Mr. Speaker, I suppose I should welcome this opportunity to speak to the Budget but I cannot say I approach this task with a lot of enthusiasm, because there is little to be satisfied with, especially when we have a situation whereby the end of the next fiscal year, we will have a deficit of at least $40 billion. I said at least, and I will get back to this later on.
We now have a bill before the House to provide borrowing authority. I would like to take a few moments to discuss this, because a substantial part of the debt or the interest on the debt is paid abroad. That is the most problematic aspect of the debt, and it is something that is not always clearly understood. Interest paid to Canadians is fed into the economy, so this is a lesser evil. Not so in the case of interest paid abroad.
Take, for instance, someone who borrows $1,000. Mr. Speaker, suppose you were to lend me $1,000. You can see my credit is good, and I pay back the loan as agreed, so you are satisfied. If I want to borrow another $1,000 next year, there will be no problem. However, if you notice I have trouble meeting my payments so that you are not sure you will be paid back, you will start having second thoughts about the matter.
If later on, I want to borrow money again, you will say: Fine, but I want a better return on my investment. Interest increases according to the risk involved, according to a basic financial principle.
That is what we are seeing today in the case of Canada, and that is why although interest rates on short-term loans are low, rates on long-term loans are not going down.
We must borrow to service the debt. The financial markets want a certain yield, and that is why our long-term interest rates are not going down as much as we would wish, which prevents us from investing in a vigorous economic recovery.
For all these reasons, the government will have to put its financial house in order, which is not the case in this budget. This year again, the government failed to act.
I remember how I reacted to last year's budget. It was a disaster. The government postponed many important decisions for another year. Under the circumstances, it was decided to let the future leader of the Progressive Conservative Party and the government make these decisions. This year, with a new government, a newly-elected government with wonderful objectives and nice campaign speeches, we expected a more vigorous approach. It did not happen, and I will give some more details later on.
I heard an analyst give a very good explanation of the situation this week on the Radio-Canada program Le Point . She said that the government must put its financial house in order as soon as it comes to power. During its first or second year. The government failed to do it the first year, and we can only hope it will not let us down next year. This is a serious matter.
The longer a government is in power, the harder it gets to make budget cuts. I remember talking to someone who had been a member of the Quebec cabinet, and he told me: Pierre, when you are elected, you have about six months to do some real house cleaning, because after that it becomes extremely difficult. I found that illuminating.
I hoped that in its first budget, the government would have done more. Spending cuts are not as significant as they would have us believe. The famous five-for-one rule, which says for each dollar of additional revenue, we cut five dollars in spending, should be changed to read: "We will cut five dollars in our spending estimates". This is not the same, because as we can see in the budget votes, expenditures are not going down. We are now at around $122 billion, and it will be like that for the next three years. Granted, in real terms-these figures are nominal values-there will be some reduction in real value.
I will also mention a few positive aspects of the budget. I looked around and found one I want to mention particularly, which is the decision to introduce a permanent program that will allow first-time homebuyers to use RRSP funds to purchase a home. It is a positive measure that was supported by our party and the Reform Party and by Liberal members as well. In fact many people wanted to see this become a permanent measure, and that is now the case. Bravo! That was a good decision.
Another good decision was to roll back unemployment insurance premium rates to $3, but not until 1995. It is a good decision for next year.
That was the good news.
I admire my Liberal colleagues who must spend 20 minutes discussing the positive aspects of the Budget. I admire them because personally, I could do it for only two or three minutes. That is quite an achievement, Mr. Speaker.
Now, on to the deficit. I looked up a number of figures, not to give you a personal history, but to give you a history of the state of our public finances since the year of my birth. In fiscal year 1971, the government recorded a deficit of $379 million.
