Mr. Speaker, I have the pleasure to speak to Bill C-67, an act respecting allocation of unanticipated surpluses and to amend the Income Tax Act.
I would like to take this opportunity to describe the key benefits of the legislation, how it strengthens the accountability, transparency and balance of the government's fiscal policies.
I will start by outlining the reasons for introducing a bill that specifies how to allocate unexpected surpluses over the next five years.
The story actually begins more than 10 years ago, when the Government of Canada realized its fiscal course of deficit financing and ballooning debt loads was simply unsustainable. Drastic action was required and drastic action was taken. The government and all Canadians took the often painful steps needed to put this nation's fiscal house in order.
A few years later, our current Prime Minister, then minister of finance, presented the first fruits of these labours, a balanced budget. That budget eight years ago was the start of a string of eight balanced budgets, a record never before achieved in the history of Canada. We have since benefited in countless ways.
For example, some $3 billion in interest savings has been freed up for investment in Canadian priorities like health care and education. In 2004 and 2005, the government spent just over 17¢ of every revenue dollar on interest on the public debt. This is down considerably from the peak of approximately 39¢ in 1990-91 and is the lowest this ratio has been since the late 1970s.
In addition, our debt load has fallen $63 billion since the government balanced the nations books and is now below $500 billion for the first time in over a decade. These balanced budgets have earned Canada international bragging rights as our net debt burden for the total government sector is now the lowest in the G-7. As recently as the mid-1990s, it was the second highest.
Finally, these balanced budgets have earned us the highest possible ratings by all credit agencies for federal debt, a spillover reward that benefits all Canadian borrowers and debt issuers in the process. This is in great part due to Canada reducing federal debt as a percentage of the economy from its peak of 68.4% in 1995-96 to its current level of less than 39% today.
These are impressive achievements, and it is a rare one since, unlike Canada, many countries today are in no position to contemplate what they should do with any surplus, expected or unexpected. Thanks to this long term, prudent fiscal planning, Canada is the only G-7 country to reduce its debt burden and record a surplus this year, and the only one expected to do so next year and the year after that.
At a time when most industrialized countries must prepare for the fiscal demands of an aging population, Canada is one of the very few currently reducing its debt load before those predicted extra costs become a reality.
We have now reached a point in Canadian history where Canadians expect nothing less than balanced budgets or better from their federal government. The result is that our commitment to achieving balanced budgets has, more often than not in recent years, resulted in surpluses being larger than anticipated in our budget forecasts. It is a problem most countries would surely envy, yet the consequences of our unwavering commitment to balanced budgets are often large budget surpluses with one destination: debt reduction.
Under current legislation, any unanticipated surplus must be applied exclusively to the debt. This prevents our government from using these unanticipated resources for any other purpose.
By no means am I implying that debt reduction is not a productive use of budget surplus; quite the contrary. We now benefit as a country from a debt load which is $63 billion lighter than it was when we first balanced our books. Debt reduction will continue to be essential to eliminating a financial burden that would otherwise weigh down future generations of Canadians and to ensuring that money will always be available to help cope with the unexpected.
However, amidst all of the rewards of higher than anticipated surpluses, we were still missing a key fiscal tool, choice. Regardless of the priorities of parliamentarians and Canadians following a budget surplus, we were severely limited in how we could use it.
It was in part this lack of options which led the government to ask Mr. Tim O'Neill, former chief economist and executive vice-president of the BMO Financial Group to review the Government of Canada's fiscal forecasting process. In the key recommendation of his June report, he concluded that if the government wished to retain its no deficit rule, it should adopt a more formal and structured process for dealing with fiscal surprises.
For the reasons I have already described, the government has no intention of abandoning a balanced budget commitment that has served Canadians so well. As the legislation in front of us today clearly indicates, we have listened to Mr. O'Neill's advice. We are responding with a sound approach to unanticipated surpluses that is very similar to what Canadians have told us time and time again are their priorities.
As the Minister of Finance stated on October 7, Canadians have consistently made it clear that they want us to pursue a balanced and fair approach to how we manage tax dollars by allocating resources among tax relief, social and economic spending and debt reduction. This legislation does exactly that. It extends that approach to future unanticipated surpluses starting with the current fiscal year 2005-06.
The bill would grant authority for the government to allocate any unanticipated increase in the surpluses over the $3 billion contingency reserve among tax relief, priority spending and debt reduction. The contingency fund of course would continue to be diverted toward debt reduction if not needed for emergencies during the fiscal year. The legislation also takes into account the spending priorities set out earlier this year in Bill C-48, an act to authorize the Minister of Finance to make certain payments.
Bill C-67's unanticipated surplus allocation would only be triggered once the surplus is higher than the $3 billion contingency reserve and once spending on Bill C-48 initiatives are included. The legislation would be effective for the next five fiscal years and the precise allocation could change in any given year depending on the size of funds available and government priorities.
