Canadian producers 27% duty I believe. On top of that the Canadian dollar appreciating has made it very difficult for our softwood lumber producers to compete in the United States. There have been some job layoffs.
These are the kinds of things that have to be addressed. This is the reason the government needs to come out with a new economic statement this spring. It has to recognize the realities that there is a changing situation with the economy. It has to recognize that it clearly made a wrong assessment, that the United States is not recovering as quickly as it thought it might.
United States interest rates are still only 1.25%. There is a concern about deflation in the United States and the economy is not responding very fast. So, between that and the rising dollar as a result of the depreciating U.S. currency, these are causing us a great deal of difficulty.
I call on the government to bring in a new economic statement where it would accelerate corporate tax cuts and take into account what the United States just passed through its congress, a massive tax bill of over $500 billion dollars over 10 years. Some people think that this may be picked up and continued on, and it may be a lot more than that.
We were far behind in terms of charging too much in taxes. Now the United States has moved the yardstick even further and it is clear that Canada must react. The finance minister is finally admitting that the economy will not perform as well as he suggested on February 18. If he has already made that assessment, perhaps he should come out with an economic statement that says we are prepared to make those necessary tax cuts on the personal income tax side and go further on the employment insurance rate cut so we stop overcharging Canadians.
Even this year the government is overcharging Canadians almost $3 billion in terms of excess employment insurance rates. This just goes into general revenue and as we know there is a lot of waste by the government. Day after day we hear about the ad contracts where millions and millions of dollars are being wasted.
The government and the finance minister are clearly distracted. He is running for the leadership of the Liberal Party. He is hardly ever in the House so that we can ask him a question. Clearly his focus is not where it should be. If he cannot handle the job, perhaps he should step down as finance minister and let somebody take over while he is running his leadership campaign.
We on this side have somebody we could suggest. We could clearly provide a few names for him in terms of doing that. If he is going to take his job seriously he had better come up with a new improved economic statement that would recognize the new realities of the Canadian economy and our major trading partner. We need to make the proper adjustments so that Canada can be competitive and get back on the road to improving our competitive position and productivity.
That is my challenge to the government. We want to see an economic statement this spring that would recognize all of those realities that I have just been talking about.