Let me quickly give you some figures. In 1972, the deficit stood at $614 million; 1973 was a positive year; in 1974, the deficit stood at $672 million and this is when things started to snowball. In 1975, the deficit increased to $1 billion. By 1978, it had surpassed the $10 billion mark. The situation improved slightly in 1979 and 1980, when the deficit fell from $16.2 billion to $11.5 billion. One could have thought that we were on the right track, but no, the deficit continued to spiral upward.
The deficit in 1982 was $14.9 billion. By 1983, it had increased to $29 billion, with no relief in sight. The situation improved slightly during the mid 1980s, but the upward spiral continued in 1992 and 1993. The extremely high deficit, which stood at $34 billion for the 1992 fiscal year, increased to $40 billion for the 1993 fiscal year. This year, it will stand at $45 billion, while projections for next year put the deficit at $40 billion.
It should be noted that the projected deficit for this year was not $45 billion, but rather $32 billion. Talk about a forecasting error! If a person in the private sector were to make this kind of mistake, he would certainly be out of a job. Of course, you will say that the government was indeed defeated and turfed out of office. However, I sincerely hope that my Liberal friends will deliver on their promises.
I want to talk a little about this year's $45.7 billion deficit. After the elections, the Minister of Finance lost no time announcing to us that the deficit would be worse than anticipated. You may recall that during the election campaign, our leader, Mr. Bouchard, spoke of a $40 billion deficit for this year during a very lively debate on the CBC. His comments created quite a stir during the campaign.
Once in office, the Minister of Finance announced that the deficit was larger still, around the $46 billion mark, somewhere between $44 billion and $46 billion. One has to understand that of these $46 billion, close to $4 billion are non-recurring expenditures, that is expenditures which the government will not have to incur next year. Therefore, we are really talking about a deficit of $41.7 billion or $42 billion.
In addition, I have not taken into account the fact that the government will be making more prepayments this year, which will allow it to post more expenditures to this year's budget. Since they are blaming the deficit on the Conservative government, they might as well make it as large as possible, while they are at it. Then they can say next year: "See, we reduced the deficit from $45 or $46 billion to $39 billion". Reality and the facts prove that this is not quite the case. This budget takes the deficit, which is hovering at about $42 billion tops, and reduces it to a projected $40 billion. And what are the real facts? Well, it is highly likely that the real deficit will not be much lower than last year. Given that the economy is expected to grow this year, this is cause for some concern.
When I look 10, 15 or 20 years down the road, I try to imagine what the country's financial state will be and the outlook looks very gloomy. How much interest will we be paying on the debt? Will 50 cents of every tax dollar be going to pay the interest on the debt?
It should come as no surprise to you that young people are very cynical about the political process and about the future. How can they be confident? Their future is being mortgaged big time! They wonder how we are going to get out of this mess and puts things right. It should come as no surprise to you either that a growing number of Quebecers have expressed doubts about the federal system which has created this unresolvable debt crisis.
This year, in its budget, the government has shied away from making the hard choices, preferring to postpone matters for another year. It amazes me that budgets always seem to paint a rosier picture of the future.
With the Tories, forecasts were always for five years and invariably, the graphs showed the deficit miraculously dropping, by the fourth or fifth year, to very reasonable levels. I do not know how they managed to do that, but they did.
Now, the Liberals and their Minister of Finance are telling us that, for the sake of transparency, forecasts will be on a three-year basis. But again, things start to look up only in the second or the third year, never the first one.
This budget should be telling us what is going to happen during the first year. We will see. So much is unpredictable or very hard to predict. How can the Minister of Finance make reliable forecasts over three years when major consultations are ongoing in areas such as human resources and the GST for instance? If financial guidelines are not in place, how can he predict with any accuracy what is going to happen in terms of the economy? One can wonder.
Somehow I get the uneasy feeling that this alternative to or improvement on the GST could be used to generate additional revenues to even things up. As for consultations on human resources, financial criteria seem to have been clearly established already. What is the use of consulting then, if the goals of the reform have already been set? Take unemployment insurance for example. This budget provides criteria and guidelines in that area. Is all the work done by this committee, all its distinguished members and all the people who will be consulted be for nothing? I am afraid that they might work hard for nothing, that decisions have been made already.
