Madam Speaker, I am thankful for this opportunity to reply to the Speech from the Throne.
I will be splitting my time with my good friend from Humber River—Black Creek.
Like other members, I have been out and about with constituents and others. The general pattern of the conversation is to lament the progress of this pandemic and then the conversation tends to move toward how we will pay for this. The programs the government has put in place are generally well received, very welcome and are life rests to people in real desperation. It is quite right to say that the government has made its balance sheet available to Canadian citizens. Nevertheless, there will be a day of reckoning.
I will focus a bit on the necessity of fiscal anchors, but before I do, I want to point to the central truth of the Speech from the Throne, and that is that we need to do all we can to restore the nation's health. This is the pre-eminent priority of the Government of Canada and should be the pre-eminent priority of the Parliament of Canada. Without the restoration of the nation's health, there simply will not be any restoration of the nation's wealth. The saying that the first wealth is health has never been more true than it is today.
In 1993, The New York Times nominated Canada as an honorary member of the third world. Our debt and deficits had risen to unsustainable levels, vulnerable to inflation, runs on the dollar and other economic shocks. In 1997 through to 2006, the Chrétien and Martin governments paid down the national debt by something in the order of $100 billion, taking the debt-to-GDP ratio from north of 65% to somewhere in the order of 25%. Fiscal discipline and a robust economy allowed Canada to exit its honorary status as a third world nation and become the envy of the G7, the G20 and other OECD economies. We have been living on that legacy ever since.
The emergence of COVID-19 has driven our debt-to-GDP ratio much higher and it is now in the range of 49%. Recently the Parliamentary Budget Office issued a fiscal update. It has made three sobering assumptions: first, that there will be no widely available vaccine for the next 12 to 18 months; second, that current response measures will be withdrawn on schedule; and third, that the Bank of Canada will maintain a prime rate of 0.25% through to 2023 and further maintain its program of quantitative easing.
Between December 2019 and June 2020, Canada's real GDP collapsed by 13.4%, and the PBO does not expect it to recover to the December 2019 levels until March 2022. As the GDP goes, so also go the revenues of the government.
I appreciate the PBO's candour and recognize that all projections, whether they are from the Department of Finance or the PBO, are subject to some very significant caveats.
Canada is a trading nation. It is both a strength and a vulnerability. Our most significant trading partner has been in turmoil for the last four years. We might all hope that November 3 might bring a more stable and predictable relationship, but we cannot count on it.
Our number two trading partner, China, seems to be determined to turn Canada into a vassal state, kidnapping Canadian citizens, making arbitrary trade decisions, practising a hectoring diplomacy and introducing mass surveillance, all of which make the Chinese Communist Party an unreliable partner. The pandemic has woefully exposed our dependence on any supply chain that runs through China. In addition, our third-largest trading partner seems to be consumed yet again by Brexit discussions.
In this gloomy context of unreliable trading partners, an unpredictable virus and unsustainable spending, what is a finance minister to do? Ultimately, the finance minister is the Dr. No of cabinet. However, it is helpful when saying no to attach the no to a stated rationale.
I, for one, would like to see a joint statement from the Department of Finance and the Parliamentary Budget Office giving their best projections on the GDP of the nation. In addition, I would like to see some effort to reconcile any differences. It would be in the national interest to have a common understanding of our fiscal and economic picture.
Second, I would like to see a fiscal anchor or series of fiscal anchors. If there is no fiscal anchor, the ship of state will inevitably go in dizzying circles. There are plenty of anchors to choose from. A stable debt-to-GDP ratio has the advantage of being widely accepted and easily understandable. The disadvantage is in the short run: It will deteriorate very quickly, as both the numerator and the denominator are going in opposite directions.
Another fiscal anchor is a balanced budget. At this point it is an unrealistic fiscal anchor, as implicitly acknowledged by my friend, the Leader of the Opposition, who recognized that balanced budgets may be more than 10 years away. By the way, I was pleased to see him in the House and look forward to his being Her Majesty's leader of the official opposition for many years to come.
Another fiscal anchor is inflation. Some say we should let inflation be the only anchor, or otherwise simply let programs expand. Still others propose a cap on spending. The disadvantage of a cap on spending is that it is entirely arbitrary and lacks flexibility.
David Dodge, the former deputy minister and former governor of the Bank of Canada, suggests a fiscal anchor tied to the cost of the national debt. He suggests that the cost of servicing the national debt should not exceed 10% of government revenues on an annual basis, and that, in addition, we should eventually reduce annual deficits to no more than 1% of GDP. Mr. Dodge also wants all government investments, all programs, tied to an increase in productivity. Canada has for quite a number of years now been a laggard in productivity.
My purpose here is to urge the government to pick a fiscal anchor or anchors to recognize that the Government of Canada is not the economy of Canada. At some point Dr. No has to say no, because to say otherwise would be to cut the ship of state from “wise and prudent management”.
Canada is not like the U.S. It can do wild and crazy fiscal things and get away with it because it is the world's currency. The Canadian dollar is a small currency in a very large pool. If either inflation or a run on the dollar occur, all the presumptions of cheap money are out the window. At this point we do have cheap money. Let us hope that it continues, because a number of the assumptions are based upon this.
With that, I hope the government will commit to fiscal anchors and we can have a realistic conversation about the program mix.