moved:
That this House declare that the budget plan of this government is not a solution to Canada's debt and deficit problem and therefore requests the government to:
(a) place a moratorium on all new spending programs announced in the budget such as Youth Services Corps, Court Challenges Program, Residential Rehabilitation Assistance Plan, Engineers Program, and Infrastructure Program;
(b) establish effective spending caps in co-operation with all parties of thisHouse;
(c) produce quarterly reports on the progress being made on deficit reduction; and
(d) commit to immediate corrective action using a spending contingency plan developed in consultation with all parties in the House.
Madam Speaker, I rise today only three short weeks since the budget was presented to the House of Commons. Those three weeks have been very significant. Today we want to evaluate that budget in light of some of the recent economic changes and events that have occurred. It is on this basis that I move the motion before the House.
Reformers have objected to the lack of true cuts in the budget. We have said that it does not go far enough and we still hold to that criticism. To our ministers currently at the G-7 conference to attempt to create job opportunities, jobs in Canada, jobs in North America and throughout the world, the message today must be very clear to them that it is not the government that will create jobs but rather a matter of the economy being able to have the circumstances in which jobs can be created without the intervention of government.
The budget that was presented to us three weeks ago is already off track. Assumptions and calculations done in the budget are no longer relevant. Today in light of that I would like to examine the budget with three factors in mind. I believe it is time we look again and rethink our responsibilities in the House of Commons.
First, I want to examine the revenue predictions and ask a question. Is it prudent today to expect the type of revenue forecast that is in the budget?
Second, I want to examine interest rate assumptions. I ask is it prudent today to expect the type of interest rate forecasts in the budget?
Third, I want to examine the question of what is the true deficit. Have we been presented with the true picture in the House and as Canadians?
As Canadians we felt that we were misled. We thought the deficit was $38 billion; then it was projected to be $45 billion. Someone is misleading us. Therefore, it is very important that we ask is it prudent today to believe the deficit numbers that were presented to us by the Liberal government?
I would like to look at each one of these questions. I am certain the answer is no to each one, but I believe it is time that we look at each one with greater detail, realism and sincerity in this assembly.
First is the issue of the unrealistic revenue assumptions presented to us. Forecasting fantastic growth in government revenues is certainly not a recent phenomenon. The former Conservative government consistently predicted revenues far in excess of what it ever collected. Knowing this, the Liberals in the budget promised that their budget would be the end of those unrealistic assumptions. They pledged to come clean with Canadians.
What are the facts? Robert Fairholm of the forecasting firm DRI Canada said recently: "The government is saying that revenue growth will exceed the growth in the economy by roughly 22.5 per cent. This is optimistic". If we examine the growth of revenues coming out of the 1982 recession we find that tax revenues increased just over 8 per cent faster than the economy. The finance minister stood in the House and promised that he would come clean with Canadians. He now says that the revenues will grow 22.5 per cent faster than the economy. That is unrealistic. It is blatant wishful thinking. I wonder where the numbers come from.
There is no indication that we will grow out of this recession as fast as we escaped the recession of 1982. Because of massive public debt and deficits our growth out of the recession is absolutely hampered. To expect revenues to grow faster than they did coming out of the 1982 recession is foolhardy. The finance minister is playing games with Canadians.
We have not seen a change in the way government predicts revenue. The finance minister is following in the footsteps of his predecessors. I am sure if Mr. Wilson or Mr. Mazankowski were in the House they would be very proud of the way the budget is playing itself out. They would be very proud and very pleased to see that the pattern is the same.
It is right to ask: Is it prudent today to expect the types of revenue forecasts that were in the budget? The answer is clearly no, it is not.
Second, I would like to look at the interest rate assumptions. We must understand exactly what an increase in interest rates really means. For every 1 per cent that interests rates on our debt increase, that translates into $1.7 billion in increased interest rates on a yearly basis for the Canadian taxpayer. That is a significant amount, $1.7 billion per year with a 1 per cent interest rate.
We must recognize that just a 1 per cent increase would wipe out the net savings that the Liberals have claimed in the budget. Also we must recognize we are very dependent on these interest rates because our debt is so massive.
In the budget the Minister of Finance assumed that short term interest rates would be 4.5 per cent and that long term rates would be 6.4 per cent in 1994. What are the facts? Today the short term rates are just above 4 per cent and are rising and the long term rates are already one full point above the minister's predictions. These rates must be sustained. If sustained, it will cost anywhere between $2 billion to $3 billion in the budget so that the final outcome will mean a greater deficit for certain.
Where will the minister get this revenue? How will we come to a point at which we only have a $39.7 billion deficit as projected when we have not taken into consideration these interest rates? What are the markets saying about future interest rates? Are these increases just a temporary measure or an indication of future trends?
Sherry Cooper, chief economist of Burns Fry, said as early as last week that the government's projections look suspect. If the term structure of interest rates is the best indicator of long term rates, as is commonly understood, then the predictions that long term rates will fall are clearly hogwash. Our current term structure would indicate that rates are on a slow but steady climb up, not down, as predicted in the budget.
One of the other factors we have to consider, and it has not been talked about in the House of Commons, is the Quebec factor and the influence it will have not only on interest rates of the upcoming fiscal budget but certainly on a longer term basis on budgeting in the future.