About this year's deficit, I would like to add this: it is a record. Never in the history of this country has a higher deficit been forecasted, never. The past cannot vouch for the future and I certainly hope that it will be the case here because it would be catastrophic.
In the past, the Department of Finance has had some difficulty forecasting economic performance, and that is putting it mildly. Now, the Minister of Finance is telling us: "We are going to use much more realistic forecasts for a change". Let me say a few words on these forecasts.
In his financial forecast, he has announced more realistic growth rates and interest rates. One area where his forecast is questionable however is inflation. In that regard, he has failed to listen to all the economists who have provided him with forecasts. They were all around 2 per cent, but the Minister of Finance chose to use a rate of 0.8 because that was just what he needed. A 2 per cent rate is much more realistic, especially if slight economic growth is expected. Whether we like it or not, growth always causes some inflationary pressure, and 2 per cent inflation is not too terrible. But no, he chose to use 0.8 per cent. That particular figure is questionable.
But there is one which is even more questionable. You know, when you make forecasts, you use a long mathematical equation, one perhaps as complex as for equalization. You put numbers in, then say: "Let us change the figures to get more realistic results". But there is a major mistake, a major flaw in this equation. The government expects a 1 per cent growth in the economy or economic activity to generate a 1.2 per cent increase in public revenue during the first year. I find that hard to believe.
In the seventies, at a time when revenue did grow slightly, a 1 per cent growth in the economy could make public revenue increase by as much as 1.5 per cent. Things changed drastically in the eighties. Now, when the economy grows by 1 per cent, public revenue increases by a mere 0.5 per cent. Last year, it actually decreased. Why would there be an increase this year, as the minister is announcing? I am having a very hard time figuring how and why the Minister of Finance, who is so concerned with transparency, can keep such a parameter in his mathematical model.
He may have changed some figures, the figures for growth rates and interest rates and used more realistic figures in the model, but he did not change the basic figure.
That is why I can tell you right away that, if the Minister of Finance does not review this question, he will never achieve his objective of bringing the deficit down to 3 per cent of GDP within three years, because he overestimates revenue growth. We can see it in his approach, in the fact that there will be no major deficit reduction this year; he is banking on economic growth to do his job for him but it will not happen.
A very simple explanation is to look at the size of the underground economy. We do not need to go very far. We only have to walk around in our ridings and look around us to realize the extent of people's involvement in the underground economy and how much this economy represents. According to the most conservative estimates, it is at least 8 to 10 per cent. But it is probably a lot closer to 15 to 20 per cent. If we put it at between 8 and 20 per cent, Mr. Speaker, it is already enormous. The government loses billions of dollars to the underground economy every year.
The minister includes these billions of dollars in his revenue growth forecasts as though this phenomenon did not exist. The underground economy is very difficult to estimate and very complex. One must work with aggregates such as the money supply and that is very difficult.
It seems that the Department of Finance has done a study on the underground economy but it refuses to publish it. Why? Because it might have to include it in its forecasts, which would make this exercise much more difficult.
I heard the Minister of Finance say that if things did not go the way he wanted, he would make every effort next year to bring the deficit down to the level he wants. I told the people around me to get ready for a budget statement sometime this year, because the minister will have to take this phenomenon into account and he will then have to redo his calculations and make new choices.
The minister does not talk about it much but he did something that was rather wise. He kept much bigger reserves than his predecessors, about $2.5 billion, and that was wise. Last year, his predecessor kept reserves of only $300 million and he would have needed much more. The Minister of Finance is to be congratulated on that score, but even this reserve will not be enough to offset losses due to the underground economy, that he continues to include in his revenue growth forecasts.
