moved that Bill C-67, An Act respecting the allocation of unanticipated surpluses and to amend the Income Tax Act, be read the second time and referred to a committee.
Mr. Speaker, I am pleased today to launch second reading debate on an important new fiscal management tool for both the Government of Canada and the Parliament of Canada: Bill C-67.
This proposed legislation to provide the legal basis for fair, balanced and transparent allocations of any future unanticipated federal surpluses is perhaps the most significant governmental and parliamentary innovation in this field since that crucial time in the mid-1990s when our government fought and won the hard battle to eliminate annual federal deficits. Such deficits had become a chronic bad habit year after year, indeed, for 27 consecutive years prior to 1997.
To put things in context, the economy that we inherited from our Conservative predecessors exactly 12 years ago this week was very nearly a basket case. The fiscal condition of the country was appalling.
There was virtually no growth. Jobs were being shredded. The national unemployment rate was in double digits. The annual deficit was close to $40 billion. Federal debt was approaching 70% of GDP. Interest rates were high. Our precious social programs were in real jeopardy.
Some international observers were even speculating about Canada losing its economic sovereignty.
Things had to change and they did change, after 1993, and surprisingly quickly. We balanced the nation's books by 1997.
This is the first point to note about this new legislation. For Canadians to be able to have a spirited debate about how best to manage ongoing budgetary surpluses, anticipated or not, we first of all must have a surplus to argue about. Less than a decade ago, when we were mired deep in red ink, such a discussion about allocations would have been entirely hypothetical and wildly unrealistic.
This legislation and this debate are really a celebration of success, a celebration of the discipline and prudence which led to the elimination of annual federal deficits and the achievement of eight consecutive balanced budgets, with more yet to come on our planning horizon.
What is the evidence of that success?
From its peak at 68.4% of GDP, Canada's debt ratio today stands at just 38.7% and is on a steady downward track to reach 25% within this coming decade. Our debt load used to be the second worst in all the G-7 group of world leading economies. It is now the best.
The proportion of our debt in foreign hands has dropped from 43% to just 15%.
Debt servicing costs used to gobble up close to 38¢ out of every dollar the Government of Canada raised in revenue. Now it takes only 17¢ to service our debt obligations.
We have earned a triple-A credit rating for Canada, meaning major cost savings for all borrowers, new home and vehicle buyers, other consumers, businesses, the provinces and municipalities as well as the Government of Canada.
We are now saving more than $3 billion every year in federal debt charges that we no longer have to pay. That money is available for better things, like health care, child care, learning, innovation, and infrastructure.
Since balancing the federal budget and keeping it balanced, Canada has enjoyed the best job creation rate in the G-7, the highest ever participation rate in the Canadian job market, the lowest unemployment level in nearly 30 years, and the second fastest growth in living standards in all the G-7.
Fiscal success is about a whole lot more than just a bunch of statistical bragging rights. It makes a real-life difference in the lives of Canadians.
Among only a very few countries in the world, we have earned the freedom and the opportunity to debate our options about what to do with budgetary surpluses. Every other nation in the G-7, and most others around the world, envy that Canadian situation.
That is point number one.
Point number two, what we are talking about in Bill C-67 is only that small portion of government revenues described as unanticipated surpluses.
Contrary to some early and rather misinformed speculation, this legislation is not, and I repeat, not the government's primary instrument for making our major policy decisions about how much to devote each year to program spending or to ongoing debt reduction or to tax cuts.
The vehicle for making these fundamental decisions and for laying out the government's economic and fiscal plans is and of course remains each year's federal budget, and that will not change.
As we put together each budget, using the best external private sector analysis and econometric modelling, and using prudent assumptions and forecasting techniques, we will fashion the government's behaviour to invest appropriately in public programs and services and to cut the tax burden on Canadians, while balancing our books and running a planned or anticipated surplus of $3 billion.
As members of this House know very well, that amount is our annual contingency reserve. If it turns out not to be needed to keep Canada in the black in any given year, that $3 billion goes directly to reduce the federal debt.
But what happens to any larger than expected surplus, that is, any unplanned or unanticipated amount over and above the basic $3 billion? Due to the combined effects of the Financial Administration Act and generally accepted accounting principles, any and all such unanticipated surpluses go, just like the contingency reserve, exclusively and automatically to debt reduction.
There is no opportunity for debate, no flexibility and no choice. There is no judgment brought to bear by either the government or Parliament. It all goes to debt reduction, effectively by default.
There is no way of knowing exactly what that unanticipated amount, if any, might be until five or six months after the end of each fiscal year. That is when we get each year's annual audited financial report with the firm and final numbers.
Experience since we first achieved our positive balance in 1997 has shown that surplus amounts above the basic $3 billion can sometimes be significant, so last year we asked the former chief economist and executive vice-president of the BMO Financial Group, Dr. Tim O'Neill, the dean of private sector analysts, to review our federal fiscal forecasting process and to offer advice about how it could be made more precise. He drew upon not only the best information and opinion within Canada but also the best global advice from the International Monetary Fund.
Dr. O'Neill concluded that if the government is going to retain its strict rule against running deficits, and that is a rule that the vast majority of Canadians now insist upon, if that rule is to remain in place--and the government certainly agrees that it must--then surpluses beyond the basic $3 billion will be inevitable, and there should be a more formal and structured way of dealing with them, not passively by default, but through conscious decision making.
Bill C-67 is a reflection of Dr. O'Neill's recommendations. We did not pull this unanticipated surplus mechanism out of thin air. We took Tim O'Neill's advice. We also listened to parliamentarians. Spokespersons for every party in this House have at one time or another called for something along the lines of Bill C-67.
