Mr. Speaker, I am pleased to participate in the debate on the budget, Bill C-50.
When I became a member of Parliament in 1993, the new Liberal government inherited, to be quite frank, a fiscal mess. The expenses exceeded the revenues of the government by some $42 billion in that year ending in March 1994.
It is a situation that members will know. The accumulated deficits of the country had built up to some $500 billion, actually peaking at about $524 billion. It was untenable. We were basically compared to third world countries in terms of our fiscal health.
As debt increases, the cost of borrowing increases and that means that the ability to meet the needs of Canadian citizens is put under pressure and services have to be cut. It was very important and, for the Liberal Party, our first priority was to get our fiscal house in order.
That took some pain. Canadians will remember that there were very significant cuts, not only to the operations of government but cuts in programs, important programs that Canadians needed, but there were some cuts. Everybody had to bear that burden. It was a tough decision to make but governing is about making tough decisions.
Finally, in 1997 we had whittled down that $42 billion deficit and finally balanced the budget. Throughout the 13 years, it was a tough governing period but we continued to pay down debt, to restore the level of services and, in fact, start increasing the level of services provided to Canadians, to the point that when the 2006 election came around, there was fiscal room to meet the need of paying down debt, to meet the need of providing additional services and programs to Canadians, particularly looking at areas of health care and the needs of seniors, of our aboriginal and first nations people, some very important areas, areas of poverty and areas to do with children.
Those were important programs and those were the kinds of things in which we were investing in.
However, just like people who have a house with a mortgage, Canadians expect to continue to make regular payments on that mortgage and save interest.
I can recall when some 40% of every dollar collected by the government in taxes was used to pay down the cost of borrowing money to finance the excess of spending over revenues of the government.
When this budget came out, it made me reflect on where we were back in 1993 after almost nine years of the Brian Mulroney government, where not one year was a balanced budget. Every year, year after year there were deficits. The debt was being built up and Canadians let the Conservatives know how they felt about the fiscal mismanagement in that election in 1993. They reduced that party from a majority government to only two seats in the House of Commons.
That is how significant this matter is in terms of how Canadians feel about whether or not a government can be a good fiscal manager, because if we do not take care of the finances of the nation, we do not take care of the people of the nation.
We saw in the budget that there was, as a result of inheriting the fiscal position that we had, a good, healthy position, that the government enjoyed a $13 billion surplus in its first year. It has gone down a little in terms of the projections, but what concerns me is that two major decisions were taken by the government and they were on the same item. It was the cut to the GST.
Providing Canadians with tax relief is always important when it is earned, but we must remember that there is a difference between giving someone something once and giving to people year after year the same amount.
If we take some $5 billion to $6 billion a year for a one percentage cut in the GST and then we do a second cut, all of a sudden, $10 billion to $12 billion of the annual surplus that we were enjoying to be able to pay down debt and to invest in Canadians, is gone. In two years out, looking from that budget, the surplus projected by the government will be less than $2 billion.
All of the hard work was to establish the security that we need to deal with fiscal challenges that are unforeseen. A prudent government says that we should not play with a zero balance in our bank account. We need to keep some savings there. We need to ensure there is a bit of latitude to deal with the ebbs and flows of the economy.
Now we are facing situations where it appears that we have already had one quarter where we had a decline in growth. It appears that Canada may very well go into a recession.
We have seen it, particularly in terms of the manufacturing sector. Jobs are being lost and people are becoming concerned. The confidence level in the government is dropping and it is all because of economic certainty or uncertainty. People care about their jobs and they care about paying for that next bill.
The government had better be there to take care of those needs because we do not know how protracted an economic downturn may be. We do not know what will happen in the U.S. but we do know that we are inextricably linked to their economy.
When we take over $10 billion out of the financial flexibility that a government has, we have no flexibility and no latitude to deal with the unexpected.
The government has not used prudence in its forecast. It has not used a contingency fund to provide for the eventuality of a thing like a SARS epidemic, which cost a very large amount of money.
I wanted to make that point only from the standpoint that it appears that we have come from a period of the last Conservative government that was in power up to 1993, passing off a $42 billion annual deficit, spending $42 billion more than it took in.
We came back with financial health under the Liberals and now the curve is going down again. It appears that we are going back to being at risk of going into deficit yet again. This is of concern to Canadians and it should be of concern to all parliamentarians.
The other matter I would like to briefly talk about is an item in the last budget called the tax-free savings account. My first reaction as a chartered accountant was that this was another administrative burden, a tax gimmick, that sounds good but that will not translate or deliver what it seems to be.
The Conservatives say that this tax-free account will allow people to put $5,000 a year into the account and anything they earn on that, whether it is interest income or dividend income or whatever, they will not have to pay tax. It will be a tax-free account. That sounds really terrific, $5,000 tax free. However, that $5,000 is not tax free because that is tax paid money. A person has to earn the money and have $5,000 of tax paid money to put into the account.
However, because this program has special conditions attached to it, every Canadian who wants to participate in the program will need to open a new bank account. The banks, however, will not do this for nothing. They will charge service charges on a monthly basis. If people want to do a transaction, such as buy stock, commissions are involved. It will be the same for term deposits. Does anyone think these agencies, whether it is an investment house or the bank itself, will provide all these services for nothing? That is not the case.
I just took a very simplistic example. Let us look at a basic savings account where someone was able to invest through the bank in a $5,000 term deposit that earned 5%, much more generous than we could earn today, but as an example, 5%.
If someone was earning $35,000 a year, making 5% on $5,000 would actually save the person $61 in tax on the interest earned. The person's taxes would go up. If the person made $70,000 a year, the person's savings on the same amount would be $88. If the person made $100,000, it would be $108. Those examples are to illustrate that the higher the level of income the more a person can benefit from this instrument.
I believe the instrument missed the target because it skews the benefits to those who have money, not providing a savings opportunity and a tax savings opportunity to Canadians who really could use the help.