When they say they will cut spending, they go all out, Mr. Speaker. They were saying two for one at the beginning. The Minister of Finance told us before the holidays that, for every additional tax dollar collected, he would cut $2. He was told that it was not enough, that it would not make a big enough impact in the budget. Now he says that, for every additional tax dollar, they will cut $5. How come next year's expenditures will be slighter higher at around $122 billion, when at least hundreds of millions of dollars in extra taxes will be collected?
I cannot figure out how they arrived at that figure. We should have been closer to $118 billion or $119 billion in expenditures. They did not make real cuts; they simply lowered the forecasts made by their predecessors. That is a rather complex but fascinating exercise. If we compare budgetary votes, which are the most significant measurement, with operating expenditures in nominal terms-even including inflation, which is hard to take out-, we can see that there are no major cuts.
I was reading an article by Claude Picher of La Presse , who wrote on budget day, ``Tonight, when Mr. Martin will tell you that it is impossible to put government finances on a healthier footing without increasing taxes, you can quote some government expenditures,'' and he gave the following examples: National Capital Commission, $90 million; Canadian Intergovernmental Conference Secretariat, $7 million; Human Rights Commission, $18 million; Offices of the Information and Privacy Commissioners of Canada, $6 million; International Development Research Centre, $117 million, and so on. There is a whole bunch of them.
This government never agreed with our proposal to systematically review all government spending, let alone the whole tax system.
I feel like saying this to the Minister of Finance: It is funny, in the budget he said that he would refer the issue of family trusts to the Standing Committee on Finance, which is already overloaded, for consideration, at the suggestion of my colleague, the Official Opposition's finance critic. How come that is the only one of my colleague's suggestions that he took, and that he is trying to embarrass him by saying that it is his own suggestion?
My colleague suggested much more; he suggested setting up a committee to examine all public spending, item by item, and to deal quickly with the matter of family trusts. He said so many times. But no, instead they choose one small element, family trusts, to refer to a committee for study. That is not what we wanted; we wanted to look into the whole tax system, the government's tax expenditures and its uncollected tax revenue.
The minister had fun telling us that there was already a minimum corporate tax. I am eager to talk to him about it again so that he can explain to me how it works. I am not sure that his officials agree with him that it really exists, far from it. And then he listened to a suggestion from a fellow member. My colleague made several suggestions to him, and all have fallen into oblivion. He is trying to distort what he said by telling us that it is what the opposition wanted. We wanted much more than that, we wanted a lower deficit.
We wanted and expected-and that is my next point-the government to do much more for the economic recovery-much more. We expected more from a Liberal government which talked constantly about jobs, jobs, jobs during the election campaign. The Prime Minister repeated that everywhere he went.
Let us look at the predicted unemployment rate. Even with the infrastructure program next year, it will go down only 0.1 per cent. How come? This infrastructure program will generate many temporary jobs, Mr. Speaker. We must not think that the municipalities will be able to continue doing the work at the same rate forever after. And there is a maintenance cost associated with it. But it will not be enough. Those people will not stay on the labour market. We must take additional action so that after a year or two or three, we have a sounder economic support structure.
It is true that the government alone cannot create employment, but it must still at least create a more favorable climate and send a signal. Cutting its spending further would have been a clear signal and made people say, "The government is doing its part, so we can give it a little more credibility. We will do more too". But that is not the case, it is the status quo.
They talked to us a lot about small and medium-sized businesses and the Bank Act during the election campaign, and where is it in the Budget? A series of words: the government will consider, a parliamentary committee will review, the banks are considering, means will be developed, etc., etc. We will study, analyze, recommend, we will see, we will analyze and probably nothing will be done. Nothing will be done.
How is it that for unemployment insurance, they were able to put a reform on the table quickly and in other fields, they will have to analyze and consider? Clearly, the main point in the finance minister's budget is to get money from people on UI. It is very clear; that is the main point in his budget. He was not able to examine other spending more thoroughly, for lack of time and imagination. That is why many people have trouble distinguishing this government from its predecessor when it comes to their budgets. Except for the colour of the documents and of the book behind it, not much is different. It is very disappointing.