I could cite members in all three opposition parties, but let me just content myself with the hon. member for Medicine Hat. He is quoted in the September 30 edition of the National Post as saying:
We want to ensure that surpluses are put to some end--services that make a difference in people's lives, or a reduction in taxes that hurt productivity, or debt repayment.
The government agrees and that is exactly what Bill C-67 does.
Let me make this point. Our search for a fair, balanced and transparent process for dealing with unanticipated surpluses does not imply, and let me say that again, does not imply that ongoing debt reduction is not an ongoing priority. It most certainly is.
As a matter of intergenerational fairness, it is important to continue to bring down the mortgage from previous heavy spending that our current generation is passing along to our children and our grandchildren to pay. And as a matter of practicality, reducing past debt helps to build future flexibility to deal with the expensive requirements of the big baby boomer generation that is soon to retire.
That is why we remain solidly committed to a $3 billion annual contingency reserve for debt reduction, plus the fiscal anchor of a targeted debt to GDP ratio of 25% by 2015. I am happy to report that we are fully on track to reach that goal.
As and when the Canadian economy turns in a surprisingly robust performance, to the extent that the available surplus exceeds what was originally anticipated, then we believe the government and parliamentarians should at least have the opportunity to consider their options and to make appropriate choices within a commonsense policy framework. That is what Bill C-67 is all about.
As I said before, it is not our principal means of decision making. That will always come before the fact, before the end of any fiscal year, through the budget itself. Bill C-67 is the fallback mechanism to deal with any late-breaking good news that emerges after the end of any fiscal year but before the final audited annual financial report is available in August or September.
What is that commonsense policy framework in Bill C-67?
Based upon the sound advice that Canadians have offered over 12 years of detailed budget consultations, Bill C-67 provides for an unanticipated surplus to be divided transparently and equally, one-third, one-third and one-third, among: (a) further debt reduction, consistent with rock solid and ongoing fiscal responsibility; (b) further investments in Canadians' most crucial social and economic priorities, like health care, families, learning, innovation or infrastructure; and (c) further personal tax reductions, both immediately and for the long term.
The one-third that goes to debt reduction, in addition to the basic $3 billion in the contingency reserve, will help ensure that Canada continues to reap the huge benefits of being a world class fiscal performer. It will help to keep our credit rating high and our interest rates low. It will help maintain the foundations necessary for greater competitiveness and productivity.
The one-third that can be devoted to further investments in the social and economic well-being of Canadians will be subject to specific parliamentary approval every year. It is not possible, of course, to identify the needs and priorities in advance through an enabling bill like Bill C-67.
Bill C-67 would provide the standing authority to invest one-third of any unanticipated surplus, but exactly how that is to be done and for what purpose would be a yearly decision to be taken in a timely manner by members of Parliament.
Here is how it would work. In or around the time of each budget, the Minister of Finance will identify his proposals for investing one-third of any unanticipated surplus, should one later materialize. It would then be up to the House of Commons to approve those plans, or not, before the end of the fiscal year. It is a completely transparent and democratic process. It allows for intelligent decisions to be made that are appropriate to the changing circumstances of each passing year.
Finally, the one-third of any unanticipated surplus for tax relief may well be the key innovation in Bill C-67.
Over and above the permanent tax reductions that we have implemented already in every budget since we first balanced the books in 1997--more than $100 billion worth so far--and over and above the future tax reductions that we intend to provide in the main body of each federal budget going forward, Bill C-67 will help to ensure that Canada's sometimes surprising economic success will continue to be translated into improvements in disposable incomes and living standards, through personal tax cuts.
The fiscal year ends on March 31. The audited annual financial report of the Government of Canada, which would document any unanticipated surplus, comes out later, in August or September. That is the point in time when any one-third share available for personal tax reductions would be quantified.
To make the benefit available at the earliest possible moment, the government would provide each personal taxpayer with a tax credit against the income taxes they would otherwise have to pay for that very calendar year, that is, the actual year in which the unanticipated surplus is identified. For subsequent years, subject to the initial certification of the Minister of Finance that such a tax cut were indeed sustainable over the long term, the benefit would be reflected in a permanent increase in the basic personal amount that each Canadian taxpayer can earn and retain totally tax free. This would provide permanent tax relief for all Canadians across the board and it would help to take thousands of low income taxpayers off the tax roles altogether.
Bill C-67 is fair, balanced and transparent. It is rooted in democratic procedures. It responds to previous concerns by members of Parliament and is consistent with the advice of external experts. Most important, Bill C-67 is a reflection of the often repeated common sense of most Canadians, which is to say, if the country is fortunate enough to generate additional surplus dollars beyond those normally expected and planned for, then divide that good fortunate in three equal shares to contribute simultaneously to further debt reduction, accelerated investments in the priorities that matter the most to Canadians and lower taxes to boost disposable incomes.
Unlike our friends on the Conservative right wing, we do not subscribe to some monotone mantra that there is no problem in the world that a tax cut could not fix. Do tax cuts and nothing else, they say, “Abraca tax cut and poof, everything will be fixed”.
Unlike the Bloc, we do not believe that the Government of Canada should simply raise taxes only to transfer all the money to the premiers, plundering any surplus and leaving the Government of Canada weak and emasculated.
Unlike the NDP, we do not agree that we can forget about the tax burden, forget about debt reduction and just spend, spend, spend our way to paradise.
Instead we strive for balance, transparency and fairness. We want to give careful attention to debt reduction, program investments and personal tax reductions together. We want to achieve all that in an open and democratic manner, and that is what Bill C-67 does.