On the tax side Bill C-67 specifies how one-third of higher than expected government revenues would translate automatically into a bottom line benefit for taxpayers starting with the 2006 tax year. Tax relief provided under the legislation would be delivered to taxpayers through a one time tax credit when Canadians receive their tax assessment. Under the new legislation the tax relief may not end there, but become an ongoing reduction for Canadian taxpayers.
Bill C-67 would allow the government to make the tax relief permanent subject to the Minister of Finance's assessment that the fiscal impact in following years would not affect the government's ability to prudently manage resources and continue to meet the country's spending priorities.
How would the tax relief provided under the legislation work? Allow me to demonstrate using the current fiscal year 2005-06 as an example. Any unanticipated surplus would be determined in September 2006 with the release of the final surplus figure in the annual financial report. At that time the tax relief set out in Bill C-67 would be announced.
This tax relief would be included on every Canadian taxpayer's notice of tax assessment, which in this case would be delivered early in 2007. Those who paid less federal income tax than the maximum benefit in the preceding year would receive a credit offsetting this previous amount. All other taxpayers would receive the maximum benefit under the bill on their notice of tax assessment.
The Minister of Finance would confirm if individual taxes would be permanently cut, starting in the 2007 tax year, by the same amount as the tax relief. This would be done by adjusting a taxpayer's basic personal amount; that is, the amount of income all Canadians can earn without paying federal income tax. Deductions would automatically be reduced on Canadians' pay cheques or government income payments in order to reflect the permanent increase in the basic personal amount and corresponding changes to the spouse or common-law partner amounts. This would represent tangible, ongoing tax relief benefiting all Canadians. It would build on the $100 billion tax cut plan of 2000, which continues to benefit all Canadians today.
Let me state emphatically that this bill does not by any means signal the end of the government's commitment to tax relief for Canadians. Rather, this legislation would be above and beyond any tax reduction plan the government may come forward with in the future. In fact, the legislation has the potential to accelerate previously announced tax reforms by accelerating the increase in the basic personal amount to $10,000 by 2009, which was announced in budget 2005. Increasing the basic personal amount to $10,000 would remove approximately 860,000 low income taxpayers from the tax rolls, including nearly 250,000 seniors. Thanks to Bill C-67, we could well reach that worthwhile objective much sooner.
On the spending side, Bill C-67 would specify how end-of-year spending, again starting with the current fiscal year, could go directly toward clearly defined priorities identified at the time of that year's budget and resulting budget legislation. The extent to which one-third of the unanticipated surplus is allocated to spending in every year would depend on the spending priorities identified by the government.
That would ensure appropriate parliamentary review, debate and approval, and would further strengthen transparency in how government spending priorities are determined. It would allow Canadians and this Parliament a vital opportunity to debate the allocation of unanticipated surplus revenue; in other words, to have a direct say in investments for the future health of this country based on the most up-to-date information on the financial resources then available.
All spending obligations would be taken into account before determining the surplus for a specific fiscal year in accordance with accounting standards. The amount available for additional spending initiatives would therefore be determined after taking into account year-end adjustments.
Let me also state that this legislation would in no way hinder us from dealing with the spending priorities set out in Bill C-48 earlier this year. The government is committed to funding the initiatives set out in Bill C-48. We will continue to move forward on these priorities, affordable housing, post-secondary education and foreign aid, to name just a few, wherever possible.
Finally, on the debt reduction side, both this legislation and the $3 billion contingency reserve would continue the government's disciplined approach to debt reduction.
Let me stress that the introduction of this new legislation is by no means a sign that the government is wavering in its determination to reduce the federal debt. In fact, the contingency reserve would continue to be set aside so that, in the absence of unexpected economic shocks, it would be there to reduce the debt burden of future generations.
Combined with a further debt reduction afforded by one-third of unexpected surpluses the ongoing erosion of the federal debt load should continue each and every year.
The Government of Canada continues to stand behind its stated principle of reaching a federal debt to GDP ratio of 25% by the year 2014-15. At the same time however the transparency and accountability of this legislation will give Canadians and we as parliamentarians a greater say in the best uses of unanticipated surpluses, an objective our recent fiscal review recommended and one that Canadians demand.
I have endeavoured to explain how the legislation works. Let me close by stressing what the legislation will mean to Canadians and their families.
Through its commitment to tax relief, Bill C-67 will mean more money for all Canadian taxpayers through an approach which benefits lower and middle income Canadians most of all. It will mean spending priorities that are set well in advance and will allow everyone the opportunity to participate in the debate and contribute to the decisions on how unexpected financial resources will best enrich the country.
It will undoubtedly mean new chapters in the government's debt reduction success story as we continue our world leading approach of ensuring that our current obligations will never stand in the way of our future goals. Greater transparency, accountability, fairness, balance, in the end that is what Bill C-67 is all about.