I will come back to another cut that could almost be called savage which they made. I will quote a sentence from the red book: "We will reduce public spending by abolishing unnecessary programs, tightening procedures and eliminating duplication, all in co-operation with the provincial governments". "Co-operation with the provincial governments": that is something we can read in many places in the speech from the throne and the budget and the red book and many other statements.
Where is the elimination of administrative overlap in this budget? We could even include inter-departmental overlap within the same level of government.
When I say overlapping, I am referring to two different types: interdepartmental and intergovernmental. Nothing was done about this. Studies presented to the Bélanger-Campeau Commission in Quebec estimated that these overlappings cost $2 to $3 billion annually. Over a ten-year period, they amount to somewhere between $20 and $30 billion. Yet nothing was done. The government cuts $400 million in the operating expenditures of the federal administration. This is a very minor cut. It is like doing surgery for terminal cancer. This is very disappointing.
Yet, this is what the red book said. Indeed, there is no mention of a timetable. But I doubt very much that the government will succeed. It should send a signal. Let us not forget that this government will probably soon have to deal with a referendum in Quebec. It will have to show that they can reduce this overlapping. They have not even started doing so. How very disappointing!
As regards jobs, aside from the infrastructure program, the other major initiative announced to promote job creation is simply unbelievable and beyond logic. Indeed, the government says that the $3.07 rate for UI premiums is bad for the economy and will therefore lower that rate to $3.00 at the beginning of 1995. But let us not forget one thing: who set the rate at $3.07 in the first place? The same government, last December, when it decided to take out $800 million to finance its infrastructure program. Now it is telling us that this rate is bad. The government is telling us that it will lower that rate and create 40,000 jobs in the process. But using the same logic, it means that 40,000 jobs were lost this year because of the government's initial decision. The infrastructure program may create 60,000 to 65,000 jobs, but there will only be a net gain of 20,000 to 25,000 jobs, and not 100,000 as seems to be implied in various government documents.
There is inflation. You do not hear much about it regarding the economy, but there is a lot of verbal inflation when it comes to quoting figures and numbers. So, this is the other major government initiative: next year it will correct this year's mistake. But the government will not admit its mistake. Rather, it says that the rate was bad for the economy, without ever taking the blame or even apologizing to Quebecers and Canadians by saying: Look, we made a major error in judgment when we decided to set that rate.
In terms of helping small and medium-size businesses and promoting research and development, Quebec is not getting its fair share, while in Canada as a whole, we do much less than our major competitors to promote R and D. I thought the government would send a clear message that, from now on, this would be one of its priorities; that it would start investing a lot this year in these programs and that it would do even more in the future. But this sector is not even defined as a priority. If it is not considered as such in theory, how can it possibly be perceived as a priority in reality? I heard someone say in this House that people should phone their bank managers and ask them to be
more co-operative with small and medium-size businesses. I am not sure that this approach will bring about very good results.
The government had said that it would amend the Bank Act to help those who have funds invested in small and medium-size businesses. But it did not do it. Instead, the joint committee on industry and finance will examine the issue. I do not feel lost here because I was studying before coming here and I feel I am still at school because we are always told that this or that issue will be looked at. In school, I sometimes felt that the work was useful, but I am not always convinced it is the case here. I feel that decisions are made before studies or reviews are undertaken.
I want to point out another important issue. In their red book, the Liberals talked about tax fairness. In their budget, they say that all classes will be affected: the rich, the poor as well as the middle class. Everyone will have to make sacrifices. But it would be an understatement to say that I am outraged by the measure affecting senior people. I find it very hard to accept that a senior is considered a rich person if his or her annual income is $26,000 or more.