I am not any more pleased with the prospect of further constitutional wrangling than the government or anyone else in Canada. However I have the courage to stand today in the House and say that whatever the outcome, the uncertainty created by the separatists who want to tear our great country apart, who want to break us down, will affect our markets and will affect interest rates. We must recognize that uncertainty is the enemy of the financial markets. Uncertainty is the enemy of the budget that we are examining today after three weeks.
Let us look at some facts about interest rates and the various effects of constitutional discussions or constitutional wrangling. How does that type of environment affect interest rates and the value of our Canadian dollar? I would like to make a couple of quotes.
First, Scotia McLeod had this to say following the debates: "During the key weeks of the Charlottetown constitutional discussions, the spread between 10 year Canada and U.S. government bonds rose sharply. The rate on 91 day T-bills jumped from 4.6 per cent to 7.9 per cent and the Canadian dollar dove from 85.4 to 80.0 U.S." This is a significant shift.
If this type of uncertainty and this circumstance were created and continued and applicable here today, a 3 per cent rise in rates would translate into $5.1 billion of increased interest costs because of constitutional wrangling. That would occur over a one year period in a fiscal budget.
We have every reason to believe that the upcoming Quebec question will be more severe and more drawn out than the recent Meech Lake and Charlottetown fiascos. There are two things I would like to bring to members' attention. First, the potential separation of Quebec will undoubtedly have a much more
devastating short term effect on Canada than the passage or failure of the Charlottetown accord. There is no question about that.
Second and most important, the debate will be more prolonged and certainly delayed in terms of a crisis circumstance.
Mr. Parizeau, the leader in Quebec, has said that if he is elected he would hold a referendum within six months or a year. That translates into a significant period of uncertainty and, more important, it will have a significant effect on the 1994-95 budget before us.
As Reformers, how do we feel about this matter? I want to put on record so that it is very clear that we do not want all that constitutional wrangling. We believe that Quebec should continue to be a part of Canada and that we fully expect Quebecers to see the benefits of staying in Canada. We will do everything we can to get that message across clearly and concisely. We reject any divisive message of either the Leader of the Opposition or Mr. Parizeau. We will do everything on our part to ensure that Quebec stays as part of this nation.
I ask the Minister of Finance today, considering the potential of the Quebec circumstance and considering other circumstances, what provisions he has made for this potentially explosive and expensive issue in the budget before us in the House.
When this issue creates a significant jump in rates and if that jump is sustained, we recognize and we all know that it will cost our federal treasury untold billions of dollars, not millions, which we cannot afford at this time. We should take this matter into consideration. That is the reason that this motion is before this assembly today. It is so we can rethink our position, re-entrench what we are doing and be ready for any type of critical circumstance that may befall us.
I want to make a final point with regard to interest rates and the interest rate spread between Canada and the U.S. The spread between Canadian and American rates indicates the confidence in one economy relative to the other. When investors lose confidence in Canada or in their Minister of Finance it is reflected in increased costs of borrowing relative to our major partner.
The real question is: Did the budget increase the confidence of markets in the economy of Canada? Despite the reserved acceptance by the markets these questions should be asked as well: How are investors voting with their money? What are investors doing at the present time? Are we watching that? Has the finance minister got his finger on where our Canadian investment money is going?
As I examine those questions the news is not good. Canadians have been investing abroad in increased numbers due to taxation and lack of confidence in the government's dealing with the debt and deficit question.
International investors are moving away from Canada to lower risk investments. This has been occurring with greater significance in recent years, especially the last quarter of 1993 and into the early part of 1994. We can blame the latter government for this, and we should, but we also must take responsibility currently with the budget before us in this assembly.
What are further facts about this budget in terms of confidence? What can we say it has done for confidence? How are the investors voting with their dollars?
I quote a couple of people, first, Robert Palombi, senior economist with MMS International who said this recently:
The cracks in investor confidence are beginning to show. Despite the increase in bond yields, buyers were not attracted. This does not suggest the financial markets have confidence in lower Canadian rates or tighter Canada-U.S. yield spreads. This is why Martin's deficit projections are questionable.
The Financial Post pointed out as early as February 24:
Canadian markets have been hit hard by the recent hike in U.S. interest rates, despite a lower inflation rate and weaker economy. This is a sign that foreigners are selling our bonds, continuing a trend that started in the fourth quarter of last year-A post-budget widening of 10 year Canada-U.S. yield spreads suggests U.S. investors are the ones pulling out of Canada, a big concern since the size of the U.S. holdings now rivals that of the Japanese.
Clearly the 1994-95 budget is no solution to the confidence required in the Canadian economy. Despite calm assurances from the financial community, investors are telling the story with their money. They are losing confidence in the ability of Canada to deal with its debt and deficit and the budget gives them no reason to regain that confidence. I ask this question: Is it prudent today to expect the types of interest rates forecast in the budget?
To this question I have to say the answer is no. The market since the budget has destroyed the interest rate assumptions. The Quebec question is never raised, never mind dealt with in the budget, and the budget has done absolutely nothing to build investor confidence which will create the necessary jobs.
I would like to talk about the fudging of numbers. What are the facts here? I pointed out very clearly in that section of my remarks that the government projections of $39.7 billion will not hold. It will most likely be more like the current budget. The deficit will be $43.7 billion. I point out that this is not acceptable and it should be dealt with.
On all three of my questions with regard to revenue projections, interest rate projections, and whether the deficit projections are accurate, I want to say no, no, no, on all three counts. They are unrealistic revenue assumptions, unrealistic interest
rate projections, and the Liberals have misled the people in terms of the numbers.
