Madam Speaker, I welcome this opportunity to speak on second reading of Bill C-73, the borrowing authority bill.
Before I speak directly to the provisions of the bill, I would like to put this legislation in its proper context. The amount of borrowing authority requested in the bill is directly connected to the financial requirements set out in the budget. The information required to deal with the financial aspects of the bill is set out in the budget.
It is very important that this bill be passed as quickly as possible. If borrowing authority is not in place early in the new fiscal year, there will be severe constraints placed on the government's financing program. All remaining borrowing authority granted by the Borrowing Authority Act, 1994-95, will be cancelled at the end of this fiscal year except for a $3 billion non-lapsing amount.
Once this amount is depleted, the government would be limited to using section 47 of the Financial Administration Act which restricts borrowing to short-term funds.
In such a situation, no bonds could be issued except to fund maturing issues, of which there are two in the first quarter of 1995-96. Any delay in the passage of this important bill beyond the end of the current fiscal year, therefore, could be costly to the government and to Canadian taxpayers, and would expose the government to the additional interest rate risk implied by increased short-term funding.
Given the government's large financing program, delaying bond financing will also be potentially disruptive of the capital markets which could result in higher debt servicing charges. Therefore, it is critical that borrowing authority be secured as soon as possible.
The budget has been a topic of much discussion both in this House and elsewhere this week. And well it should be. As has been pointed out by my colleague the Minister of Finance, the budget he presented last Monday is an "historic response" to an "historic challenge".
The challenge is brought very much to our attention as we debate this bill. This country's economic future is put at risk by the $500 billion debt we have accumulated-a $500 billion debt that leaves us all too vulnerable to the harsh impact of interest rates.
And yes, we recognize that this legislation seeks to borrow even more money, adding to that debt. But in asking hon. members to support this legislation, I draw their attention to the fundamental reform of government spending set out in the budget and the commitment of this government to meet its deficit targets.
The ultimate goal of this government is a balanced budget. There should be no doubt that we will achieve it.
But we are not going to achieve this goal through the magic of long range projections as was attempted in the past. Nor will we achieve our goals by projecting overly optimistic increases in economic growth and cheerful interest rate forecasts.
Our approach has paid off in success in not just meeting the targets for 1994-95 but in fact doing better. Last year in our first budget we projected a deficit of $39.7 billion. We now estimate that the deficit will come in at about $37.9 billion, some $1.8 billion under target.
The underlying deficit, that is without the one time charges incurred in restructuring government, is $4.4 billion below target. Revenues of $1.2 billion are above the conservative estimates in program spending, a full $3 billion under our projections.
These positive effects on the deficit were only partly offset by the $1 billion in higher than expected interest rates, so the $2.4 billion contingency fund did not have to be touched.
I would like to go directly to some of the aspects of this legislation because in my short time I want to make sure that my colleagues understand exactly what the nature of this borrowing bill is.
With the measures we are taking in the budget announced on Monday there is no question we will achieve the target of $32.7 billion in the upcoming fiscal year and $24.3 billion or 3 per cent of GDP in 1996-97.
We are backing up our very prudent economic assumptions with a substantial contingency reserve, which next year will be $2.5 billion and the following year will be $3 billion. Looking ahead, our contingency reserve will do more than just protect our target. If it is not needed it will not be spent. It will go toward reducing the deficit even further.
This underscores one of the basic strengths of our planning assumptions. If interest rates and growth do better than our forecast-and remember that we have taken a very conservative forecast-and if we simply compare it to the private sector average, in 1996-97 the deficit could drop below $19 billion. That is $5.5 billion less than what was projected in the budget.
By that time our financial requirements, the new money we borrow from markets, will fall to $13.7 billion, a drop of more than $11 billion from the amount asked for in Bill C-73. That is substantial progress of which every Canadian should be proud. It will be just 1.7 per cent of GDP, down from 3.5 per cent of GDP in 1994-95 and a full 5 per cent in 1992-93. Based on the national budgets for 1996-97, Canada is projected to do better than the United States, Germany, Japan and every other major industrial nation.
The details of Bill C-73 contain three basic elements: authority to cover financial requirements for 1995-96, exchange fund account profits, and a non-lapsing amount. In total we are requesting authority to borrow $28.9 billion for the 1995-96 fiscal year.
First, there is a provision for $24.9 billion of authority to cover anticipated borrowing requirements to meet the net financial requirements set out in the budget.
Second, there is a provision to cover $1 billion of exchange fund account earnings, which gives rise to additional Canadian dollar borrowing requirements. These earnings, although reported as budgetary revenues, are retained in the exchange fund account. They are not available to finance ongoing operations of the government.
Third, there is the usual $3 billion non-lapsing amount, the same amount requested in borrowing authority in the past seven years. The non-lapsing amount can either be used during the course of the year to manage contingencies such as unexpected foreign exchange requirements or it can be carried forward to the next fiscal year.
There are some minor technical provisions in the bill that more clearly link fiscal year borrowing authority with fiscal year borrowing requirements. One provision provides that in 1995-96 the borrowing authority may only be used after the new fiscal year begins. Another provision stipulates that for the purpose of calculating borrowing authority usage the effective date is April 1.
Until the bill is passed the government may continue to use the $3 billion non-lapsing amount provided for in last year's Borrowing Authority Act. Any portion of the non-lapsing amount that is used will be deducted from the basic amount of borrowing authority being sought today. This prevents the non-lapsing amount from effectively adding to the borrowing authority next year. Also the bill will cancel all borrowing authority remaining from fiscal 1994-95 once it is passed.
As background information I would like to review the government's debt operation for the current fiscal year up to the end of January. So far this fiscal year in the domestic debt program the government has issued about $21.4 billion in marketable bonds, $1.5 billion in Canada savings bonds, and $1.4 billion in real return bonds. There are also net redemptions of $7.8 billion of treasury bills. This provides a total of $16.5 billion in net new market debt.
I also report to the House on last fall's Canada savings bond campaign. The government introduced two innovations aimed at revitalizing the Canada savings bond program. First, a new three-year price feature was introduced, aimed at making CSBs more attractive to retail investors. Second, the government expanded the sales window making CSBs available over a longer period of time. They were priced competitively with other products in the market, cost effective relative to other
sources of financing and produced sales of $7.5 billion or a 40 per cent increase over 1993. After accounting for redemptions during the year, the net increase in outstanding Canada savings bonds was $1.5 billion, as I indicated earlier.
Regarding foreign currency debt, outstanding Canada bills increased by U.S. $2.2 billion to $6.3 billion at the end of January. These are short term U.S. dollar denominated bills issued from time to time in the U.S. market to fund Canada's foreign exchange reserve.
In July 1994 the government launched a $2 billion five-year Euro bond issue. The issue was used to increase reserves and diversify the sources of U.S. dollar funding of Canada's exchange reserve.
In summary, the bill is straightforward and contains no unusual provisions. All the information needed to deal with it is before the House in the budget, the main estimates and related documents.
I therefore urge the House to proceed with this legislation as quickly as possible so that new borrowing authority will be in place at the beginning of the new fiscal year and the government's regular borrowing program can proceed as the fiscal year begins.
Borrowing authority is a normal part of the operations of government. I urge all members of the House to support the bill.