Between $26,000 and $49,000, they gradually lose their age credit. These people are being told to contribute $490 million over the next three years, while during that time, according to a conservative estimate, we could get at least $350 million annually by taxing family trusts. That is one billion over three years, and twice the amount we will get from senior citizens.
As you know, and as you will see in the weeks to come, they are very sensitive about this. Senior citizens who depend on their pension cheque for their income have so little that they want to keep the age credit. They spent all their lives working hard, and now they are under the gun. Did this generation of senior citizens put us in the financial situation we are in now? I doubt it. Pitting one generation against the other is certainly not my intention, but the odds are it was probably the generation between theirs and mine that put us in the financial mess we are in today.
However, the generation that holds the reins of power, the so-called baby boomers, has decided to cut spending on senior citizens. I can only hope they will be just as eager to take these cuts when it is their turn. Quite frankly, I do not like this.
This reminds me of another measure in the budget, which is about abolishing the capital gains exemption on the first $100,000. Many Canadians have taken advantage of this exemption. At one time it was $500,000. Today, people in my generation are being given a signal that they will not have this tax incentive to become part of the upper middle-class or the wealthy class.
We are prepared to do our fair share to pay off the debt, in addition to whatever we will be asked to do in the future. However, it is just not true that today's wealthy Canadians are being affected by this measure. Many Canadians have already used the exemption, and in fact, capital gains that have accrued since 1985-86, for instance, will not be taxed. So this measure applies starting today or rather the day before yesterday. It will not produce a lot of revenue, and certainly not as much as the Minister of Finance indicated in his forecast, and we are going to monitor that very closely.
People already expected this to be retroactive and were doing their transactions before the budget, because of all the advanced publicity. These types of mesures do not always identify the groups that are affected. About the fiscal fairness that will be needed to fight the underground economy, I think there is a false perception among members opposite that we can deal with the underground economy by modifying the GST. They keep harping on the GST, but the GST was merely the last straw and not what created the underground economy in the first place. There is a whole set of measures that make people feel they are not getting their money's worth, and that is what drives people into the underground economy. They have the impression they are getting a fair deal this way.
The government keeps saying it will change the GST, and this may make matters even worse, depending on how they do it. We will watch this very closely, but they will have to take a much broader approach to this problem, an approach on tax reform that will cover the range of measures that provide the government with tax revenue.
There is nothing in this budget to restore fiscal fairness. The government will not meet the objective of the Minister of Finance to bring the deficit down to 3 per cent of GDP, because it is not sending a clear signal that the issue is fiscal fairness. I find that very disappointing.
In concluding, I want to evaluate the three objectives mentioned in the budget of the Minister of Finance. First: to build a framework for economic renewal to help business succeed and to turn innovation into a more effective engine of Canadian economic growth. That sounds wonderful, but I could find no indication of this in the budget. In the budget the government says it will evaluate, analyse, recommend, study, and so forth. That is it, Mr. Speaker. I am still looking. We may find it in future budgets. So that was the first objective in this year's budget.
The second objective. To put in place a responsible social security system that is fair, affordable and dapted to the needs of Canadians. I thought this was more or less the mandate of the Human Resources Committee, but we can see that the budget
defines the financial parameters. It says we must meet these objectives while working within current financial constraints. Here again we can wonder to what extent the objectives will be reached, given the cuts in unemployment insurance.
The third point, and this is a major one, is: improve public finances to allow the government to concentrate all its energies on helping Canadians adapt to a demanding and changing world. If improving public finances means ending the next fiscal year with a deficit of more than $40 billion, this is a failure. This point by itself deserves a zero mark.
To conclude, the government is boasting that it is bringing to life the commitments of the red book. it says that this budget is the red book. Now, people say that there is nothing in this budget, and that makes us realize that the content of the red book was in effect zilch, nothing and no hope.
I thank you for your patience, Mr. Speaker, and I will conclude by saying that I am deeply disappointed by this budget.
